The Bangko Sentral ng Pilipinas (BSP) will impose caps on interest rates, fees and penalties from loan and finance companies for short-term, general-purpose and unsecured loans not exceeding 10,000 pesos to help low income borrowers.
The draft circular is being finalized. BSP plans to implement the caps on January 3, 2021.
BSP Governor Benjamin E. Diokno said a nominal interest rate cap of 6% per month or about 0.2% per day for low-value loans will be put in place for lending companies. and financing and their online lending platforms (OLP).
The interest rate caps will apply to general purpose unsecured loans that do not exceed 10,000 pesos and are repayable within a period not exceeding four months. These low-value, short-term consumer loans are the ones mainly taken out by low-income borrowers, Diokno said.
“Expressed as a percentage of the amount borrowed, it is the interest paid on the loan without taking into account other fees and charges,” he said at an online press briefing on Thursday, December 23.
Diokno said the BSP has also capped the “effective interest rate” at a maximum of 15% per month or around 0.5% per day. He stated that the effective interest rate “includes the nominal interest rate as well as applicable charges such as handling, service, notary, processing and audit charges, among others, but excludes charges and penalties for late payment or non-payment “.
He also said the central bank will put in place a 5% cap on penalties for late payment or non-payment of the expected amount overdue and a total cost cap of 100% of the total amount borrowed. This applies to all interest, other fees and charges and penalties, regardless of the period during which the loan is unpaid, ”Diokno said.
PASB director Dennis D. Lapid of the Department of Economic Research said the circular was currently being finalized and would be released shortly. The ceilings will be reviewed each year.
“The circular is in the process of being finalized and is expected to enter into force on January 3 (2022). The circular also specifies a periodic review every year, ”Lapid said.
Lapid said the BSP will coordinate closely with the Securities & Exchange Commission (SEC) which has jurisdiction over loan and finance companies. Existing laws allow the BSP Monetary Board to set limits on interest rates and charges on all lending or borrowing activities.
He said the SEC would submit a periodic review of loan and finance companies to assess compliance and the impact of the caps on their business and the market.
To decide whether to implement the caps, an industry survey was conducted among 42 participating loan and finance companies, with a total loan portfolio of 35 billion pesos.
The imposition of interest rate caps is in accordance with Republic Law (RA) No. 9474 or the Loan Company Regulation Act 2007 and Law No. 8556 or the Loan Company Regulation Act. 1998 finance companies, which authorized the Monetary Board to prescribe maximum interest rates that could be charged by loan and finance companies and PLOs in consultation with the SEC.
Before the COVID-19 pandemic, lending and finance company borrowing rates for payday loans and personal loans increased 60% per year in 2014 and 2015 to reach 360% from 2016 to 2019 , according to Diokno.
“In 2020, these interest rates have increased further. The highest nominal interest rate posted in 2020 was 504% per year (or 42% per month), ”he said.
From January 2020 to May of this year, the SEC received 4,363 complaints related to high interest rates and penalties from these lenders.
“These complaints prompted the SEC to seek help from the BSP in setting interest rate caps on finance and loan companies. The imposition of interest rate caps also takes into account the hardships caused by the COVID-19 pandemic, ”Diokno said.
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