BSP sets limit on loan charges [News Recap]

Title

BSP sets a limit on loan charges to help low income borrowers

Prepared by :

Peter Breboneria II

Who

Bangko Sentral ng Pilipinas (BSP) 

Monetary Board

BSP Governor Benjamin Diokno

In consultation with Securities and Exchange Commission (SEC)

SEC chairperson Emilio Aquino

What

BSP sets a ceiling for the following loan charges

Nominal Interest Rate cap: up to 6% per month or 0.2% per day

Effective Interest Rate cap: up to 15% per month or 0.5% per day

Effective Interest rate cap = Nominal Interest Rate Cap +  processing + service + notarial + handling + verification fees

Penalties for late payment of the outstanding scheduled amount due cap: up to 5% per month 

Penalties for non-payment cap: Up to 100 percent of total amount borrowed. No finance companies can charge a customer more than what he/she borrowed regardless of the length of time the loan is outstanding.

Conditions: 

-small-value, short-term, general purpose, and unsecured loans

-Loans not exceeding P10,000

-Payable within four months.

Where

To be implemented in lending and financing companies, and Online Lending Platforms (OLP) 

Why

From January 2020 to May this year, the SEC has in fact received 4,363 complaints related to high interest rates and penalties from these lenders.

BSP and the Securities and Exchange Commission (SEC) found loan sharks that impose an interest rate of as much as 504% per year or 42% per month.

When

BSP plans to implement the ceilings on January 3, 2022.

How

The imposition of interest rate caps is in accordance with Republic Act (RA) No. 9474 or the Lending Company Regulation Act of 2007 and RA No. 8556 or the Financing Company Act of 1998,