By Alexandria Grace C. Magno, Reporter
THE Securities and Exchange Commission (SEC) is ready to lift its moratorium on latest online lending platforms (OLPs) on Aug. 1 under a brand new regulatory framework that analysts said should strengthen consumer protection, improve industry standards, and promote responsible lending, provided the foundations are consistently enforced.
The SEC adopted Memorandum Circular No. 20, which prescribes prudential, disclosure, and market conduct requirements for financing firms (FCs) and lending firms (LCs) operating OLPs while lifting the moratorium on latest applications.
The moratorium has been in place since November 2021 because the SEC developed latest rules to deal with predatory lending and abusive debt collection practices.
INDUSTRY IMPACT
John Paolo R. Rivera, senior research fellow on the Philippine Institute for Development Studies, said the strengthened safeguards would reinforce accountability.
“Strengthened safeguards raise accountability and reinforce consumer protection as the web lending market continues to grow. Stronger penalties will help deter abusive lending and collection practices but effective enforcement will ultimately determine their success,” he said in a Viber message.
Mr. Rivera said the regulations could boost consumer confidence and encourage legitimate lending platforms to strengthen their compliance systems while making it harder for operators that depend on abusive practices to stay out there.
“A well-regulated online lending industry can improve financial inclusion by expanding access to credit while ensuring borrowers are treated fairly. Secret is striking the appropriate balance between consumer protection and continued innovation in digital finance,” he added.
BDO Securities Corp. said the improved disclosure requirements would help ensure borrowers are fully informed of their obligations before taking out loans.
“The brand new rules in a way, are promoting and inspiring responsible lending, by improving accountability, while also protecting consumers from unscrupulous lending practices (i.e. lopsided rates, hidden charges, etc.),” it said.
Jonathan L. Ravelas, senior adviser at Reyes Tacandong & Co., likewise said the safeguards would improve industry standards but emphasized that their effectiveness would rely upon enforcement.
“These latest rules are a welcome and essential step toward making a more responsible and trustworthy online lending industry,” he said in a Viber message. “The safeguards are vital, but their success will ultimately rely upon consistent and credible enforcement.”
Mr. Ravelas said penalties needs to be severe enough to discourage abusive lending and collection practices, warning that some operators could otherwise treat violations as merely a value of doing business.
He added that the regulations are more likely to raise compliance standards and encourage lending platforms to speculate more in transparency and governance while making it harder for non-compliant firms to stay out there.
Rizal Business Banking Corp. Chief Economist Michael L. Ricafort said the brand new framework reflects the challenge of expanding access to online credit while ensuring borrowers remain protected.
“[It is a] delicate balancing act to provide more decisions but at the identical time providing utmost protection to consumers/borrowing public,” he said.
KEY CHANGES
Under the brand new circular, FCs and LCs in search of to operate OLPs must maintain higher paid-up capital based on the variety of platforms they own, operate, control, or utilize.
The SEC also capped the variety of OLPs which may be owned and operated by an FC or LC at five, describing the limit as a prudential measure to make sure effective supervision, adequate governance, and manageable consumer risk exposure.
Existing FCs and LCs operating a number of OLPs must comply with the applicable paid-up capital requirements inside 12 months.
Firms that select not to satisfy the brand new capital requirements must reduce the variety of OLPs they operate and disclose only those supported by their existing capital. Undisclosed OLPs may now not operate.
Under the framework, latest FCs and LCs will likely be issued a single certificate of authority whatever the variety of branches or locations. No separate certificates will likely be issued for OLPs.
The SEC may also impose an annual licensing fee on the entity level, based on total assets reflected in the most recent audited financial statements, to cover the continuing supervision, monitoring, and regulatory oversight of FCs and LCs, including those operating through digital or platform-based channels.
SAFEGUARDS
The brand new rules prohibit FCs and LCs from releasing loan proceeds without borrowers’ “explicit and informed” confirmation of the ultimate loan terms.
Corporations must provide complete loan disclosures and permit borrowers reasonable time to review them before obtaining confirmation. Loan approvals and confirmations must even be properly recorded and traceable to the transaction.
Borrowers may disregard collection communications that fail to reasonably discover the FC, LC, or OLP involved.
For unfair debt collection practices, LCs face a P60,000 high quality for a primary offense and P250,000 for a second offense, while FCs face fines of P100,000 for a primary offense and P500,000 for a second offense.
For succeeding offenses, the SEC may impose a high quality of no less than twice the quantity imposed for a second offense but not greater than P1 million and suspend a firm’s certificate of authority for 60 days or revoke it.