SEC issues rules on interest rate cap for lending, financing firms

THE SECURITIES and Exchange Commission (SEC) will begin imposing on Thursday, March 3, the interest rate cap prescribed by the central bank on lending and financing companies as well as their online lending platforms (OLPs).

Circular No. 1133, Series of 2021 of the Bangko Sentral ng Pilipinas (BSP) prescribes ceilings for interest rates and fees charged by lending companies and their OLPs. Under this, the maximum nominal interest rate was fixed at 6% monthly or 0.2% daily, while the effective interest rate (EIR) stood at 15% monthly or 0.5% daily for unsecured covered loans and general-purpose loans not over P10,000 and with a four-month tenor.

The SEC’s implementation guidelines for the BSP circular were released via Memorandum Circular No. 3, Series of 2022, which will take effect on March 3.

“The EIR is expressed as the rate that exactly discounts estimated future cash flows throughout the life of the loan to the net amount of loan proceeds,” the SEC said in a statement on Tuesday.

“It includes the nominal interest rate along with other applicable fees and charges, such as processing fees, service fees, notarial fees, handling fees, and verification fees, among others. It excludes fees and penalties for late payment and nonpayment,” it added.

Lending and financing firms will only be allowed to charge late payment or nonpayment penalties worth as much as 5% monthly on the outstanding balance due.

The circular also puts a 100% cost cap of the total amount borrowed, which covers all interest, other fees, and charges “regardless of time the loan has been outstanding.”

“The cap on interest rates and other fees will apply to covered loans which lending and financing companies will offer once the rules take effect on March 3,” the regulator said.

All financing and lending firms will be required to submit an impact evaluation report using a form prescribed by the SEC by Jan. 15 every year starting 2023.

The SEC will also require firms to submit a business plan, which should detail the company’s loan products and services and the applicable pricing parameters that should comply with the interest and fee ceilings prescribed by the BSP.

Business plans are to be submitted on or before May 5 this year to the SEC.

“The new business plan…will supersede the initial business plan or plan of operation in the Company Information Sheet submitted to the SEC prior to the issuance of a CA to the lending or financing company,” the regulator said.

Should there be amendments, lending and financing firms must submit an amended business plan with the underlined changes. An approval from the commission is needed before the amendments are made effective.

“The Commission may require LCs and FCs to submit additional forms or documents in support of the submitted Business Plan,” the SEC said in the memorandum.

The SEC’s memorandum also details administrative sanctions and monetary penalties for violations of the guidelines. — Keren Concepcion G. Valmonte