QuestionsQuestions (SEC)
Financing companies are stock corporations (except banks, investment houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized under special laws) primarily organized to extend credit facilities to consumers and industrial/commercial/agricultural enterprises through direct lending; or by discounting/factoring commercial papers/accounts receivable; or by buying/selling contracts, leases, chattel mortgages, or other evidences of indebtedness; or by financial leasing.
“Credit” includes loans and similar credit instruments and arrangements (e.g., mortgage, financial lease, advance/discount, conditional sales contracts, contracts to sell), payments payable later, options/demands/lien/pledge, and transactions or series having similar purpose or effect, including obligations for delivery of property or money and credits upon security of claims.
Financial leasing is a non-cancellable lease under which the lessor purchases/acquires property at the lessee’s instance in consideration of 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 bears costs of repairs, maintenance, insurance, and preservation; and there is no obligation or option for the lessee to purchase at the end.
Discounting is purchase/assignment by a financing company of evidence of indebtedness (e.g., installment contracts, promissory notes) at less than face value. Factoring is purchase/assignment by a financing company of open accounts (not evidenced by written promise to pay supported by documents like invoices/delivery receipts) at less than the outstanding balance.
At least 40% of voting stock must be owned by Filipino citizens. Minimum paid-up capital depends on location: P10,000,000 for Metro Manila/1st class cities; P5,000,000 for other class cities; P2,500,000 for municipalities. Existing financing companies before R.A. 8556’s effectivity must comply within 1 year.
The corporate name must contain “financing company,” “finance company,” or “finance and investment company,” or other title/word(s) descriptive of its operations as a financing company.
Financing companies may: (1) engage in quasi-banking/money market operations with prior approval of BSP; (2) engage in trust operations subject to the General Banking Act with prior BSP approval; and may issue bonds and other capital instruments, rediscount with government financial institutions, participate in government credit programs, and provide foreign currency loans/leasing subject to laws and BSP rules. The SEC allows inclusion of these powers in the Articles after submission of the relevant license/authority from the concerned government agency.
The SEC requires 5 copies of an application under oath by the President, plus: (1) corporate registration documents; (2) Information Sheet; (3) Personal Information Sheets of directors and certain officers (Vice-President and up or equivalent); (4) SEC questionnaire answer; (5) clearances and supporting documents for Filipino directors/officers (police clearance, NBI clearance, certificate of good moral character, and bank credit information); (6) for foreign directors/officers: Bureau of Immigration clearance and photocopies of passport/ACR; (7) BSP clearance if the applicant is a subsidiary/affiliate of a bank or licensed non-bank financial institution with quasi-banking license; and (8) other documents the SEC may require.
Upon receipt of papers, the SEC causes the Notice and Order to be published at the applicant’s expense in a newspaper of general circulation once a week for 2 consecutive weeks. The notice includes the company name, capital structure, and directors’ names and residences. Any interested party may oppose in writing within 15 days after the last publication date. If requirements are complied with and no valid reason exists, the SEC issues a Certificate of Authority to Operate.
The financing company must commence operations within 120 days from grant. Failure subjects it to a fine of not less than P10,000. The company may be granted a grace period of another 60 days; failure within the extended period empowers the SEC, after notice and hearing, to revoke the Certificate.
No branch/agency/extension office/unit may be established without SEC prior authority. The application must include: information sheet for the branch, SEC questionnaire answer, police clearance for manager/cashier/admin officer, NBI clearance for those officers, proposed personnel chart, and other required documents. It must also be published under Section 4(b). Additional capital per unit depends on location: P1,000,000 (Metro Manila/1st class cities), P500,000 (other class cities), P250,000 (municipalities).
Examples: (1) Real estate and shares in real estate development corporations/real estate based projects cannot exceed 25% of networth; (2) More than 50% of funds must be used/invested in financing company activities (with certain short-maturity government securities and special savings deposits considered in the computation); (3) Total credit to directors/officers/stockholders and related interests cannot exceed 15% of networth; (4) Total credit to any person/company/firm cannot exceed 30% of networth.
Interest income on loans and lease receivables must not be recognized if loans/receivables remain outstanding beyond maturity dates unless collected. A 100% allowance for probable losses must be set up for several categories, including clean loans/advances past due over 6 months, certain collateral whose value declined by more than 50% without additional collateral, adverse-claim real estate mortgage titles, insolvent/unknown/unreachable borrowers with impaired earning power, accrued interest uncollected after 6 months from maturity, and accounts receivable past due 361 days or more.
Negotiation/sale/assignment of evidence of indebtedness must follow SEC rules on registration of commercial papers and the lender limit under R.A. 337 for non-quasi-banking financing companies. Factored/discounted accounts and other evidence of indebtedness not covered by the prior category cannot be sold/assigned/transferred except to specified entities (e.g., banks including trust accounts, BSP-authorized quasi-banking non-banks, investment houses, financing companies, investment companies, non-stock savings and loan associations, insurance companies, government financial institutions, approved pension/retirement/educational assistance funds), with pension/educational assistance fund transactions required to be recourse.
No corporation may include discounting, factoring, and leasing as one of its secondary purposes. Unless authorized under R.A. 8556, no person/association/partnership/corporation may engage in the financing company business, hold itself out as a financing company (including through advertisements, documents, or other representations), or use trade/firm names containing words that would imply it is engaged in financing/leasing.
Quarterly report: within 45 days from end of each fiscal quarter, including statements of condition/income/expenses, aging of receivables, schedule of liabilities, and list of officers/directors/stockholders. Audited financial statements: within 120 days after end of fiscal year (5 copies). Changes in board/officers (Vice-President rank and up), branch manager, cashier, and admin officer: within 7 working days; supporting documents required by specified sections within 30 working days. Reports must be signed under oath by principal executive officer and principal financial officer.
Administrative sanctions (after SEC finds violations/refusal to audit/books audited failure and continuous non-compliance): suspension or revocation of authority after proper notice and hearing; fines—basic not less than P10,000 plus P100 per day of continuing violation, capped at P100,000; and other sanctions within SEC power. Cease-and-desist: SEC may issue without prior hearing if act may cause grave/irreparable injury or prejudice, or amount to fraud/violation; it automatically suspends authority. SEC must copy parties and schedule hearing within 15 days after service, and decide within 30 days from submission whether to lift or impose sanctions.