Legitimacy Check for Lending Corporations in the Philippines
A comprehensive legal guide (July 2025 edition)
1. Regulatory Landscape at a Glance
| Regulator | Governs | Key Issuances |
|---|---|---|
| Securities and Exchange Commission (SEC) | All lending companies (LCs) and financing companies (FCs); online‑only lenders; corporate governance and reportorial rules | R.A. 9474 (Lending Company Regulation Act of 2007) & IRR; R.A. 8556 (Financing Company Act of 1998); SEC Memorandum Circulars (MC) 18‑2019, 28‑2020, 3‑2022, 10‑2023, 19‑2022, etc. |
| Bangko Sentral ng Pilipinas (BSP) | Banks, quasi‑banks, pawnshops & money service businesses (MSBs); caps on small‑loan pricing; consumer‑protection supervision | BSP Circular 1133 (2023) (re‑issued small‑loan interest caps); BSP Circular 1048 (Financial Consumer Protection Framework) |
| Anti‑Money Laundering Council (AMLC) | AML/CTF compliance of LCs & FCs as “covered persons” | R.A. 9160 (AMLA), as amended; AMLC Registration and Reporting Guidelines 2021 |
| National Privacy Commission (NPC) | Data‑privacy & surveillance practices of lenders, esp. via mobile apps | R.A. 10173 (Data Privacy Act), NPC Circular 20‑01; NPC Cautionary Advisories vs. “contact scraping” |
| Local Government Units (LGUs) & Bureau of Internal Revenue (BIR) | Mayor’s/business permits & tax registration (BIR Form 2303) | R.A. 7160 (LGC); R.A. 10963 (TRAIN) |
Lending vs. Financing Company • LC – primarily grants personal or consumer loans. Minimum paid‑up: ₱1 million (outside NCR) or ₱2 million (Metro Manila*), plus ≥51 % Filipino ownership (R.A. 9474 § 6). • FC – broader credit activities (trade, project, mortgage, leasing). Minimum paid‑up: ₱10 million (R.A. 8556 § 6). SEC periodically adjusts Metro Manila capitalization through circulars; always check the latest.
2. Primary Legitimacy Requirements
SEC Certificate of Incorporation (COI)
- Confirms corporate existence.
- Primary purpose clause must expressly state lending or financing.
SEC Certificate of Authority (CA)
- Secondary license; an LC/FC cannot legally operate or advertise loans without it (R.A. 9474 § 4).
- Must be displayed at the principal place of business and on websites/apps.
SEC Registration of Online Lending Platform (OLP)
- Mandatory under SEC MC 18‑2019 & MC 19‑2022 (cloud‑vendor disclosure).
- One OLP = one CA; separate approval needed for each new app or domain.
Fit‑and‑Proper Screening of Directors & Officers
- Moral fitness, no fraud convictions, no revoked licenses (SEC MC 9‑2021).
Capitalization & Ownership Compliance
- Proof of paid‑up capital (bank certificate or audited AFS).
- Foreign equity ceiling: 49 % for LCs; FCs may be up to 100 % foreign‑owned under the Foreign Investments Act, but must avoid “practice of banking” activities.
AML, Tax & LGU Permits
- AMLC registration, appointment of Compliance Officer, customer‑due‑diligence program.
- BIR Certificate of Registration (Form 2303), books of accounts, official receipts.
- Mayor’s permit and barangay clearance for each branch or digital office.
Data‑Privacy Compliance
- NPC registration for data‑processing systems that process ≥1,000 data subjects annually.
- Privacy Notice, Data‐Sharing Agreements, Privacy Impact Assessment.
Reportorial Duties
- Annual: Audited FS, General Information Sheet (GIS), Beneficial Ownership Disclosures.
- Quarterly (for digital lenders): Transaction & complaint reports (SEC MC 42‑2020).
3. Interest‑Rate & Fee Caps (Small‑Loan Regime)
| Instrument | Coverage | Maximum Nominal Rate | Effective Interest Rate (EIR) Ceiling | Penalty / Late Payment Cap |
|---|---|---|---|---|
| Unsecured consumer or “payday” loans ≤ ₱10,000 & tenor ≤ 4 months | LCs & FCs (non‑bank) | 6 % per month | 15 % per month | 5 % per month of outstanding balance |
Source: SEC MC 3‑2022; BSP interest‑ceiling circulars for credit cards and pawnshops apply separately.
4. Consumer‑Protection & Collection Rules
Truth in Lending Act (R.A. 3765) & BSP Circular 730 – full disclosure of finance charges and EIR before consummation.
SEC MC 28‑2020 & 19‑2022 – unfair collection practices prohibited: threats, obscene language, contact of persons in phonebook without consent, disclosure of loan default on social media, etc.
