The Philippine financial landscape has long been characterized by a large "unbanked" or "underbanked" population. While this gap is increasingly filled by microfinance institutions and cooperatives, it has also given rise to controversial lending practices—most notably the "ATM-Only" lending scheme, often referred to as Sangla-ATM.
This article explores the legal nuances of these schemes, the rights of borrowers, and the limitations placed upon cooperatives and lending companies regarding collection practices.
1. The "Sangla-ATM" Scheme: A Legal Grey Area
In an "ATM-only" or Sangla-ATM scheme, a borrower surrenders their ATM card and PIN to a lender as collateral for a loan. The lender then withdraws the borrower’s salary directly on payday to settle the installment, returning only the "change" to the borrower.
Is it illegal?
Strictly speaking, there is no specific law that declares the act of "pawning" an ATM card as a criminal offense. However, the Bangko Sentral ng Pilipinas (BSP) has repeatedly issued advisories strongly discouraging this practice.
- Bank Terms and Conditions: Most banks explicitly state in their terms of use that ATM cards are non-transferable. Handing over your card and PIN is a violation of the contract between the depositor and the bank.
- Security Risks: The BSP warns that this exposes borrowers to identity theft and unauthorized withdrawals. From a legal standpoint, if a lender clears out an account beyond what was agreed upon, the borrower has little recourse because they voluntarily handed over their credentials.
2. The Limits of Collection Practices
While lenders have the right to collect on valid debts, the Securities and Exchange Commission (SEC) and the National Privacy Commission (NPC) have set strict boundaries to prevent predatory behavior.
Prohibited Acts under SEC Memorandum Circular No. 18 (Series of 2019)
Lending and financing companies are prohibited from engaging in unfair collection practices, which include:
- Harassment and Coercion: Using threats of violence, profane language, or "shaming" the borrower.
- Violation of Privacy: Contacting people in the borrower's contact list without consent, or posting the borrower’s debt on social media.
- Misrepresentation: Falsely claiming to be a lawyer or a representative of a government agency to intimidate the borrower.
3. Cooperative Collection and "Automatic Payroll Deduction"
Cooperatives operate under a different legal framework, primarily governed by the Cooperative Code of the Philippines (RA 9520) and the Cooperative Development Authority (CDA).
The Right to Offset
Under RA 9520, cooperatives have a primary lien upon the capital, deposits, or interest of a member for any debt due to the cooperative. This means:
- Internal Offsetting: If a member has savings within the cooperative, the coop can legally use those funds to offset an unpaid loan.
- Payroll Deduction Agreements: Many cooperatives enter into agreements with employers for "Automatic Payroll Deduction." This is legal provided the employee (member) signed a written authorization.
The Difference from Sangla-ATM
Unlike "ATM-only" schemes, cooperative payroll deductions are structured and transparent. The cooperative does not hold the member's physical ATM card; instead, the employer remits the payment directly to the cooperative before the salary hits the member's bank account.
4. Relevant Laws and Protections
Several statutes protect borrowers from excessive interest rates and abusive collection:
| Law / Regulation | Key Protection |
|---|---|
| Truth in Lending Act (RA 3765) | Requires lenders to disclose the full cost of credit (interest, fees, etc.) in writing before the transaction. |
| Data Privacy Act (RA 10173) | Protects borrowers from having their personal data shared with third parties for the purpose of "debt shaming." |
| BSP Circular No. 1133 | Provides the ceiling for interest rates and other fees for small-value loans (effective for certain types of financing). |
5. Jurisprudence on Debt and Imprisonment
A common tactic used by informal lenders is the threat of "Estafa" or imprisonment for non-payment. It is a fundamental principle under the 1987 Philippine Constitution (Article III, Section 20) that:
"No person shall be imprisoned for debt or non-payment of a poll tax."
While a borrower cannot be jailed for the simple inability to pay a loan, they can be prosecuted if they issued a "bouncing check" as security for that loan, under Batas Pambansa Blg. 22 (BP 22).
Summary of Legal Standing
The "Sangla-ATM" scheme remains a high-risk, unregulated practice that borders on a violation of banking security protocols. While cooperatives have broader powers to collect via liens and payroll deductions, they are still bound by the Cooperative Code and human rights standards. Borrowers subjected to harassment or unauthorized ATM withdrawals have the right to file complaints with the SEC (for lending companies), the CDA (for cooperatives), or the National Privacy Commission (for data breaches).