State policy and regulatory purpose
- The State regulates and promotes financing and leasing companies to place their operations on a sound, competitive, stable and efficient basis as other financial institutions (Section 2).
- The State recognizes and strengthens the critical role of financing and leasing companies in providing medium and long-term credit for investments in capital goods and equipment, especially by small and medium enterprises particularly in the countryside (Section 2).
- The State curtails and prevents acts or practices prejudicial to the public interest so these companies can extend efficient service in a fair manner to the general public and to industry, commerce and agriculture (Section 2).
- The framework targets enabling financing companies to contribute to the sound development of the national economy (Section 2).
Key definitions and meaning of terms
- “Financing companies” mean corporations (except banks, investment houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized or operating under other special laws) primarily organized to extend credit facilities by direct lending or by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable and immovable property (Section 3; amended Section 3 of Republic Act No. 5980).
- “Securities and Exchange Commission” means the office of the Securities and Exchange Commission of the Philippines (Section 3).
- “Credit” includes loans, mortgages, financial leases, deeds of trust, advances or discounts, conditional sales contracts, contracts to sell, and sales/contracts of property or service where part or all of the price is payable subsequent to the making of the sale or contract; and also covers options, demands, liens or pledges, claims for delivery of property or money, purchases and other acquisition of credit upon the security of obligations or claims, and any transaction or series of transactions having similar purpose or effect (Section 3).
- “Financial leasing” is defined as a mode of extending credit through a non-cancelable lease contract where the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property, in consideration of periodic payments sufficient to amortize at least seventy percent (70%) of the purchase price or acquisition cost (including incidental expenses and a margin of profit) over an obligatory period of not less than two (2) years, during which the lessee may hold and use the leased property and may expense the lease rentals, bearing costs of repairs, maintenance, insurance, and preservation—without obligation or option to purchase from the owner-lessor at the end of the lease contract (Section 3).
- “Purchase discount” is the difference between the value of the receivable purchased or credit assigned and the net amount paid by the finance company for the purchase or assignment, excluding fees, services, charges, interest, and other charges incident to extension of credit (Section 3).
- “Lease rentals” refers to periodic payments made by the lessee to the lessor under Section 3 (d) of the amended act (Section 3).
SEC authority and Monetary Board authority
- The Securities and Exchange Commission is empowered to enforce Republic Act No. 5980, as amended, and issue implementing regulations, except insofar as the Bangko Sentral may have supervisory authority over financing companies licensed to perform quasi-banking functions under Republic Act No. 7653, and except insofar as the Monetary Board has authority to prescribe financing company rates and charges under Section 5 (Section 4).
- The Monetary Board of the Bangko Sentral ng Pilipinas is empowered to prescribe, in consultation with financing companies and the Securities and Exchange Commission, the maximum rate or rates of purchase discounts, lease rentals, fees, service and other charges of financing companies (Section 5).
- The Monetary Board may change, eliminate, or grant exemptions from, or suspend the effectivity of its rules whenever warranted by prevailing economic and social conditions (Section 5).
- Financing companies must operate within this regulatory structure for rates and charges, which are set as maximum rates subject to Monetary Board adjustment (Sections 4–5).
Organization, registration, and holding out
- Financing companies must be organized as stock corporations with at least forty percent (40%) of voting stock owned by citizens of the Philippines (Section 6; amended Section 6 of Republic Act No. 5980).
- Financing companies must have paid-up capital of at least PHP 10,000,000 if located in Metro Manila and other first class cities, at least PHP 5,000,000 in other classes of cities, and at least PHP 2,500,000 in municipalities (Section 6).
- No foreign national may be allowed to own stock in any financing company unless the foreign national’s country accords reciprocal rights to Filipinos in the ownership of financing companies or their counterpart entities in that country (Section 6).
- Financing companies duly existing and operating before the Act’s effectivity must comply with the minimum capital requirement within one (1) year from the Act’s effectivity (Section 6).
- The Securities and Exchange Commission must not register the articles of incorporation of a financing company unless it is satisfied—based on evidence submitted—that:
- all requirements of existing laws to engage in the proposed business have been complied with;
- organization, direction, administration, and the integrity and responsibility of organizers and administrators reasonably assure protection of the interest of the general public;
- all requirements of the Act have been complied with (Section 7; amended Section 7).
- Financing companies duly incorporated or registered prior to approval of the Act and actually existing and operating as such must file an information sheet with the Securities and Exchange Commission in the form to be prescribed by the Commission within sixty (60) days after notice from the Commission (Section 7).
- No person, association, partnership, or corporation may hold itself out as doing business as a “financing company,” “finance and investment company,” or any other title or name tending to give the public the impression it is engaged in the operations and activities of a financing company unless authorized under the Act (Section 7).
- Section 8 of the amended Republic Act No. 5980 is repealed by Republic Act No. 8556 (Section 8).
