How to Verify a Lending Company’s Legitimacy With the SEC in the Philippines

Introduction

In the Philippines, the lending industry plays a crucial role in providing financial access to individuals and businesses. However, with the rise of fraudulent schemes and unlicensed operators, verifying the legitimacy of a lending company is essential to protect consumers from scams, usurious interest rates, and illegal practices. The Securities and Exchange Commission (SEC) is the primary government agency responsible for regulating lending companies, ensuring they comply with corporate laws and specific regulations governing lending activities. Under Republic Act No. 9474, also known as the Lending Company Regulation Act of 2007, all lending companies must register with the SEC and obtain a Certificate of Authority (CA) to legally operate.

This article provides a comprehensive guide on how to verify a lending company’s legitimacy through the SEC. It covers the legal framework, step-by-step verification processes, required documents, potential red flags, and remedies for dealing with illegitimate entities. By following these procedures, borrowers can make informed decisions and avoid falling victim to predatory lending.

Legal Framework Governing Lending Companies

The regulation of lending companies in the Philippines is primarily governed by the following laws and issuances:

Republic Act No. 9474 (Lending Company Regulation Act of 2007): This law defines a lending company as a corporation engaged in granting loans from its own capital funds or from funds sourced from not more than 19 persons. It mandates registration with the SEC and the issuance of a CA before operations can commence.
Republic Act No. 11232 (Revised Corporation Code of the Philippines): All lending companies must first be incorporated as stock corporations under this code, with a minimum paid-up capital of PHP 1,000,000 for standard lending companies, or higher for those with foreign ownership.
SEC Memorandum Circular No. 19, Series of 2019: This outlines the rules on the registration of lending and financing companies, including anti-money laundering compliance and disclosure requirements.
SEC Memorandum Circular No. 18, Series of 2019: Provides guidelines on the use of corporate and partnership names, ensuring no misleading terms like "bank" or "finance" are used without proper authorization.

Additionally, lending companies must adhere to the Truth in Lending Act (Republic Act No. 3765), which requires full disclosure of loan terms, and the Data Privacy Act (Republic Act No. 10173) for handling borrower information.

Failure to comply with these laws can result in penalties, including fines up to PHP 1,000,000, revocation of registration, or criminal charges under the Revised Penal Code for estafa or illegal recruitment if fraud is involved.

Why Verify with the SEC?

Verifying a lending company’s legitimacy safeguards against risks such as:

High-Interest Loans: Unregistered lenders often charge exorbitant rates exceeding the legal cap of 2% per month on diminishing balance (as per Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013, though SEC oversees non-bank lenders).
Harassment and Illegal Collection Practices: Legitimate companies follow the rules under SEC Circular No. 10, Series of 2020, prohibiting unfair debt collection.
Scams: Fake lenders may collect upfront fees and disappear, leading to financial loss.
Identity Theft: Unverified entities might misuse personal data.

The SEC maintains public records of registered entities, making verification accessible and a key due diligence step before entering any loan agreement.

Step-by-Step Guide to Verifying a Lending Company’s Legitimacy

To verify a lending company, you need to confirm two main aspects: (1) its corporate registration and (2) its specific authority to operate as a lender. The SEC provides multiple channels for this, including online portals, physical offices, and certified document requests.

Step 1: Gather Basic Information About the Company

Before verification, collect the following details from the lender:

Full corporate name (e.g., "ABC Lending Corporation").
SEC registration number (if provided).
Principal office address.
Contact details, including website or email.
Names of key officers or directors.

If the company hesitates to provide this information, consider it a red flag.

Step 2: Check Corporate Registration

All lending companies must be registered as corporations with the SEC.

Online Verification via SEC i-View System:
- Visit the SEC website at www.sec.gov.ph.
- Navigate to the "Online Services" section and select "SEC i-View" (a free online platform for viewing company records).
- Search by company name or registration number.
- The search will reveal if the company is registered, its date of incorporation, authorized capital stock, and status (active, suspended, or revoked).
- Look for the Articles of Incorporation and By-Laws to confirm it is authorized to engage in lending activities.
SEC Express System:
- For more detailed records, use the SEC Express online request system to obtain certified copies of documents like the Certificate of Incorporation.
- Fees apply: PHP 100 for basic certification, plus additional for expedited processing.
Physical Visit:
- Go to the SEC Head Office in Mandaluyong City or satellite offices in major cities (e.g., Cebu, Davao).
- Request a company profile search at the Public Reference Unit.
- Bring identification and pay nominal fees (PHP 50–200 per document).

