Corporate regulator cracks down on ‘unfair debt collection practices’ by financing, lending firms

FINANCING AND LENDING companies that resort to “unfair” collection practices, including use of violence, face hefty fines or revocation of permit to operate under new rules issued by the Securities and Exchange Commission (SEC).

The SEC issued Memorandum Circular No. 18, Series of 2019 as it has been receiving complaints against financing companies (FCs) and lending companies (LCs) that harass borrowers and use abusive, unethical and unfair means to collect debts.

“[T]he Commission is aware of the practices of FCs and LCs of purposefully engaging the services of third party service providers (TPSPs) in their efforts to avoid liability for client harassment, by invoking the latter as a separate juridical personality,” the corporate watchdog said.

The commission enumerated acts that are classified as “unscrupulous and untoward” against borrowers and constitute unfair collection practices that are subject to penalties.

The SEC enumerated eight such practices, including use or threat of use of violence or other criminal means to physically harm people, their reputation or property. Also included is the use of threats to take any action that cannot legally be taken.

The SEC also included the use of obscenities, insults, or profane language the natural consequence of which is to abuse the borrower and/or which amount to a criminal act or offense under applicable laws.

Except when allowed by provisions of the circular, the disclosure or publication of the names and other personal information of borrowers who allegedly refuse to pay debts, is also classified as an unfair practice.

Other unfair practices include communicating or threatening to communicate to any person loan information, which is known — or which should be known — to be false, including the failure to communicate that the debt is being disputed, except as may be allowed under provisions of the circular.

So is the use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a borrower; and making contact at unreasonable or inconvenient times or hours.

“Notwithstanding the borrower’s consent, contacting persons in the borrower’s contact list other than those who were named as guarantors or co-makers shall also constitute unfair debt collection practice,” the circular states.

For financing companies, the first and second offenses carry a fine of P50,000 and P100,000, respectively. The corresponding penalties for lending companies are P25,000 and P50,000.

For the third offense, the SEC may impose a fine of not less than twice the fine for the second offense but not more than P1 million, subject to the facts, circumstances and gravity of the case.

Third-time offenders also face suspension of their business activities for 60 days, or revocation of their certificate of authority to operate “as appropriate for each circumstance.”

Signed by SEC Chairman Emilio B. Aquino on Aug. 20, 2019, the circular was published on Friday and will take effect after 15 days. — V. V. Saulon