Powers, incentives, parity, and liability
- Financing companies have the following powers in addition to those granted by the Act and other laws (Section 9; inserted as new Section 9):
- engage in quasi-banking and money market operations with prior approval of the Bangko Sentral ng Pilipinas;
- engage in trust operations subject to the General Banking Act with prior approval by the Bangko Sentral ng Pilipinas;
- issue bonds and other capital instruments subject to pertinent rules and regulations of the Bangko Sentral ng Pilipinas;
- rediscount their paper with government financial institutions subject to relevant laws, rules, and regulation;
- participate in special loan or credit programs sponsored by or made available through government financial institutions; and
- provide foreign currency loans and leases to enterprises that earn foreign currency by exports or other means, subject to existing laws and Bangko Sentral rules (Section 9).
- The Act provides that no provision of this section prevents a financing company from performing services or exercising powers granted by the Bangko Sentral or the Securities and Exchange Commission, or those incidental to corporate activities (Section 9).
- Incentives and exemptions connected with a transaction through financial lease are protected:
- any incentive, exemption, or benefit (including tax credits and investment incentives) granted by law or regulation to eligible purchasers, importers, borrowers, or other eligible persons is not lost, diminished, or impaired when the associated financing is through a financial lease rather than conventional borrowing (Section 10; inserted as new Section 10);
- financing companies providing financial leases are entitled to the incentive, exemption, benefit, or privilege available to lenders, importers, purchasers, or other eligible persons in such transactions under applicable law or regulation (Section 10).
- When providing medium and long-term credit to small and medium enterprises, financing companies enjoy the same other rights, powers, benefits, and privileges granted by law or regulation to other non-bank financial institutions when they provide similar credit to such enterprises (Section 11; inserted as new Section 11).
- Financing companies are not liable for loss, damage, or injury caused by a leased motor vehicle, aircraft, vessel, equipment, machinery, or other property leased to a third person or entity except when the leased property is operated by the financing company, its employees, or its agents at the time of the loss, damage, or injury (Section 12; inserted as new Section 12).
Registry of financial leases
- The Register of Deeds must open and maintain a register of financial leases as an adjunct to the chattel mortgage registry (Section 13; inserted as new Section 13).
- The financial lease register must contain these particulars (Section 13):
- name or description of property, including brand name or manufacturer, model (if any), year of model or manufacture (if available), and serial number (if any);
- acquisition cost;
- name of owner or finance company lessor;
- name of lessee;
- date of lease agreement or schedule;
- date of expiry of lease; and
- date of entry in the lease registry.
Penalties for prohibited acts
- Section 14 establishes criminal penalties for violations and misconduct, imposing a fine of not less than PHP 10,000 and not more than PHP 100,000, or imprisonment for not more than six (6) months, or both, at the discretion of the court (Section 11; amended Section 14).
- The penalty applies to persons, associations, partnerships, or corporations (including the managing officer) that:
- engage in the business of a financing company without authority from the Securities and Exchange Commission;
- hold themselves out as financing companies through advertisements (in any form, including stationery, commercial paper, or other documents) or through other representations without authority;
- use a trade or firm name containing specified words—“Financing Company,” “Leasing Company,” “Finance and Leasing Company,” “Finance and Investment Company,” or any other designation giving the public the impression of a financing company or leasing company business as defined in the Act—without authority; and
- violate the provisions of the Act (Section 14).
- The penalty also applies to any officer, employee, or agent of a financing company who:
- knowingly and willingly makes a false or misleading statement in an application, report, or document required to be filed under the Act regarding any material fact; or
- overvalues or aids in overvaluing securities to influence the company’s action on any loan or discounting line (Section 14).
- The penalty also applies to any officer, employee, or examiner of the Securities and Exchange Commission directly charged with implementation of the Act who commits, connives, aids, or assists in the acts described for subsections involving:
- persons, associations, partnerships, corporations; and
- their unlawful holding out and related violations, and the financing company’s overvaluation-related misconduct (Section 14).
Effectivity, numbering, and repeal mechanics
- Section 9 renumbers the prior Section 9 of Republic Act No. 5980 as Section 8 (Section 9).
- Sections 10, 11, 12, and 13 are inserted after the renumbered Section 8 as new Sections 9, 10, 11, 12, and 13 containing the powers, incentive treatment, parity clause, liability limitation, and financial lease registry rules (Section 10).
- Section 11 renumbers the former Section 10 of the same Act as Section 14 and amends it to establish the penalty provisions (Section 11).
- Sections 11 and 12 of the same Act are renumbered as Sections 15 and 16, respectively (Section 12).
- Section 13 governs effectivity, requiring publication completion and a fifteen (15)-day period after publication in the Official Gazette or in two (2) newspapers of general circulation (Section 13).