SEC Suspends Licenses of Lending Companies without Secondary Licenses

March 23, 2017

The SEC after having sent out more than 300 Show Cause Letters twice to corporations operating as lending companies without having obtained Certificates of Authority (Secondary License).

Section 4 of R.A. 9474 states that “xxx No lending company shall conduct business unless granted an authority to operate by the SEC”.

84 out of the 300 letters were returned to sender, which has prompted the SEC to suspend for 60 days those 84 lending companies for failure to respond to the Show Cause Letters. If during the suspension period, the SEC has still not heard from those lending investors, proceedings for the revocation of their Certificates of Registration (Primary License) with the SEC shall be implemented.

R.A. 9474 was approved on 22 May 2007 and one year after the effectivity of the Act or on 12 June 2008, all persons and entities engaged in lending activity should have secured their Certificates of Authority.

Director Justina F. Callangan, of the SEC’s Corporate Governance and Finance Department, tasked to regulate lending companies, explained that R.A. 9474 was approved on 22 May 2007 and one year after the effectivity of the law or on 12 June 2008, all persons and entities engaged in lending activity should have secured their corresponding CAs. She underscored the fact that said entities have been given more than sufficient time to comply with the law, hence, their continued noncompliance warrants their suspension.

“The Commission is one with the President in adopting a tough stance against illegal lending that is why it is pursuing with much vigor all those engaged in it”, Director Callangan added.

Aside from suspension, per Section 12 of R.A. 9474, a fine of not less than Ten Thousand Pesos (Php 10,000.00) or imprisonment of not less than six (6) months but not more than ten (10) years or both, await those who violate the law through, among others, failure or refusal to incorporate and obtain a license from the SEC to engage in lending.

April 06, 2017

SEC SUSPENDED ADDITONAL 20 LENDING COMPANIES

The Securities and Exchange Commission suspended the certificates of registration as corporations of additional 20 lending companies which failed to obtain a Certificate of Authority to Operate (CA) as a Lending Company required under Republic Act No. 9474 or the Lending Company Regulation Act of 2007.

It’s Time to Legalize your Philippines Lending Business

The War on Money Lenders

Legal Lending Investor

Emmanuel F. Piñol Secretary of Agriculture posted on his facebook page on January 10, 2017 that President Duterte ordered the arrest and deportation of foreigners engaged in 5 – 6 money lending.

5 – 6 money lending; are small loans given to small business who cannot obtain bank loans as they are unable to provide collateral. 5 – 6 loans interest rates are usually in the range of 20% a month.

“They are violating Philippine laws by indulging in a money-making business without the necessary permits,” President Duterte said.

Indian national are prominent 5 – 6 money lenders and President Duterte has asked Foreign Affairs Secretary Perfecto Yasay, Jr. to inform the Indian Ambassador of his decision to stop the usurious lending scheme in the Philippines.

Foreigners of other nationalities and Filipinos are also involved in illegal money lending schemes.

Risking Arrest

Justice Secretary Vitaliano Aguirre announced that foreigners lending money without permits may be arrested even without a warrant of arrest as they’re operating illegally without permits and licenses and therefore are committing a crime.

Following these announcements, there has been a surge in Lending Investors registration with the SEC as people are scrambling to avoid the crackdown on illegal money lenders in the Philippines.

Money lending is highly regulated in the Philippines. Lenders must incorporate as a Lending Investor and obtain a secondary license from the SEC.

SEC Reduced Requirements for Financing and Lending Companies

Securities and Exchange Commission
Philippines

COMPANY REGISTRATION AND MONITORING DEPARTMENT

N O T I C E

SEC Reduced Requirements for Financing and Lending Companies

Notice is hereby given that pursuant to SEC Resolution No. 544, series of 2016, the Commission En Banc has resolved to approve the Company Registration and Monitoring Department’s [CRMD] rationalization of documentary requirements for application for Certificate of Authority to Operate as a Financing Company / Lending Company.

