Metro Manila (CNN Philippines, December 23) — Interest rates on loans from lending and finance companies will soon be capped, the Bangko Sentral ng Pilipinas announced on Thursday.
In a briefing, BSP Governor Benjamin Diokno indicated that the caps – approved by the Monetary Board on December 16 and take effect on January 3 – will cover interest rates, penalties and other charges on small value, short term, general purpose and unsecured loans extended by these companies and their online lending platforms.
Rate limits cover loans of ₱10,000 and below and can be settled within four months.
The approved ceiling for the nominal interest rate, which is the percentage of the amount borrowed excluding other fees and expenses, of 6% per month or about 0.2% per day.
Lenders can charge an “effective interest rate” of up to 15% per month or around 0.5% per day. This covers the nominal interest rate as well as applicable charges such as processing, service and verification fees, but not penalties for late or non-payment.
The Monetary Board has set the ceiling for late payment or non-payment penalties at 5% per month on the expected outstanding amount due.
It also approved a total cost cap of 100% of the total amount borrowed – applying to all interest, other fees and penalties – no matter how long the loan was outstanding.
“In determining interest rate caps, the Bangko Sentral ng Pilipinas sought to strike a balance between protecting consumers and allowing lending and finance companies to assess credit risks and remain viable. “Diokno said.
The application of interest rate caps is consistent with Republic law. 9474 or the Finance Companies Regulation Act 2007 and RA 8556 or the Finance Companies Act 1998, he added.
These allow the Monetary Board to prescribe maximum interest rates these companies can charge in consultation with the Securities and Exchange Commission and the industry, he said.
“The circular is being finalized. The plan is to take it into effect on January 3,” said Dennis Lapid, director of BSP’s economic research department, adding that a review will be conducted annually on interest rate caps.
The SEC is also responsible for reporting to the BSP on compliance with the cap by lending and finance companies and submitting an assessment report, he added.
The commission, which regulates lenders and finance companies, will formulate and promulgate the publication of rules and regulations implementing the upcoming circular within 60 days of the effective date.