Capped Interest Rate for Loans, Low Value Finance Business Loans

The Bangko Sentral ng Pilipinas (BSP) has approved a limit on the interest rates imposed on short-term loans granted by finance companies to protect low-income borrowers from predatory lending practices that impose high rates of ‘high interest.

The Monetary Council has set a nominal interest rate of 6% per month or 0.2% per day for short-term covered loans, BSP Governor Benjamin E. Diokno said in a briefing on Thursday. in line.

Meanwhile, effective interest rates are capped at 15% or 0.5% per day, he added.

The nominal interest rate is imposed on a loan with no other fees, while the effective interest rate includes processing and verification fees, among others.

The cap will only apply to general purpose unsecured loans worth 10,000 pesos offered by loan and finance companies and their online lending platforms. The loans covered will be those with terms of up to four months.

Mr Diokno said the central bank had coordinated with the Securities and Exchange Commission (SEC) on the directive.

“Before the pandemic, the SEC observed that some loan and finance companies charged high borrowing rates for payday loans and personal loans,” Mr. Diokno said.

“For credit companies, the highest nominal interest rate recorded increased significantly from 60% per year (or 5% per month) from 2014 to 2015 to 360% per year (or 30% per month). months) from 2016 to 2019, ”he said.

Mr Diokno added that the hardship caused by the pandemic has also been factored into the interest rate limit.

He said the interest rates charged by loan and finance companies rose further in 2020, noting that the highest nominal interest rate during the year was 504% per annum or 42% per month.

“For borrowers, the limits should be low enough to protect them from predatory loans. For lenders, the ceilings should be at a level that takes credit risk into account and provides an enabling environment where their lending activities will continue to be viable, ”Mr. Diokno said.

Even with the cap, Mr. Diokno said the rates would still be higher than those charged by credit unions and non-equity savings and loan associations for similar unsecured loans and the interest rate charged by pawn shops for secured loans.

The interest rate cap will be limited in time and will be subject to periodic review by the central bank in consultation with the industry.

The BSP is preparing to publish a circular on the directive. The SEC, as the regulator of loan companies, finance companies, and their online lending platforms, will publish the application rules and regulations on the interest rate limit. Luz Wendy T. Noble

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