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SEC wants to curb lending firms’ unfair debt collection practices

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By Arra B. Francia, Senior Reporter

THE Securities and Exchange Commission (SEC) wants to prevent financing companies (FC) and lending companies (LC) from using “unfair” debt collection practices, such as harassment and threats, on its borrowers.

In a draft circular posted on its website, the commission said that it has received several complaints against FCs and LCs that “allegedly harass borrowers and employ abusive, unethical, and unfair means to collect debt.”

This prompted the issuance of the proposed guidelines, which details how such firms can go about their debt collection and how they can engage third-party service providers (TPSPs) to collect the debt.

Section 1 of the proposed rules state that FCs, LCs, and the TPSPs they hire may resort to “all reasonable and legally permissible means to collect amounts due them under the loan agreement” in good faith, and without using “unscrupulous and untoward acts.”

The corporate regulator identified unfair collection practices as: the use or threat of use of violence or other criminal means to harm the physical person, reputation, or their property; the use of obscenities, insults, or profane language; and the disclosure or publication of names or other personal information of borrowers who supposedly refuse to pay debts.




FCs, LCs, and TPSPs are also prohibited to use false representation or deceptive means to collect or attempt to collect any debt.

They must further refrain from contacting borrowers at unreasonable hours, defined as before 8 a.m. or after 9 p.m., unless the borrower has lapsed in his payment for more than 60 days or unless they have been given express permission to do so.

The SEC also wants companies to keep borrower’s data strictly confidential, except when the borrower has consented to the disclosure of their information; when it has been ordered by a court or any government office or agency; when exchanging information with other financial institutions; or disclosure to collection agencies, counsels, or other agents of the FCs or LCs.

LCs and FCs may also disclose borrower’s information to TPSPs to help them in administering their business. They may also disclose information to third parties such as insurance companies, “solely for the purpose of insuring the FCs and LCs from borrower default or other credit loss.”

When using in-house collectors or TPSPs, LCs and FCs must also make sure that his/her full name is made known to the borrower. The SEC wants the president or chief executive officer of LCs and FCs to submit a sworn certification that they will comply with such provision within 30 days from when the guidelines take effect.

LCs will face a penalty of P25,000 and P50,000 for their first and second offense, respectively. Fines for FCs will be heftier at P50,000 and P100,000 for the first and second offense, respectively.

The third offense will constitute grounds for the suspension or revocation of the firm’s Certificate of Authority to operate as a financing or lending company.

The commission is accepting comments and suggestions for the draft circular until June 4.

The SEC exercises regulatory and supervisory authority over FCs and LCs, through Republic Act 8556 or Financing Company Act of 1998 and R.A. 9474 or the Lending Company Regulation Act of 2007.