QuestionsQuestions (Republic Act No. 8556)
It is to regulate and promote financing and leasing companies to operate on a sound, competitive, stable, and efficient basis; recognize and strengthen their role in providing medium- and long-term credit (especially for small and medium enterprises, particularly in the countryside); and curtail/prevent acts prejudicial to the public interest so they can serve the general public fairly and contribute to the sound development of the national economy.
Financing companies are corporations (except banks, investment houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized under other special laws) primarily organized to extend credit facilities to consumers and industrial/commercial/agricultural enterprises via direct lending, discounting or factoring commercial papers/accounts receivable, buying/selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable and immovable property.
“Credit” includes loans and various credit transactions and arrangements—such as mortgages, financial leases, advances/discounts, conditional sales contracts, contracts to sell, or sale/contract of sale payable after making the contract, as well as options, demands, liens/pledges, and claims against or for delivery of property or money—when they serve the purpose/effect of providing credit or acquisition upon security of an obligation or claim.
It must be a non-cancelable lease contract where the lessor purchases/acquires the property at the lessee’s instance; lease rentals are periodic payments sufficient to amortize at least 70% of the purchase price/acquisition cost (including incidental expenses and a profit margin) over an obligatory period of not less than 2 years; the lessee has the right to hold and use the property and may expense lease rentals; the lessee bears costs of repairs, maintenance, insurance, and preservation; and there is no obligation or option for the lessee to purchase the property at the end of the lease.
It is the difference between the value of the receivable purchased or the credit assigned and the net amount paid by the finance company for such purchase/assignment, exclusive of fees, services, charges, interest, and other charges incident to the extension of credit.
The Securities and Exchange Commission (SEC) is empowered to enforce the Act and issue implementing regulations except insofar as the Bangko Sentral ng Pilipinas (BSP) has supervisory authority under RA 7653 for financing companies performing quasi-banking functions, and except insofar as the Monetary Board has authority to prescribe financing company rates and charges under Section 5.
The Monetary Board of the BSP prescribes, in consultation with financing companies and the SEC, the maximum rate(s) of purchase discounts, lease rentals, fees, service, and other charges; it may change, eliminate, grant exemptions from, or suspend the effectivity of such rules whenever warranted by prevailing economic and social conditions.
Paid-up capital must be not less than: P10,000,000 for Metro Manila and first class cities; P5,000,000 for other classes of cities; and P2,500,000 for municipalities. At least 40% of voting stock must be owned by Philippine citizens. No foreign national may own stock unless the foreign national’s country accords reciprocal rights to Filipinos in ownership of financing companies or their counterpart entities.
They must comply within one (1) year from the date of effectivity of the Act.
It must be satisfied that: (1) all existing legal requirements to engage in the proposed business are complied with; (2) the organization, direction and administration, and the integrity and responsibility of organizers and administrators reasonably assure protection of the general public’s interests; and (3) all requirements of the Act are complied with. Additionally, existing companies must file an information sheet within 60 days after notice.
No person, association, partnership, or corporation may hold itself out as doing business as a financing company (or similarly titled) unless authorized under the Act. Otherwise, it exposes the party to penalties under the Act.
They may: (1) engage in quasi-banking and money market operations with prior BSP approval; (2) engage in trust operations subject to the General Banking Act with prior BSP approval; (3) issue bonds and other capital instruments per BSP rules; (4) rediscount paper with government financial institutions subject to laws/rules; (5) participate in special government financial institution credit programs; and (6) provide foreign currency loans and leases to exporters/earning foreign currency enterprises subject to BSP rules and laws.
Incentives/exemptions/benefits (including tax credits and investment incentives) granted by law or regulation to an eligible purchaser/importer/borrower or other eligible person are not lost, diminished, or impaired when the associated financing is through a financial lease rather than conventional borrowing. The financing company providing the financial lease becomes entitled to the corresponding incentive/exemption/benefit available to lenders/importers/purchasers/eligible persons.
When providing medium and long-term credit to small and medium enterprises, financing companies shall enjoy other rights, powers, benefits, and privileges granted by law or regulation to other non-bank financial institutions that provide similar credit to SMEs—intended to ensure competitive parity for SME financing.
Financing companies are not liable for loss, damage, or injury caused by a leased motor vehicle/aircraft/vessel/equipment/machinery/other property leased to a third person, except where the property is operated by the financing company, its employees, or agents at the time of the loss/damage/injury.
It requires the Register of Deeds to open and maintain a register of financial leases, as an adjunct to the chattel mortgage registry. Entries include: property identification details (brand/manufacturer, model, year, serial), acquisition cost, owner/finance company lessor, lessee, date of lease agreement/schedule, date of expiry, and date of entry in the lease registry.
Penalties are a fine of not less than P10,000 and not more than P100,000 or imprisonment for not more than 6 months or both (at court discretion). It penalizes: (1) engaging in financing company business without SEC authority; (2) holding out as financing/leasing company without authority via advertisements or representations; (3) using trade/firm names containing terms that give public impression of doing financing/leasing without authority; (4) violating provisions of the Act; and (5) officers/employees making knowingly false/misleading statements in applications/reports/documents, or aiding in overvaluing securities to influence actions on a loan/discounting line. It also penalizes SEC officers/employees/examiners who connive/aid/assist in acts under certain subsections.