Question & AnswerQ&A (Republic Act No. 8556)
The official short title of Republic Act No. 8556 is the "Financing Company Act of 1998."
Under RA 8556, financing companies are corporations primarily organized to extend credit facilities to consumers and to industrial, commercial, or agricultural enterprises through direct lending, discounting or factoring commercial papers or accounts receivable, buying and selling contracts, leases, chattel mortgages, or by financial leasing of movable and immovable property.
The Securities and Exchange Commission (SEC) is empowered to enforce the provisions of the Act and issue implementing regulations, except where the Bangko Sentral ng Pilipinas (BSP) has supervisory authority over financing companies performing quasi-banking functions.
The Monetary Board of the Bangko Sentral ng Pilipinas is empowered to prescribe maximum rates for purchase discounts, lease rentals, fees, service, and other charges of financing companies, with the power to amend or suspend such rules based on prevailing economic and social conditions.
Financing companies must have a paid-up capital of at least ₱10 million if located in Metro Manila and other first class cities, ₱5 million in other classes of cities, and ₱2.5 million in municipalities.
At least forty percent (40%) of the voting stock of a financing company must be owned by citizens of the Philippines.
A financial lease is a non-cancelable lease contract where the lessor acquires property at the lessee's instance, with lease payments amortizing at least 70% of the acquisition cost over no less than two years. The lessee holds and uses the leased property, bears costs like repairs and insurance, but has no obligation or option to purchase the property at lease end.
Financing companies are not liable for loss, damage, or injury caused by leased motor vehicles, aircraft, vessels, equipment, or other property unless the property is being operated by the company, its employees, or agents at the time of the incident.
Offenders may be fined between ₱10,000 and ₱100,000, or imprisoned for up to six months, or both, at the discretion of the court. This includes engaging in business without SEC authority, misrepresenting as a financing company, and other violations of the Act.
Yes, financing companies may engage in quasi-banking and money market operations with prior approval from the Bangko Sentral ng Pilipinas.
The SEC shall not register a financing company unless it is satisfied that all legal requirements to engage in the business have been complied with, the integrity of organizers and administrators assures public interest protection, and the company meets the capital and other requirements under the Act.
The lease registry serves as an adjunct to the chattel mortgage registry and contains detailed information of financial leases, including descriptions of property, acquisition cost, names of lessor and lessee, lease agreement and expiry dates, and date of registry entry.
The Act ensures that any incentive, exemption, or benefit available for purchases or financing transactions is not lost or impaired when financing is extended through a financial lease instead of conventional borrowing. Financing companies are entitled to such incentives as lenders or importers under applicable laws.
Purchase discount is defined as the difference between the value of a receivable purchased or credit assigned and the net amount paid by the finance company for such purchase or assignment, excluding fees, service charges, interest, and other charges related to the extension of credit.
Foreign nationals may own stock in financing companies only if their country allows Filipinos reciprocal rights to own financing companies or their equivalents there. Otherwise, ownership is restricted.