Law Summary
Definition of Terms
- Financing Companies: Corporations (excluding banks, cooperatives, etc.) primarily engaged in extending credit by various means including lending, discounting, factoring, buying/selling contracts, and financial leasing.
- Securities and Exchange Commission (SEC): The Philippine SEC overseeing implementation.
- Credit: Broadly defined to include loans, mortgages, leases, sales contracts with deferred payment, and similar financial transactions.
- Financial Leasing: Non-cancelable lease contracts for goods or properties where lessees pay periodic sums covering 70% of acquisition cost over at least two years without purchase obligation.
- Purchase Discount: Difference between value of receivable and amount paid by financing company.
- Lease Rentals: Periodic payments under financial lease.
Authority and Regulatory Oversight
- Securities and Exchange Commission (SEC) enforces the Act and issues regulations.
- Bangko Sentral ng Pilipinas (BSP) supervises financing companies performing quasi-banking functions.
- BSP’s Monetary Board prescribes maximum rates for discounts, rentals, fees, and charges, with power to amend or suspend rules based on economic/social conditions.
Organizational and Capital Requirements
- Financing companies must be stock corporations with at least 40% Filipino ownership.
- Minimum paid-up capital varies by location: P10 million for Metro Manila/first-class cities, P5 million for other cities, and P2.5 million for municipalities.
- Existing companies must comply with capital requirements within one year.
- Foreign ownership subject to reciprocity conditions.
Registration and Compliance
- SEC shall not register financing companies unless:
- All legal business requirements are satisfied.
- Organizers adequately protect public interest.
- Compliance with the Act is confirmed.
- Existing financing companies must file information sheets within 60 days of SEC notification.
- Unauthorized entities cannot use names or imply financing company status.
Rights and Powers of Financing Companies
- May engage in quasi-banking and trust operations with BSP approval.
- Authorized to issue bonds and capital instruments per BSP rules.
- Can rediscount papers with government financial institutions.
- May participate in government-sponsored loan or credit programs.
- Allowed to offer foreign currency loans to exporters under BSP rules.
- Additional powers may be granted by BSP or SEC as incidental to business.
Incentives and Parity with Other Financial Institutions
- Financial leases retain incentives, exemptions, tax credits, or benefits applicable to purchases or loans.
- Financing companies providing financial leases also entitled to lender or importer incentives.
- Parity clause grants financing companies rights, powers, benefits granted to other non-bank institutions providing similar credit to small and medium enterprises.
Liability and Registry of Financial Leases
- Financing companies are not liable for damages caused by leased property unless operated by the company or its agents.
- Registers of Deeds must maintain a financial lease registry including details like property description, acquisition cost, parties involved, and lease terms.
Penalties for Violations
- Fines ranging from P10,000 to P100,000, imprisonment for up to 6 months, or both.
- Applicable to unauthorized persons or entities engaging in financing business or misrepresenting themselves.
- Officers/employees making false statements or overvaluing securities face penalties.
- SEC officials aiding violations are also penalized.
Effectivity
- The Act takes effect 15 days after publication in the Official Gazette or two newspapers of general circulation.