Legitimate Lending Companies in the Philippines
A comprehensive legal and regulatory guide
1. Why “legitimate” matters
In everyday Filipino parlance a lending company simply ― and often misleadingly ― means anyone who gives out loans, including “5-6” loan-sharks. In law, however, a legitimate lending company is a corporation that (a) is organized under Republic Act No. 9474 (Lending Company Regulation Act of 2007), (b) holds a Certificate of Authority (CA) from the Securities and Exchange Commission (SEC) to operate as a lending company, and (c) complies with all continuing requirements of Philippine corporate, financial-services, consumer-protection, data-privacy and anti-money-laundering legislation. Everything else is informal or illegal.
2. Core legal framework
| Law / Issuance | Key provisions relevant to lending companies |
|---|---|
| RA 9474 (2007) | Definition of a lending company; minimum paid-up capital ₱1 million; SEC power to license and supervise; prohibitions on deposit-taking and quasi-banking; criminal & administrative sanctions. |
| Implementing Rules & Regulations (SEC, 2008; last amended 2023) | Documentary requirements for incorporation; CA application procedure; reportorial duties; ceiling on penalty charges; disclosure templates. |
| RA 5980 as amended by RA 8556 (Financing Companies) | Often confused with lending companies but a separate class with higher capital (₱10 million/US $1 million if ≥60 % foreign-owned) and broader powers (e.g., lease-finance). |
| Truth in Lending Act (RA 3765) & BSP Regs | Mandatory disclosure of effective interest rate (EIR) and all fees; advertising rules. |
| SEC Memorandum Circular (MC) 18-2019 | Prohibition of Unfair Debt Collection Practices – no threats, contact before 8 p.m./after 5 p.m., or “doxing” borrowers’ contacts. |
| SEC MC 19-2019 & MC 10-2021 | Special rules for Online Lending Platforms (OLPs): separate OLP registration, additional paid-up capital of ≥₱10 million, in-country data centers, Notice-and-Takedown for rogue apps. |
| BSP Circular 1133 (2021) | Interest-rate caps for small-value, short-term loans (≤₱10 000 & tenor ≤4 months): 6 % per month interest ceiling; 5 % per month cap on all other fees. |
| Anti-Money Laundering Act (RA 9160) & IRR | Lending companies are covered persons once ≥₱5 million total assets; must register with the AMLC, conduct KYC, file CTRs/STRs. |
| Data Privacy Act (RA 10173) | Registration with the National Privacy Commission, designation of a Data Privacy Officer, privacy manuals for loan apps. |
| Credit Information System Act (RA 9510) | Mandatory submission of positive & negative credit data to the CIC. |
(Add the Local Government Code for mayor’s permits, NIRC for taxes, and the Revised Corporation Code for general corporate governance.)
3. Regulators and their roles
| Regulator | Mandate over lending companies |
|---|---|
| SEC – Financing & Lending Companies Division (FLCD) | Incorporation, issuance/revocation of CAs, onsite/offsite exams, enforcement of MC 18, 19 & OLP rules, cease-and-desist against unregistered entities. |
| Bangko Sentral ng Pilipinas (BSP) | Issues the interest-rate caps; supervises payment-system operations (NPS Act) used by lenders; accredits credit bureaus. |
| National Privacy Commission (NPC) | Enforces data-privacy compliance of loan apps; can issue compliance orders and app-store takedowns. |
| Anti-Money Laundering Council (AMLC) | Receives AML reports, conducts audits and may freeze assets. |
| Credit Information Corporation (CIC) | Collects credit data; accreditation of credit bureaus; imposes penalties for non-submission. |
| Local Government Units | Business/mayor’s permit, zoning, and inspections. |
4. Incorporation & licensing step-by-step
Name reservation with SEC (must include “Lending Company, Inc.”).
Articles of Incorporation & By-laws
- 🔹 Primary purpose must quote the definition under RA 9474.
- 🔹 Minimum paid-up capital: ₱1 million (₱2 million for OLPs; ₱10 million if you want to operate both offline & online right away).
- 🔹 No nationality restriction (100 % foreign ownership allowed) but PRACTICAL limits apply under the Foreign Investments Act if the lending activity will touch “mass media” or other partially nationalized sectors (rare).
Treasurer-in-Trust affidavit and bank certificate of deposit of the paid-up capital.
Directors/officers’ fit-and-proper declarations (no pending cases involving moral turpitude, etc.).
Application for Certificate of Authority (CA) to operate. The CA is separate from the SEC Certificate of Incorporation; you cannot lend until the CA is issued.
Registration with other agencies
- BIR (TIN & VAT or 5 % Gross Receipts Tax)
- LGU Mayor’s Permit
- NPC (if processing personal data)
- AMLC (if covered person)
Start of operations within 120 days; otherwise the CA may be revoked.
