Over 200 informal lenders have applied for registration before the Securities and Exchange Commission (SEC) after the government initiated a crackdown against loan sharks engaged in “five-six” and other usurious practices.
The SEC said this was among the initial results of the investigations conducted by the teams it had dispatched in October last year in response to President Duterte’s directive for the government to get tough against “five-six” lenders.
“Five-six” lenders usually extend loans without collateral or any documentary requirements, but charge their borrowers an exorbitant nominal interest rate of 20 percent or more over an agreed period.
“The SEC has initiated investigation into the activities of suspected informal lenders for possible filing of criminal complaints,” said SEC chairperson Teresita Herbosa in her report to Finance Secretary Carlos Dominguez III.
“Apart from charging them with violation of Republic Act 9474 (Lending Company Regulation Act), the SEC is likely to include the charge of violation of the Truth in Lending Act which likewise imposes fine and/or imprisonment. Foreign informal lenders will be referred to the Bureau of Immigration,” she told Dominguez.
Herbosa said in her report that the SEC is now looking into online advertisements, flyers, text messaging promos, and overt and collection activities in areas like public markets to investigate and expose informal lenders and file the appropriate charges against them.
The SEC-led investigations were started in coordination with local government units, the Department of Trade and Industry, National Bureau of Investigation and law enforcement agencies.
Following President’ Duterte’s directive, the SEC issued two advisories to inform the public about prohibited lending practices under the law and encourage informal lenders to register with the Commission.
The first advisory, issued in October last year, cited provisions of RA 9474, or the Lending Company Regulation Act, which makes it illegal to act as a lending company or investor unless registered with the Commission as a lending company.
“The said law mandates lending companies to organize only as corporations, making it illegal for individuals to engage in the business of lending without being registered as a corporation with the Commission and secure the required Certificate of Authority,” Herbosa said.
Herbosa said the SEC issued a follow-up advisory in November last year to encourage “five-six” lenders to register.
The second advisory warned informal lenders facing complaints for violations of RA 9474 and/or those engaging in “fraudulent, oppressive and illegal practices in lending to borrowers including those violating the Truth in Lending Act,” that they will be investigated for possible prosecution.
Among the illegal practices cited by the SEC are “charging unreasonable interest rates or fees, employing harassment tactics in collecting from its borrowers, coercing borrowers to buy on credit or otherwise appliances or other items, filing criminal complaints against borrowers as a circumvention of the prohibition against imprisonment for non-payment of debt and similar other activities.”
The Commission also allowed SEC-registered lending companies without the required CA to apply for this requirement provided that they apply for and secure it on or before April 30, 2017, Herbosa said.
To help expose ‘five-six” lenders, Herbosa said she had also ordered an audit of lending companies in areas where there are perceived informal lenders.
“The potential of being able to extract the needed information is high because they are competitors of these legitimate lenders,” she said in her report to Dominguez.
Herbosa said the SEC is also planning to conduct information dissemination seminars “with the intention of giving lenders the opportunity to make their businesses legitimate, and the borrowers to be aware of informal lending schemes.”
Herbosa said she had also met with Trade Secretary Ramon Lopez and Sen. Alan Peter Cayetano to discuss ways on how the government could help small borrowers such as market vendors secure easy-to-access legitimate loans with the goal of “eventually obliterating five-six lenders.”
The SEC has started investigating “five-six” lending activities in Laguna and Pampanga where it has identified some suspended informal lenders, Herbosa said.
Dominguez earlier challenged local banks to do their share in boosting the financial literacy of Filipinos to prevent them from falling prey to loan sharks and investment scammers who have been profiting from the “lack of inclusiveness” of the country’s banking system.
“Our banks have been slow in adapting to the needs of small entrepreneurs, especially those without enough assets to turn in as collateral. The banks need to do some hard thinking about expanding access for small entrepreneurs, most of whom fall victim to loan sharks,” he said.