The Philippine lending industry is a highly regulated sector designed to balance the promotion of economic activity with the protection of consumers from predatory practices. The legal framework governing lending companies and their relationship with borrowers is primarily anchored in specific statutes, Bangko Sentral ng Pilipinas (BSP) circulars, and Securities and Exchange Commission (SEC) regulations.
I. The Governing Statutes
The foundation of the industry rests on two primary pieces of legislation:
- Lending Company Regulation Act of 2007 (Republic Act No. 9474): This is the primary law governing "Lending Companies"—corporations engaged in the business of granting loans from their own capital funds or from funds sourced from not more than nineteen (19) persons. It mandates that no lending company shall conduct business unless it is registered as a corporation and possesses a Certificate of Authority (CA) from the SEC.
- Truth in Lending Act (Republic Act No. 3765): This consumer protection law requires creditors to provide full disclosure of the cost of credit. Before a transaction is consummated, the lender must furnish the borrower a written statement (Disclosure Statement) clearly stating the cash price, down payment, finance charges, and the effective annual interest rate.
II. Regulatory Oversight and Compliance
The Securities and Exchange Commission (SEC) serves as the primary watchdog for lending companies. Key compliance requirements include:
- Corporate Structure: Lending companies must be organized as stock corporations with a minimum paid-up capital (currently Php 1,000,000 for the main office, with additional requirements for branches).
- The "Fit and Proper" Rule: Directors and officers must meet integrity and experience standards.
- Interest Rate Caps: While the Usury Law is currently legally "suspended" (meaning there is no ceiling on interest rates by default), the Supreme Court and the BSP maintain the authority to intervene if rates are deemed "unconscionable, iniquitous, or shocking to the conscience."
- Reporting: Companies must submit regular financial statements and reports on their lending operations to ensure transparency and liquidity.
III. Rights and Obligations of the Borrower
The law provides specific shields for borrowers, particularly against coercive practices:
Right to Information: Under R.A. 3765, if a lender fails to provide a Disclosure Statement, they cannot legally collect finance charges, and the borrower may even be entitled to recover damages.
Protection Against Harassment: SEC Memorandum Circular No. 18 (Series of 2019) strictly prohibits unfair debt collection practices. Lenders and their agents are forbidden from:
Using threat or violence.
Using insults or profane language.
Disclosing the borrower's debt information to third parties (except as allowed by law).
Contacting the borrower at unreasonable hours (typically before 6:00 AM or after 10:00 PM).
Data Privacy: Under the Data Privacy Act of 2012 (R.A. 10173), lending apps and companies must secure explicit consent before accessing a borrower's contacts, photos, or social media accounts.
IV. Remedies and Penalties
Non-compliance carries heavy consequences for lending entities:
| Violation | Potential Penalty |
|---|---|
| Operating without a CA | Fine of Php 10,000 to Php 50,000 and/or imprisonment of 6 months to 10 years. |
| Violation of Truth in Lending Act | Fine equal to the finance charge or Php 2,000 (whichever is higher) per transaction. |
| Unfair Debt Collection | Administrative fines, suspension, or revocation of the Certificate of Authority. |
V. Special Considerations for Online Lending Platforms (OLPs)
With the rise of Fintech, the SEC has implemented stricter rules for Online Lending Platforms. All OLPs must be registered as a business name of a licensed lending or financing company and must prominently display their SEC Registration Number and Certificate of Authority Number on their platforms and advertisements.
Failure to adhere to the SEC Ceiling on Interest Rates and Other Fees (specifically for short-term, small-value loans) can result in the immediate shutdown of the digital platform. Currently, for "payday" type loans, the BSP has set specific caps on nominal interest and late fees to prevent "debt traps."