After credit cards, SEC wants steep interest on salary loans capped

MANILA, Philippines — After credit card charges were capped, corporate regulators on Thursday urged the Bangko Sentral ng Pilipinas (BSP) to follow through with a similar ceiling for salary and payday loans.

In a statement, the Securities and Exchange Commission (SEC) said steep interest rates and penalty charges are the top complaints from borrowers against several lending companies. As it appears, SEC has been lobbying for the payday loan limit since October last year in a bid to stop “predatory” lending practices.

Salary and payday loans are short-term credit that while not requiring collateral from borrowers and can easily be obtained, allow lenders to charge sky high interest rates.  

“The capping of credit card charges is a timely and much-needed measure to promote responsible lending and ease the financial burden of consumers and micro, small and medium enterprises amid the COVID-19 pandemic,” SEC Chairperson Emilio Aquino said.

“We are hopeful that the Monetary Board will likewise consider soon the Commission’s proposal for similar limits on interest rates, fees and other charges imposed by lending and financing companies on consumer and payday loans,” he added.

The central bank did not immediately respond to a request for a comment.

Under the BSP's new rules that will take effect November 3, credit card providers can only charge cardholders up to 2% every month. The ceiling will apply on both interest rates and finance charges. For installment payments, a smaller 1% monthly cap will be imposed.

Under the law, BSP’s seven-member Monetary Board, which sets banking policies, may limit borrowing costs and other charges slapped by lenders upon consultation with SEC and industry players.

While it is common practice for lenders and borrowers to agree on loan terms, SEC said the current set-up has become prone to abuse by lenders who sometimes resort to harassment in order to collect payments. 

Corporate regulators have since launched a crackdown on abusive lenders. In the same statement on Thursday, SEC announced 2,081 lending companies got their primary registration revoked for operating without the necessary Certificate of Authority (CA). The commission also shuttered 58 online lending applications for operating without securing a CA. 

“In this light, the SEC has invoked the Monetary Board’s authority to regulate interest rates imposed on consumer loans and payday loans offered by financing and lending companies,” regulators said.

“In the meantime, the Commission continued to implement measures aimed at protecting borrowers,” it added.