BSP sets cap on interest rates, fees on small-value, unsecured loans

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THE Monetary Board (MB) has approved the imposition of ceilings on interest rates, penalties, and other fees and charges on small-value, short-term, general purpose, and unsecured loans extended by Lending Companies (LCs), Financing Companies (FCs), and their Online Lending Platforms (OLPs).

The imposition of interest rate ceilings is in accordance with Republic Act (RA) 9474 or the Lending Company Regulation Act of 2007 and RA 8556 or the Financing Company Act of 1998, which empower the MB to prescribe maximum interest rates that could be charged by LCs, FCs, and their OLPs, in consultation with the Securities and Exchange Commission (SEC) and the industry.

The interest rate ceilings apply to unsecured, general purpose loans offered by LCs, FCs, and their OLPs, that do not exceed P10,000 and are payable within a period not exceeding four months. These small value, short-term consumer loans are the ones primarily taken out by low-income borrowers.

“In determining the interest rate caps, the Bangko Sentral ng Pilipinas (BSP) sought to maintain a balance between protecting consumers and allowing lending and financing companies to price in credit risks and remain viable,” explained MB Chairman and BSP Governor Benjamin Diokno.

In a forthcoming circular, the MB set a nominal interest rate ceiling of six percent per month (approximately 0.2 percent per day) for covered loans. Expressed as a percentage of the amount borrowed, this is the interest paid on the loan without considering other fees and charges.

In relation to this, the MB also set a limit on the “effective interest rate” to a maximum of 15 percent per month (approximately 0.5 percent per day). This includes the nominal interest rate as well as applicable charges like processing fees, service fees, notarial fees, handling fees and verification fees, among others, but excludes fees and penalties for late payment or non-payment.

Ceiling on penalties

Moreover, the MB set the ceiling on penalties for late payment or non-payment at five percent per month on the outstanding scheduled amount due; and a total cost cap of 100 percent of total amount borrowed (applying to all interest, other fees and charges, and penalties) regardless of the length of time that the loan is outstanding.

The setting of ceilings on covered loans by LCs, FCs, and their OLPs is a time-bound relief measure intended to help low-income borrowers. These caps will be subject to periodic review by the BSP, in consultation with the SEC and the industry.

The SEC, as primary regulator of LCs, FCs, and their OLPs, shall formulate and promulgate the issuance of the implementing rules and regulations within 60 days from the Circular’s effectivity date, as well as enforce compliance of LCs, FCs, and OLPs with the provisions of the same.

The BSP is committed to protecting financial consumers and promoting a conducive environment for lenders such as LCs, FCs, and their OLPs to viably serve the needs of low-income borrowers amid the pandemic. (PR)

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