BSP caps loan rates to ward off predatory lenders

December 24, 2021 | 00h00

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has joined the fight against predatory lenders charging interest rates of up to 504% per annum, as they decided to place a cap on fees imposed by loan companies, finance companies and online lending platforms about borrowers.

BSP Governor Benjamin Diokno said in his weekly online press briefing that the bank has worked with the Securities and Exchange Commission (SEC) to find and maintain a balance between protecting consumers from predatory lending while ensuring they have continued access to credit.

He said the central bank’s Monetary Council approved on December 16 the imposition of caps on interest rates and fees on low-value loans from loan companies, finance companies and financial institutions. online loan platforms.

The Monetary Board has set a nominal interest rate cap of six percent per month, or about 0.2 percent per day, for secured loans.

Likewise, the limit on the effective interest rate has been set at a maximum of 15% per month or approximately 0.5% per day. The rate includes the nominal interest rate as well as applicable fees such as processing, service, notary, processing and audit fees, among others, but excludes fees and penalties for late payment or non-payment.

The regulator also set a cap of five percent per month on penalties for late payment or non-payment on the amount due overdue as well as a total cost cap of 100 percent of the total amount borrowed. This applies to all interest, other fees and charges and penalties, regardless of how long the loan is unpaid.

According to Diokno, the caps apply to general-purpose unsecured loans offered by loan companies, finance companies and online lending platforms not exceeding P 10,000 and payable within four months.

The BSP chief noted that the interest rate charged by loan companies climbed to 360% per year, or 30% per month, between 2016 and 2019, from just 60% per year or 5% per month in 2014. to 2015.

As the pandemic raged last year, Diokno said loan companies have further raised the interest rate on loans to 504% per year or 42% per month.

“The imposition of interest rate caps also takes into account the difficulties caused by the COVID-19 pandemic,” said Diokno.

The BSP chief said the SEC received 4,363 letters of complaint about high interest rates and penalties imposed by loan companies and finance companies between January 2020 and May of this year.

“These complaints prompted the SEC to seek help from the BSP in setting interest rate caps on finance and loan companies,” Diokno said.

He added that the imposition of interest rate caps is consistent with Republic Law 9474 or Loan Company Regulation Law 2007 and RA 8556 or Company Law 1998. funding.

The laws empower the Monetary Board to prescribe maximum interest rates that can be charged by loan companies, finance companies and online lending platforms, in consultation with the SEC and the industry.

At the end of 2020, Diokno said loan and finance companies’ non-performing loan (NPL) ratios stood at 26%, while delinquent loans or default rate was 30%.

“Such high NPL ratios and default rates are often seen for loans that cater to low-income borrowers and have been found to be at risk of increasing further due to the economic disruption caused by the COVID-19 pandemic.” , said Diokno.

Diokno said the BSP remains committed to protecting financial consumers and promoting an enabling environment for lenders to sustainably meet the needs of low-income borrowers amid the pandemic.