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Verification of Corporate Authority: Due Diligence on Lending Companies in the Philippines
In the Philippine jurisdiction, the operation of lending companies is strictly regulated under Republic Act No. 9474, otherwise known as the Lending Company Regulation Act of 2007. This law mandates that no person or entity may engage in the business of granting loans from its own capital funds without prior authority from the Securities and Exchange Commission (SEC). Engaging in lending activities without the requisite Certificate of Authority (CA) constitutes a criminal offense.
For borrowers, investors, and legal practitioners, verifying the legitimacy of a lending entity is a critical exercise of due diligence to avoid predatory lending practices, usury, and fraud.
The Legal Framework: Republic Act No. 9474
The Lending Company Regulation Act of 2007 establishes the primary requirement for all lending companies:
Corporate Existence: A lending company must be established as a corporation. Sole proprietorships and partnerships are generally prohibited from engaging in the lending business. Certificate of Authority (CA): Beyond the standard Certificate of Incorporation, a lending company must secure a secondary license known as the Certificate of Authority to Operate as a Lending Company.
Therefore, a company may be registered with the SEC as a corporation but may still be operating illegally if it lacks the specific CA to function as a lender.
Step-by-Step Verification Procedures
To ascertain the legal standing of a lending company, interested parties should follow these verification protocols utilizing the official channels of the Securities and Exchange Commission.
Verification via the SEC Website (SEC Check App)
The SEC has modernized its verification process through digital platforms. The primary method is checking the list of registered entities.
Access the SEC Website: Navigate to the official website of the Securities and Exchange Commission of the Philippines (www.sec.gov.ph). Locate the List of Lending Companies: The SEC regularly publishes and updates lists categorized as follows: List of Lending Companies with Certificate of Authority (CA): These are fully compliant entities authorized to operate. List of Revoked/Suspended Companies: Entities whose licenses have been cancelled due to violations. List of Lending Companies with Pending Applications: Entities that are not yet authorized to operate. Search Function: Use the search bar or "Check with SEC" feature to input the exact corporate name of the entity.
Verification via the SEC Mobile App
The SEC offers a mobile application designed for investor protection. Users can download the official SEC app and utilize the search feature to verify if a company holds a valid secondary license.
Verification of Online Lending Platforms (OLPs)
With the rise of fintech, many lenders operate exclusively through mobile applications. The SEC maintains a specific whitelist of recorded Online Lending Platforms.
Cross-Reference the App Name: Borrowers must verify if the mobile application's name matches the corporate name registered with the SEC. Check the OLP Reference Number: Legitimate apps usually display their SEC Registration Number and Certificate of Authority Number in the app description or the "About Us" section. These numbers should be cross-referenced with the SEC's official list of recorded OLPs.
Direct Inquiry with the SEC
If digital verification proves inconclusive, parties may contact the Corporate Governance and Finance Department (CGFD) of the SEC. This department directly oversees lending companies and financing companies. Inquiries can be made via email (cgfd@sec.gov.ph) or through their official trunk lines.
Red Flags and Indicators of Illegal Operations
Even without a formal database check, certain operational behaviors indicate a lack of regulatory compliance. Under SEC Memorandum Circular No. 18, Series of 2019 (Prohibition on Unfair Debt Collection Practices), the following are often associated with unregistered or non-compliant entities:
Lack of Transparency: Failure to disclose the exact corporate name, SEC Registration Number, and CA Number on advertisements and loan contracts. Use of Personal Bank Accounts: Requiring borrowers to deposit payments into personal GCash, PayMaya, or bank accounts rather than a corporate account. Harassment: Utilizing threats, public shaming on social media, or accessing phone contacts to humiliate borrowers (a violation of the Data Privacy Act of 2012 in conjunction with SEC regulations). Absence of Physical Address: Inability to provide a verifiable business address within the Philippines.
Legal Consequences of Dealing with Unregistered Lenders
For the Lender Operating without a CA is punishable by a fine ranging from PHP 10,000 to PHP 50,000 or imprisonment of six months to ten years, or both. Furthermore, the SEC has the power to issue Cease and Desist Orders (CDO) and pursue the dissolution of the corporation.
For the Borrower Contracts entered into with illegal lending companies may be challenged in court. While the principal amount borrowed generally remains a valid obligation due to the principle against unjust enrichment, the interest rates and penalty charges imposed by illegal lenders can be declared void by the courts for being unconscionable or contrary to law and public policy.
Conclusion
The verification of a lending company’s SEC registration is not merely a procedural step but a fundamental safeguard. The possession of a Certificate of Incorporation proves only that a company exists; the possession of a Certificate of Authority proves that the company is legally permitted to lend money. By rigorously verifying these credentials through the SEC's official lists and monitoring for red flags, the public protects itself from the severe financial and legal risks associated with the unauthorized lending market.