BSP‐FCP Framework (2023) – LCs/FCs must have:
- Board‑approved Consumer Protection Manual
- Designated Consumer‑Assistance Unit
- Complaint turnaround: 10 business days (simple) / 20 business days (complex)
5. Step‑by‑Step Legitimacy Check
| Step | What to Verify | How |
|---|---|---|
| 1 | SEC Certificate of Incorporation | Check company name, registration no., date via SEC Express System or walk‑in kiosk. |
| 2 | SEC Certificate of Authority | Review CA No., issuance date, validity (3 yrs), and “Lending” or “Financing” classification. |
| 3 | SEC Advisory Lists | Look for Revoked, Suspended, or Cease‑and‑Desist Orders (CDO) against the entity or its OLP. |
| 4 | Online Lending Platform Registration | Confirm app/URL appears in SEC’s “List of Registered OLPs”. |
| 5 | Business Permit & BIR COR | Ask for copy; verify mayor’s permit number with the LGU Business Permit & Licensing Office. |
| 6 | AMLC Registration | Request Certificate of Registration (COR) with AMLC portal; check signatory. |
| 7 | Data‑Privacy Registration | Verify NPC Certificate of Registration & Privacy Notice URL. |
| 8 | Pricing Compliance | Compare stated interest, penalties & non‑interest fees against SEC ceilings. |
| 9 | Collection Practices | Inspect standard reminders, demand letters, in‑app notifications for prohibited language. |
| 10 | Corporate Governance | Ask for latest GIS to see directors/officers; check for any disqualified persons (e.g., those formerly linked to closed OLAs). |
6. Penalties for Operating Without Proper Authority
- R.A. 9474 § 12: ₱50,000 – ₱100,000 fine and/or 6 months – 10 years imprisonment for each officer plus automatic closure.
- SEC EIPD CDOs: Immediate cease‑and‑desist; freezing of bank accounts; takedown of websites/apps with the NTC & DICT.
- AMLC Sanctions: ₱10,000 – ₱500,000 per violation; possible criminal prosecution for money‑laundering.
- NPC Fines: Up to ₱5 million per act, stoppage of processing, de‑listing of apps from Google/Apple stores.
7. Typical Red Flags
- No CA number shown on the website/app or inside the office.
- Interest “service fee” exceeding statutory caps, or daily interest quotations.
- Use of personal Facebook/GCash accounts for disbursement/repayment.
- Threats of libel, arrest, or “blotter” in collection scripts.
- Requesting access to full contact list without granular consent.
- Foreign majority ownership in an LC (violates 51 % Filipino rule).
8. Remedies for Borrowers & Whistle‑blowers
| Forum | Complaint Scope | Procedure |
|---|---|---|
| SEC Enforcement and Investor Protection Department (EIPD) | Unlicensed lending, overpricing, unfair collection | File sworn complaint + evidence; EIPD may issue CDO within 48 hrs. |
| BSP Financial Consumer Protection Dept. | Pricing, mis‑selling by BSP‑licensed entities | Online form or walk‑in; 15‑day preliminary mediation. |
| NPC Complaints & Investigations Division | Data‑privacy violations (contact scraping, doxxing) | Submit notarized complaint; possible NPC‑led mediation. |
| Police/CIDG Cybercrime Unit | Threats, harassment, cyber‑libel | Blotter + preservation request for electronic evidence. |
| Small Claims Court (Rule SC 2020) | Money claim ≤ ₱1 million | No lawyer required; 30‑day resolution target. |
9. Special Topics & Emerging Trends
9.1 FinTech, P2P & Digital Banks
- Digital banks (BSP Circular 1105) may extend consumer loans but require BSP universal banking license and ₱1 billion capitalization.
- Peer‑to‑peer platforms must either (a) register as an FC/LC and obtain SEC P2P license, or (b) partner with a licensed bank.
- E‑money issuers (EMIs) cannot “lend” directly without a separate CA.
9.2 Microfinance NGOs
- Governed by R.A. 10693; exempt from some taxes; must secure SEC Certificate of Accreditation rather than a CA.
9.3 Green & Sustainable Lending
- SEC Sustainability Reporting Guidelines (2023) encourage LCs/FCs to disclose ESG metrics; no separate license yet, but green‑bond issuances require SEC approval under the ASEAN Green Bond Standards.
10. Best‑Practice Checklist for Investors & Counterparties
| ✅ Do | ❌ Avoid |
|---|---|
| Inspect both COI and CA originals (not photocopies only). | Relying solely on DTI “Business Name” registration (not a license). |
| Search the SEC latest advisory list by exact corporate name & trade names. | Assuming “App Store availability” guarantees legality. |
| Review loan contract template for EIR calculation & itemized fees. | Accepting flat “service fees” > 5 % of principal. |
| Require a Privacy‑Notice acknowledgement & review DP policies. | Allowing lender to auto‑download contacts/photos. |
| Look for membership in industry associations (e.g., FinTech Alliance PH). | Overlooking sudden changes in ownership structure. |
11. Conclusion
Legitimacy checking in the Philippine lending space is no longer a single‑document exercise; it is a multidisciplinary audit that spans corporate law (SEC), financial‑services regulation (BSP), anti‑money‑laundering, consumer‑protection, and data‑privacy domains. By methodically validating each license, registration, and ongoing compliance duty outlined above, regulators, investors, and borrowers alike can confidently distinguish licensed lenders from illicit “fly‑by‑night” operators—thereby reducing systemic risk and protecting Filipino consumers from predatory practices.