BSP tightens pawnshop regulations

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has tightened the rules governing pawnshops as the industry plays an important role in building a more inclusive financial system and protecting the welfare of financial consumers.

The central bank’s Monetary Board has approved a new supervisory framework governing pawnshops as part of a series of reforms instituted by the BSP to promote a more responsive regulatory environment for the industry and other non-bank financial institutions.

Under the new rules, the BSP shall put high regard on the fitness and propriety of the pawnshop operators, including its incorporators, directors, partners and officers, by focusing on their integrity, market reputation, competence and financial capacity. 

The new rules also require the pawnshop operators to adopt the applicable BSP Regulations on Financial Consumer Protection mandating the disclosure of the effective interest rate of the loan, including the charges on the transaction to their customers.

Pawnshops are also mandated to inform the customers about the policy on insurance of pawned items, maturity date and grace period in cases when the customer failed to redeem the loan.

The new framework requires the adoption of the network-based approach wherein pawnshop operators are only required to submit a notification to the BSP for the establishment and operation of pawnshop offices instead of the usual approval from the BSP prior to its operation.  

The new rules introduce different types of BSP licenses to pawnshop operators depending on the type and/or level of complexity of business to be undertaken. 

Moreover, each type of license would require a specific minimum amount of capital. It also reduced the documentary requirements for the establishment, transfer, and voluntary closure of pawnshop offices or branches.

The new rules also instituted a limit on the borrowings of pawnshops to finance its pawning operations to not more than 19 creditors. However, the limit does not cover borrowings for purposes of acquiring fixed assets intended for business operations.

Existing pawnshop operators are given one year from the date of the effectivity of the new regulations to secure their BSP license to operate a pawnshop business. 

Upon the expiration of the transitory period, all acknowledgment of Registrations and Authority to Operate previously issued by the BSP are considered automatically revoked.