Interest rate, fees on small loans capped

Lending and finance companies can no longer subject their customers to exorbitant interest rates for on-demand loans.

The Securities and Exchange Commission (SEC) has issued Circular Memorandum 3, Series of 2022, capping interest rates and other fees charged by lending and finance companies, and their online lending platforms, for loans to low value short term mainly targeting low income borrowers.

In a statement, the SEC said the circular provides the guidelines to implement Bangko Sentral ng Pilipinas (BSP) Circular 1133, 2021 Series on caps on interest rates and other fees charged by these companies.

The SEC circular went into effect on Thursday, March 3.

On December 22, 2021, BSP Governor Benjamin Diokno issued Circular BSP 1133 setting the maximum nominal interest rate at 6% per month, or approximately 0.2% per day, and the effective interest rate (EIR) at 15% per month, or about 0.5% per day.

These are general purpose unsecured loans that do not exceed P10,000 and have a loan term of up to four months.

The EIR includes the nominal interest rate and other fees, such as processing fees, service fees, notary fees and others, but excludes late fees and non-payment fees.

In the event of late payment or non-payment of amounts owed, loan and finance companies cannot charge more than 5% per month, the SEC said.

To prevent the cost of the loan from spiraling out of control, the SEC said: “A total cost cap of 100% of the total amount borrowed, applying to all interest, other fees and charges and penalties, regardless of the duration of the loan. been pending, will also be imposed.

The cap on interest rates and fees only applies to covered loans offered from March 3.

Fines up to 1 million pesos

Loan companies that violate rate limits face fines of 25,000 pesos for the first offense and 50,000 pesos for the second offense, while finance companies will be hit with higher penalties of 50,000 pesos for the first offense and 100,000 pesos for the second. violation, the SEC said.

For the third offence, the penalty is 100,000 to 1 million pesos for loan companies and 200,000 to 1 million pesos for finance companies; 60-day suspension from their financing and lending activities, or the revocation of their certificates of authorization to operate as a financing/lending company.

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