The CRMD has modified the Application Form, Company’s Information Sheet and Personal Information Sheet to consolidate some of the documents. Further, the following are no longer required for registration of financing and lending companies: (1) local police clearance; (2) certificate of good moral character; (3) work permit from the Department of Labor and Employment for foreign directors and officers; and (4) location map and copy of the lease contract or title of the building / unit where the company is located.

Copies of the Checklist of Requirements and the revised Forms are available at the CRMD – Licensing Unit (LU) at the 3rd Floor, SEC Building, EDSA, Mandaluyong City and maybe downloaded at the SEC website. For inquiries, please call 584 – 7187 and look for the LU Officer of the day.

Setup Lending Investor

How to Open a Lending Investor in the Philippines

All you need to know on how to open, start and setup a lending investor in the Philippines (Lending Business or Loan Company)

Definition:  Lending Company shall refer to a corporation engaged in granting loans from its own capital funds or from funds sourced from not more than nineteen (19) persons. It shall not be deemed to include banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law. The term shall be synonymous with lending investors.

Form of Organization

A lending company may only be established as a corporation. This excludes a sole proprietorship or a partnership from operating a lending business. No lending company shall conduct business unless granted an authority to operate by the SEC.

Corporate Name Requirement

The corporate name must include the words “Lending Company” or “Lending Investor” or any other word descriptive of its primary activity of granting loans to the public except words commonly used to identify financing companies shall always be included in the corporate and trade name.

Minimum Capital Requirement

The minimum required paid-in capital is One Million Pesos (PHP1,000,000.00) for the head office. Additional capital is required for each branch, extension, satellite office or unit established, the excess of the required minimum paid-up capital may be applied to the additional capital requirement as follows:

PHP300,000.00 : Metro Manila and other first class cities;

PHP150,000.00 : Second class and other cities;

PHP 75,000.00 : Municipalities.

Foreign Ownership of a Lending Investor

100% foreign ownership of a lending investor is allowed. No foreign national may be allowed to own stock unless the country of which he is a national accords reciprocal rights to Filipinos. More than 40% foreign ownership requires a minimum paid-in capital of US$ Two Hundred Thousand (USD200,000.00) .

Size of Loan and Interest

A lending company may give loans in such amounts and reasonable interest rates and charges as may be agreed upon between the lending company and the debtor: Provided, That the agreement shall be in compliance with the provisions of Republic Act No. 3765, otherwise known as the “Truth in Lending Act” and Republic Act 7394, otherwise known as the “Consumer Act of the Philippines”. As of August 19, 2013 there are no usury laws which limit the interest rate a lending investor my charge loan recipients. The Supreme Court has reduced the interest rate, in some cases as being excessive, iniquitous, unconscionable and exorbitant, hence, contrary to morals (“contra bonos mores”), if not against the law.

In accordance with the Truth in Lending Act and prior to the consummation of the transaction, a lending company shall furnish each debtor a disclosure statement, setting forth, to the extent applicable, the following information:

i. The principal amount of loan;
ii. Rate of interest of the loan;
iii. Service or processing fee, if any;
iv. Amortization schedule;
v. Any penalty charge for late amortization payment;

Requirements for Securing an Authority to Operate a Lending Investor from the SEC

i. Information Sheet;

ii. NBI clearance of Filipino directors/officers;

iii. Foreign directors/officers, shall submit a clearance from the Bureau of Immigration (BI), a photocopy of his passport showing a valid visa or stay in the Philippines, ACR i-card, and a work permit issued by the Department of Labor and Employment;

iv. President’s Sworn Statement and Undertaking that the corporation will not accept or solicit investments, other than loans, from more than 19 persons without SEC approval, and upon presentation of valid claims, it shall immediately indemnify or return the investments of persons from said unauthorized public solicitation of funds; Moreover, the sworn statement shall likewise contain an undertaking that the country or state of the foreign applicant allows Filipino citizens and corporations to do lending business therein.

v. Business plan including method of marketing its product and sources of the funds and maturities of credit; and

vi.Statement of its compliance with Rule 17.1(2)(A)(i) and (ii) of the Amended Implementing Rules and Regulations of the Securities Regulation Code.

