LEGITIMACY VERIFICATION FOR PRIVATE LENDING COMPANIES IN THE PHILIPPINES
A comprehensive legal-practice guide (2025 edition)
1. Regulatory Map: Who Watches Whom?
| Sector | Governing Law | Primary Regulator | Typical Certificates/Licences |
|---|---|---|---|
| “Private Lending Companies” (non-bank, non-co-op entities principally engaged in granting loans from their own capital) | Republic Act (RA) 9474 – Lending Company Regulation Act of 2007 | Securities and Exchange Commission (SEC) – Corporate Governance & Finance Department (CGFD) | (a) SEC Certificate of Incorporation and (b) Certificate of Authority (CA) to Operate as a Lending Company |
| Financing Companies (larger loan portfolio, may borrow or issue notes) | RA 5980 as amended by RA 8556 | SEC-Finance Companies Division | SEC CA to Operate as a Financing Company |
| Banks, Digital Banks, Thrift/Rural Banks, Quasi-banks, Pawnshops, Financing Arms of Car Dealers | RA 8791 (General Banking Law), RA 11965 (Financial Products & Services Consumer Protection Act, FPSCPA) | Bangko Sentral ng Pilipinas (BSP) | BSP Bank/Quasi-Bank/Pawnshop licence |
| Credit Cooperatives | RA 9520 (Philippine Cooperative Code) | Cooperative Development Authority (CDA) | CDA Certificate of Registration |
| Microfinance NGOs | RA 10693 | Microfinance NGO Regulatory Council (MNRC) under SEC | MNRC Accreditation |
Key point: DTI business-name registration or a mayor’s permit is never enough; the entity must hold the sector-specific licence.
2. Step-by-Step Due Diligence Checklist
Search the SEC “Lending & Financing Companies List” Check that the exact corporate name appears together with an active CA number.
- A valid CA bears a QR-code or hologram and lists “CGFD” as issuing department.
- Expiry: perpetual, but automatically revoked if the company fails to submit Annual FS & GIS for two consecutive years or is subject to an SEC Cease-and-Desist Order (CDO).
Look for SEC Advisories & CDOs
- SEC posts public warnings for entities engaged in unregistered online lending apps (OLPs), “loan-shark” or “5–6” schemes and for those harassing borrowers.
- An entity named in an advisory is automatically barred from offering new loans; one under a CDO is shut down entirely.
Examine the Corporate Information
- Verify company address, directors, capitalization (minimum paid-in capital: ₱1 million for lending companies; ₱10 million for financing companies in Metro Manila, lower in the regions).
- Cross-check articles of incorporation to ensure “lending” or “financing” is the primary purpose.
Inspect the Product Documentation
- Truth in Lending Act (RA 3765) requires a clear disclosure sheet: principal, finance charge (interest + fees), APR, amortization schedule.
- FPSCPA (RA 11765, 2022) obliges plain-language contracts and a separate “key facts statement”.
Assess Digital Footprint
- SEC Memorandum Circular (MC) 19-2019 & MC 10-2021 require each Online Lending Platform (OLP) to use only its SEC-registered business name inside the app store, splash screen, SMS, emails, FB page, etc.
- App must post the CA number and link to the SEC website.
Check Privacy & Data-Handling Compliance
- The Data Privacy Act of 2012 (RA 10173) and NPC Circular 16-01 mandate a publicly available Privacy Notice, NPC Registration number for processing operations, and written consent before accessing contacts, photos, or location.
- Debt-shaming or messaging contacts without consent can trigger NPC fines up to ₱5 million plus civil damages.
Validate AML/KYC Framework
- Lending/financing companies are “covered persons” under the Anti-Money Laundering Act (RA 9160) since 2018. They must keep a Customer Information File (CIF), perform KYC, and report Suspicious Transaction Reports (STRs) to AMLC.
- Absence of such disclosures is a red flag.