5. Continuing compliance checklist
| Item | Frequency | Notes |
|---|---|---|
| Audited Financial Statements (AFS) | Annual | File within 120 days from FYE; must show compliance with minimum capital adequacy and liquidity ratios (set by SEC guidelines). |
| General Information Sheet (GIS) | Annual | Within 30 days from annual stockholders’ meeting. |
| Quarterly Report on Lending Activities | Quarterly | Loan volume, borrowers, average EIR, write-offs. |
| Interest-rate & fee schedule | Continuous | Must be posted conspicuously on premises & in mobile apps in Filipino & English. |
| CIC data submission | Monthly | Positive and negative data in the standardized template. |
| AML compliance testing | Annual | Independent audit of AML controls; results submitted to AMLC/SEC. |
| Privacy Impact Assessment | At least every two years or when introducing a new product. | |
| OLP renewal / app whitelisting | Every time a new version is deployed. |
6. What lending companies may and may not do
| Allowed | Prohibited |
|---|---|
| Grant peso loans to individuals & businesses, secured or unsecured. | Accept deposits or issue quasi-deposit instruments (only banks may). |
| Extend micro-finance loans (≤₱150 000) under BSP micro-finance policy. | Use threats, obscene language or “doxing” in collections (MC 18-2019). |
| Invest idle funds in government securities or investment-grade bonds (subject to board limits). | Charge interest & fees above the BSP caps for covered small loans. |
| Use digital channels (apps, e-signatures, e-KYC, e-payments) if OLP-registered. | Collect biometric or phone-contact data without informed, freely-given consent under the DPA. |
7. Consumer-protection highlights
- Truth-in-Lending – every marketing material and loan disclosure must show the effective interest rate (EIR), total finance cost, and net proceeds.
- Interest-rate ceiling – for small-value, short-term loans (≤ ₱10 000, ≤ 4 months) the current cap is 6 % per month on interest and 5 % per month on all other fees. Non-covered loans are still subject to the Civil Code test of “unconscionability.”
- Cooling-off / cancellation – borrowers may cancel within one (1) day of signing if no funds have been released.
- Unfair Collection Rules – MC 18 bans threats, obscenity, contacting persons other than the borrower (except once to get updated contact info), and public shaming through social media or group chats.
- Complaints – SEC GROUNDS (inspections, CDOs); NPC (privacy violations); BSP (if payment system); Small-Claims Court for ≤ ₱1 million principal.
8. Penalties for operating illegally
| Offence | Possible sanctions |
|---|---|
| Lending without a CA | SEC cease-and-desist order, up to ₱2 million fine plus ₱10 000/day of continuing violation; criminal charges (₱50 000–₱100 000 fine + 6 mos–10 yrs imprisonment). |
| Charging beyond BSP cap | Administrative fine up to twice the amount collected; restitution to borrowers; CA suspension/revocation. |
| Unfair collection / data-privacy breach | SEC/NPC CDOs; fines up to ₱5 million; criminal liability under RA 10173 or RA 10175 (if cyber-libel or doxing). |
| AML non-compliance | AMLC freeze order; fines up to ₱5 million; possible revocation of CA. |
9. How borrowers can verify legitimacy
- Search the SEC database (https://www.sec.gov.ph) → “List of Registered Lending Companies” and “Whitelisted Online Lending Platforms.”
- Look for the CA number on the company website, storefront, app listing, or loan contract.
- Check CIC for lender accreditation (https://www.creditinfo.gov.ph).
- Verify privacy registration on the NPC list of data processing systems.
- Confirm payment channels – legitimate firms usually use licensed EMI-wallets, PESONet, InstaPay or accredited payment collection partners.
10. Tax treatment snapshot
| Income / Transaction | Tax implication |
|---|---|
| Interest income | 30 % Regular Corporate Income Tax (or 20 %/15 % if qualified under CREATE incentives). |
| Documentary Stamp Tax (DST) | ₱1.00 for every ₱200 of loan principal on instruments > ₱250 000 (Sec. 179, NIRC). |
| Gross Receipts Tax (GRT) – if NCR | 5 % on gross interest and fee receipts (substitutes for VAT). |
| Withholding tax at source | 20 % final tax on interest paid to another domestic lender; nil if to an individual borrower. |
11. Current trends & future policy notes (2025 outlook)
- Mandatory digital onboarding – SEC draft rules (April 2025) will require face-match liveness checks and Philippine-based cloud hosting for all new OLPs.
- Green-finance carve-out – proposed amendments to RA 9474 will allow concessional lending rates for climate-resilient MSME projects with partial guarantees from PhilExim.
- Higher capital floor – the SEC has signalled a phased hike to ₱5 million minimum paid-up by 2027 for pure offline lenders, aligning with ASEAN standards.
- Open Finance APIs – BSP’s Open Finance Framework Phase 2 (Q3 2025) will let borrowers port repayment histories instantly to competing lenders, boosting competition and responsible pricing.
- Judicial e-Execution – pilot electronic writs of execution in small-claims courts mean faster collection but also stricter proof-of-compliance with Truth-in-Lending rules.
12. Key takeaways
- Legitimate Philippine lending companies are corporations licensed by the SEC under RA 9474 with a Certificate of Authority; anything less is illegal.
- They are heavily regulated: corporate, consumer-protection, AML, privacy, interest-rate caps, and now digital-platform rules.
- Borrowers should verify the CA, consult the SEC/NPC/CIC public lists, and understand the interest-rate ceiling and collection safeguards.
- Operators/investors must be ready for rigorous ongoing compliance and a trend toward higher capital and stricter digital-governance requirements through 2027.
Legitimate lending fills a critical financing gap for Filipino consumers and MSMEs. The regulatory architecture aims to let responsible lenders thrive while shutting out abusive operators ― making full compliance and transparency not just legal obligations but business imperatives.