Question & AnswerQ&A (BSP Circular No. 886)
Salary-Based General-Purpose Consumption Loans refer to unsecured loans for a broad range of consumption purposes, granted to individuals mainly on the basis of regular salary, pension or other fixed compensation, where repayment would come from such future cash flows, either through salary deductions, debits from the borrower's deposit account, mobile payments, pay-through collections, over-the-counter payments or other payment arrangements agreed upon by the borrower and lender.
These loans may include credit accommodations for education, hospitalization, emergency, travel, household, and other personal consumption needs.
Credit cards, motor vehicles, and other personal loans covered by other existing applicable regulations are excluded from the coverage of this Circular.
Financial institutions must follow sound credit processes, including a comprehensive assessment of the borrower's creditworthiness, not relying on automatic formulas based on salary multiples. Individual borrowing capacity must be prudently assessed considering total personal and household indebtedness and disposable income. Original loan terms should not exceed three years, though they may extend to five years in meritorious cases. Loan renewals require reassessment of creditworthiness and payment of accrued interest and substantial principal reduction.
No loan renewal shall be granted without reassessing borrowing capacity and establishing continuing creditworthiness, payment of accrued interest receivable, and substantial reduction in the principal.
Financial institutions taking out loans from others should ensure full settlement of the original loan. Controls include directly releasing loan proceeds to the originating FI and obtaining official receipts as proof of full settlement.
Financial institutions must strictly adhere to BSP regulations on Financial Consumer Protection as prescribed under Part Ten of the Manual of Regulations for Banks and Part 4 of the Regulations Governing Non-Stock Savings and Loan Associations.
The Monetary Board may impose sanctions proportional to the seriousness of the offense on the financial institution and/or its board, directors, and officers in cases of persistent non-observance of the Circular's provisions.
They shall be reported under Loans to Individuals Primarily for Personal Use Purposes, specifically categorized as Salary-Based General-Purpose Consumption Loans in the prescribed Manual of Accounts and reporting templates for banks and rural/cooperative banks.
The Circular takes effect fifteen (15) calendar days following its publication in the Official Gazette or a newspaper of general circulation. Financial institutions have six (6) months from effectivity to adopt or amend their policies and procedures to comply with the Circular's provisions, and it applies to all outstanding salary-based general-purpose consumption loans including those prior to the Circular's effectivity.