3. Common “Red Flags” of Illegal Lenders (“Fly-by-Night,” “5–6”)
| Red Flag | Why It Matters | Governing Rule Violated |
|---|---|---|
| No SEC CA number on receipts/website/app | Likely operating without authority | RA 9474 §12 (imprisonment up to 10 yrs & ₱1 million fine) |
| Interest stated as “20%” but collected weekly | Implies effective APR >240% | Truth in Lending Act; SEC MC 3-2022 on unfair interest |
| Requires ATM card as collateral | Prohibited security; coercive | RA 11765 + BSP Manual X319 |
| Harassing calls, threats, social-media “shaming” | Unfair collection | SEC MC 18-2019 (Fair Debt Collection Rules) |
| Uses multiple unregistered app names | SEC ban on multiple brands | SEC MC 10-2021 |
4. Available Recourse & Enforcement
| Grievance | File Complaint With | Procedure / Timeframe |
|---|---|---|
| Unlicensed lender, excessive interest, debt harassment | SEC CGFD (email complaints@sec.gov.ph) | Written complaint → docket number → mediation; SEC may issue CDO within 48 hrs for grave cases |
| Banks or pawnshops overcharging or mis-selling | BSP Consumer Assistance Mechanism | 15-day resolution window; Monetary Board can impose fines |
| Data-privacy violations | National Privacy Commission | NPC Notification & Complaint Center; possible Cease Processing Order |
| Cooperative lending malpractice | CDA--Legal Division | CDA can cancel certification |
| Criminal fraud, estafa, libel, harassment | DOJ / NBI / PNP | Sworn complaint-affidavit; preliminary investigation |
5. Special Topics (2023-2025 Updates)
Interest-Rate Caps for Low-Value Loans
- BSP Circular 1133-2021 imposes a 15% nominal rate per month (≈204% APR) ceiling on short-term, ≤₱10,000 consumer loans made by SEC-licensed lenders. Renewal fees & penalties are also capped.
Digital Banks & Embedded Lending
- The BSP Digital Bank Framework (Circular 1112-2021) allows purely digital players (e.g., Maya Bank, Tonik) whose secured/unsecured microloans remain under BSP prudential rules, not SEC.
FPSCPA Rules (2023 Implementing Regs.)
- All lenders must establish an Internal Dispute Resolution desk (15-day turnaround) before borrowers can elevate disputes to regulators.
Corporate Rehabilitation & Small Claims
- Borrowers sued for ≤₱400k can rely on A.M. No. 08-8-7-SC (as amended 2022) small-claims rules—no lawyer, speedy resolution.
- Lenders in distress can file for pre-negotiated rehabilitation under FRIA 2010.
6. Practical Borrower-Side Verification Template (Illustrative)
✔ Corporate Name: __________________________
✔ SEC Reg. No.: __________________________
✔ Certificate of Authority No./Date: ________
✔ Listed in SEC “Active Lending Companies” roster? Yes / No
✔ Physical Office Visited? Yes / No
✔ Privacy Notice (NPC reg. #) sighted? Yes / No
✔ Loan Disclosure Sheet compliant? Yes / No
✔ Unfair Collection Waiver clauses present? Yes / No
✔ Complaints history (SEC advisories, online reviews) _________________________Keep this completed form, the contract, and proof of payments for at least five (5) years—the prescriptive period for consumer money claims under the Civil Code.
7. Penalties for Non-Compliance (Snapshot)
| Violation | Statutory Penalty | Recent SEC Fines (illustrative) |
|---|---|---|
| Operating without CA | ₱10k–₱1 M per transaction + 6–10 yrs jail (RA 9474 §12) | SEC v. SilverCash Lending (2024): ₱9.5 M & criminal referral |
| Harassment, privacy breach | ₱100k–₱5 M + jail (RA 10173) | FastCash App (2023): ₱1.8 M; app delisted |
| Failure to report STR to AMLC | ₱10k–₱500k per offense (RA 9160 §14) | Lend4U Financing (2022): ₱600k compounding fine |
8. Frequently Asked Questions (FAQ)
Does the Usury Law still apply? Central Bank Circular 905 (1982) lifted interest ceilings, but consumer-protection caps now come from BSP circulars and SEC rules.
Can a sole proprietorship engage in lending? Yes—after securing an SEC CA. RA 9474 allows sole-proprietor lenders so long as capital is at least ₱1 million and the proprietor registers a lending “company” name.
Is peer-to-peer (P2P) lending legal? Only if the platform operator is SEC-licensed as a financing company or crowdfunding intermediary under the Securities Regulation Code and Crowdfunding Rules (SEC MC 14-2019).
May lenders hold borrowers’ IDs or ATM cards as security? No. Such practices are deemed “unfair collection” under SEC MC 18-2019 and violate Article 24 (human dignity) of the Civil Code.
9. Conclusion & Practical Takeaways
One minute verification can save years of litigation. A legitimate lender in the Philippines will proudly display its SEC CA and comply with transparency, privacy, and fair-collection standards. Borrowers, investors, and compliance officers should adopt a trust-but-verify attitude; regulators now provide online databases that make legitimacy checks virtually frictionless.
This article is for educational purposes and does not constitute legal advice. For specific concerns, consult Philippine counsel or the relevant regulator.