Saddled with debt

There are always two sides to a coin.

Just last month, this column reported about a Department of Education order issued in February that is being assailed by private lending institutions, in particular thrift banks and rural banks, for bringing untold misery not only to the banking community, but more importantly to public school teachers and other DepEd employees.

Under Department Order 5, deductions from salaries and other benefits of these teachers and employees may be allowed for the payment of their contributions or loans in the order stated: BIR, PhilHealth, GSIS and HDMF; non-stock savings and loan associations, mutual benefit associations, and cooperatives managed by and/or for the benefit of government employees; associations or provident funds organized and managed by government employees for their benefit and welfare; government financial institutions authorized to engage in lending; licensed insurance companies; and lastly, thrift banks and rural banks.

But no deductions will be made that will reduce the employee’s net take home pay to lower than P5,000 which is a mandatory threshold, it said.

Payment for employees’ premiums or loans to the BIR, PhilHealth, GSIS and HDMF will be deducted first from their salaries. In the case of the other categories, they will be deducted on a first-in, first-served system based on the date of receipt of the authority to deduct. But unlike in the case of the first category, there shall be no splitting of deductions for the others.

According to private banks, they agreed to lend to the teachers after having agreed with DepEd to be part of the auto payroll deduct system (APDS) on a first-in, first-served system, meaning the older loan gets priority in terms of payment. And now, they are being told that not only have they been pushed to the bottom of the list in terms of order of preference, now they have to compete with newer obligations incurred by public school teachers and DepEd employees falling under the first five categories.

They said that prior to the entry of PLIs, DepEd borrowers had limited choices and were therefore, forced to avail of loans from other sources that impose effective interest rates as high as 50 percent. In some cases, borrowers even resort to ATM-backed loans due to lack of access to funds.

They added that the entry of PLIs in the last 10 years made the market more competitive, bringing rates down to as low as 7.5 percent per annum. And because of this, some traditional lenders like cooperatives, which have generally higher rates and which have seen their market shrinking, are suspected to have pressured not only the DepEd, but also Congress into making sure that PLIs are taken out of the equation.

Now here is the other side of the story.

Ako Bicol party-list Rep. Rodel Batocabe, in a recent privilege speech, claims that public school teachers are now almost drowning in debt, because they are being seduced by a plethora of credit and lending institutions.   

Batocabe said DepEd has now accredited a total of 214 PLIs, which was made possible through policy loopholes which enabled the participation of commercial banks through their conduit thrift and rural banks. He stressed that these large commercial banks flooded the market with unlimited funds to entice teachers to borrow almost beyond their capacity to pay, resulting in low actual take-home pay and long queues of undeducted obligations from the pay slips of public school teachers.      

He revealed that seven of the 20 largest commercial and universal banks in the country are deeply embedded in the salary deduction scheme of the DepEd.

With low interest rates and quick loan approvals, the solon said that teachers are enticed to borrow until they are faced with the realities of unjustifiable penalty fees and services charges.

He disclosed that this has resulted in teachers’ debts ballooning to P300 billion, P177 billion of which are loans owed to PLIs. Of the latter amount, P112.23 billion billion are loans granted by entities owned and controlled by universal banks through their rural or thrift bank subsidiaries.

City Savings Bank, owned by Union Bank, has extended loans to 471,555 teacher-borrowers totalling P58.205 billion while Eastwest Rural Bank of Eastwest Bank has 142,019 loans amounting to P27 billion. One Network Rural Bank of BDO has granted 93,834 loans totalling P5.03 billion, Batocabe said, adding that with the acquisition of Philippine Resources Banking Corp. by City Savings Bank, its loan exposure for 2018 would amount to around P60 billion.

Batocabe laments that DepEd personnel, especially those in fiscally autonomous secondary schools, abuse their authority by acting as collecting agents of the private banks.     

He has proposed the abolition of the queuing system as implemented by the DepEd; the rescission of the various agreements DepEd entered into with the thrift and rural banks owned by large commercial and universal banks; and to discourage the loan buy-outs of the public school teachers’ outstanding loans.

Loan buy-outs, the Bicolano solon said, do not actually help the teachers as they only transfer their obligations to other lending institutions and end up more costly given the service fees and penalties charged by the PLIs. He added that the lengthening of the loan payment is disadvantageous to the teachers as it increases the risk  of loan default, making the teachers more vulnerable to penalties and fees that add up to their principal balance.  

Batocabe is set to file a resolution mandating the DepEd to cease and desist from entering into agreements and accrediting rural and thrift banks which act as financial conduits of commercial and rural banks.

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