If the company is not registered as a corporation, it cannot legally operate as a lender.

Step 3: Verify the Certificate of Authority (CA)

Registration as a corporation is not enough; a specific CA is required for lending operations.

Online Check via SEC Website:
- On www.sec.gov.ph, go to the "Enforcement and Investor Protection" section or use the "List of Registered Lending Companies" database.
- This publicly available list is updated periodically and includes all companies with valid CAs.
- Search by name to confirm if the company holds a CA, including its issuance date and any conditions or restrictions.
Request for Certification:
- Submit a formal request via SEC Express or in person for a Certification of Good Standing or CA validity.
- This document confirms the company’s compliance with ongoing requirements, such as annual report filings (General Information Sheet or GIS) and financial statements.
Check for Foreign Ownership:
- If the company has foreign investors, verify compliance with the Foreign Investments Act (Republic Act No. 7042), which limits foreign ownership in lending companies to 40% unless otherwise allowed.

A valid CA ensures the company has met minimum capital requirements, submitted audited financial statements, and complied with anti-money laundering rules under the Anti-Money Laundering Act (Republic Act No. 9160, as amended).

Step 4: Review Compliance History and Filings

Examine the company’s Annual Financial Statements (AFS) and GIS through SEC i-View to assess financial health and ownership changes.
Check for any SEC advisories or warnings on the website under "Investor Alerts" for blacklisted or suspended entities.
Verify if the company is listed in the SEC’s Masterlist of Investment Scams or has pending complaints.

Step 5: Cross-Verify with Other Agencies

While the SEC is primary, consider:

Bangko Sentral ng Pilipinas (BSP): If the lender claims to be a bank or quasi-bank, check BSP’s list of supervised institutions at www.bsp.gov.ph. Lending companies are non-banks, so BSP oversight applies only if they engage in banking activities.
Department of Trade and Industry (DTI): For sole proprietorships or partnerships, but lending must be corporate under RA 9474.
Local Government Units (LGUs): Ensure the company has a business permit from the city or municipality where it operates.

Red Flags Indicating Illegitimacy

Be cautious if the lending company exhibits any of these signs:

Promises of "guaranteed approval" without credit checks.
Demands for upfront fees, processing charges, or deposits before loan release.
Use of personal email addresses (e.g., Gmail) instead of corporate domains.
Absence of a physical office or verifiable contact information.
Interest rates exceeding legal limits or hidden fees.
Pressure to sign contracts without full disclosure.
Claims of being "SEC-registered" without providing proof.
Operations solely online without a CA.

Remedies and Reporting Illegitimate Lenders

If you discover a company is illegitimate:

File a Complaint with the SEC: Submit via the Enforcement and Investor Protection Department (EIPD) online portal or in person. Provide evidence like loan agreements or communications.
Seek Legal Action: Under RA 9474, victims can file civil suits for damages or criminal complaints for violations.
Report to Other Authorities: Notify the National Bureau of Investigation (NBI) for fraud, or the Philippine National Police (PNP) Cybercrime Division if online.
Consumer Protection: Approach the Department of Trade and Industry’s Fair Trade Enforcement Bureau for unfair practices.

The SEC may impose administrative sanctions, including cease-and-desist orders, and refer cases to the Department of Justice for prosecution.

Conclusion

Verifying a lending company’s legitimacy with the SEC is a straightforward yet critical process that empowers borrowers to engage only with compliant entities. By leveraging the SEC’s online tools and public databases, individuals can ensure transparency and accountability in financial transactions. Always consult a lawyer or financial advisor for personalized advice, and remember that due diligence is the best defense against exploitation in the lending sector. Staying informed about updates to SEC regulations will further enhance consumer protection in the evolving Philippine financial landscape.