Philippines caps fees allowed on low-value loans
The caps apply to fees charged to borrowers of small loans by loan companies, finance companies and online lending platforms.
The BSP (Bangko Sentral ng Pilipinas) has imposed new caps on interest rates and fees that can be charged on small loans, effective January 3.
In one circular, BSP said the caps were intended to protect consumers from predatory lending, while ensuring continued access to credit.
The caps place limits on interest rates, fees and penalties for late payment or non-payment for general purpose loans not exceeding PHP 10,000 and payable within four months.
The ceilings are set at a nominal interest rate of 6% per month, an effective interest rate of 15% per month and a penalty of 5% per month for late payment or non-payment.
In addition, a total cost cap of 100% is imposed on the total amount borrowed (applying to all interest, other fees and charges and penalties), regardless of the length of the loan.
The caps apply to fees charged to borrowers by loan companies, finance companies, and online lending platforms, which are regulated by the Securities and Exchange Commission (SEC).
The caps were adopted after the SEC observed an increase in borrowing rates for payday loans and personal loans in recent years.
Interest rates charged by credit companies reached 360% per year, or 30% per month, between 2016 and 2019, compared to only 60% per year, or 5% per month, from 2014 to 2015.
In 2020, the nominal interest rate reached up to 504% per annum, or 42% per month.
The SEC received more than 4,300 complaints between January 2020 and May 2021, prompting it to seek help from the BSP in setting interest rate caps for finance and loan companies.
Existing laws allow the BSP Monetary Board to prescribe the maximum interest rates that may be charged by loan companies, finance companies, and online lending platforms, in consultation with the SEC and the industry.
The SEC will formulate and promulgate the rules and regulations necessary for the implementation of the BSP Circular and will be responsible for ensuring compliance.
Separately, the BSP has issued a moratorium on InstaPay and PESONet fee increases for person-to-person money transfers, to boost the Philippines’ post-pandemic recovery and support the increased adoption of digital payments.