Branches, Extension or Satellites Offices or Units

i. Loan transactions shall be booked in the authorized offices of the lending company;

ii. No lending company shall establish or operate a branch, extension office or unit or satellite office without prior approval by the SEC. The following documents shall be submitted for the opening of a branch office:

1) Information Sheet on the proposed branch;

2) NBI clearance of the manager, cashier and administrative officer of the proposed branch;

iii. The Certificate of Authority to operate a branch, extension office, unit or satellite office shall be coterminous with that of the Head Office.

SEC Licensing Fees (for secondary license):

i.Initial Application Fees shall be paid to SEC at the time of filing of application.

1) Head Office –

A fee of 1/10 of 1% of the paid-up capital of the lending company shall be paid for the issuance of a Certificate of Authority to Operate as a Lending Company.

2) Branch, extension office, unit or satellite office

A fee of 1/10 of 1% of the assigned capital of the branch, extension office, unit or satellite office shall likewise be paid for the issuance of an original Certificate of Authority.

ii. Annual fee –

An annual fee shall be paid not later than forty five (45) days before the anniversary date of the CA.

1) Head Office – 1/8 of 1% of the required paid-up capital

2) Branch Office – 1/8 of 1% of the required paid-up capital

Commencement of Operations

A corporation/company that has been duly registered and granted a Certificate of Authority to Operate as a Lending Company shall commence operations within one hundred twenty (120) days from date of grant of such authority. Failure to commence operations within said period shall be a ground for the suspension of its CA.

Usage of Funds

Lending Companies shall use at least 51% of their funds for direct lending purposes.

The total investment of a lending company in real estate and in shares of stock in a real estate development corporation and other real estate based projects shall not at any time exceed twenty-five (25%) percent of its net worth.

Maintenance of Books of Accounts and Records

(a) Every lending company shall maintain books of accounts and records as may be required by the SEC and prescribed by the Bureau of Internal Revenue and other government agencies. In case a lending company engages in other businesses, it shall maintain separate books of accounts for these businesses.

(b) The Manual of Accounts prescribed by the BSP for lending investors shall continue to be adopted by lending companies for uniform recording and reporting of their operations, until a new Manual of Accounts shall have been prescribed by the SEC.

Reportorial Requirements

General Information Sheet (GIS) – Within thirty (30) days from annual meeting, as stated in its SEC approved bylaws

Audited Financial Statements prepared by an external auditor accredited by the SEC – Within One Hundred Twenty (120) days from end of fiscal year, as stated in its SEC approved bylaws

Special Forms for Financial Statements in Electronic Format – Within thirty (30) days from the last day of submission of the annual Audited Financial Statements

Interim semi-annual financial statements (using Special Form) including the following:
• Balance Sheet;
• Income and Expense statement;
• Cash flow
• Statement of Changes in Equity
• Schedule of Liabilities
• List of Directors and Officers
• Aging of Receivables

– Within forty-five (45) calendar days from the end of the interim semi-annual period covered by the report.

Manual on Anti-Money Laundering
• If foreign participation in voting stocks is more than 40%; or
• If total assets is PHP10M or more

References:

Republic Act No. 9474 “Lending Company Regulation Act of 2007”
Republic Act No. 10881 “An Act Amending Investment Restrictions In Specific Laws Governing Adjustment Companies, Lending Companies, Financing Companies And Investment Houses Cited In The Foreign Investment Negative List And For Other Purposes.”
SEC Reduced Requirements for Financing and Lending Companies

Implementing Rules and Regulations of Lending Company Regulation Act of 2007 (Republic Act of 2007)

SEC Memo No. 3, Series of 2013