Law Summary
Definitions
- Lending Company: Corporation granting loans from own capital or funds from up to 19 persons; excludes banks, investment houses, cooperatives, and other regulated institutions.
- Debtor: Borrower granted a loan by the lending company.
- Quasi-Bank: Non-bank financial institution authorized by BSP to conduct quasi-banking and borrow from more than 19 lenders.
- Subsidiary and Affiliate: Corporations related or linked to banks or quasi-banks based on ownership percentages.
- SEC: Securities and Exchange Commission.
- BSP: Bangko Sentral ng Pilipinas.
Organizational Requirements
- Lending companies must be corporations.
- Existing lending investors as sole proprietorships or partnerships must convert to corporate form within one year.
- Operation by lending companies requires SEC authority to operate.
Capitalization Requirements
- Minimum paid-in capital of P1,000,000 for new lending companies.
- Existing companies must comply within a period prescribed by SEC, not less than three years.
- SEC may require higher minimum capitalization based on circumstances.
Citizenship Ownership
- Majority ownership in lending companies must be Filipino citizens.
- Foreign ownership capped at 49%, non-increasing if previously above this.
- Ownership based on individual citizenship, including indirect ownership through corporations.
- Reciprocity clause for foreign nationals.
Loan Amounts and Charges
- Loan amounts and interest rates are agreed upon by lender and debtor.
- Compliance with Truth in Lending Act (R.A. 3765) and Consumer Act (R.A. 7394) is mandatory.
- Monetary Board may regulate interest rates based on economic and social conditions.
Accounting and Reporting
- Lending companies must maintain books and records as required by SEC, BIR, and other agencies.
- Separate accounting for other businesses apart from lending.
- Adoption of BSP’s Manual of Accounts until SEC prescribes a new one.
- Must issue appropriate documents evidencing lending and borrowing transactions.
SEC Authority and Supervision
- SEC empowered to create a dedicated division for lending companies.
- Authority to issue implementing rules and regulations.
- Powers include requiring reports, visitorial powers, and imposing sanctions.
- Sanctions may include suspension, revocation, and fines.
Rules and Regulations Implementation
- SEC required to promulgate implementing rules within three months post-approval.
Jurisdictional Delineation
- SEC supervises all lending companies generally.
- Lending companies that are subsidiaries or affiliates of banks/quasi-banks are subject to BSP.
- Monetary Board may order examination if lending company used to circumvent BSP regulations.
Penalties and Sanctions
- Unauthorized operation: fine between P10,000 and P50,000, imprisonment 6 months to 10 years, or both.
- Officers and employees knowingly violating the law face similar penalties.
- False or misleading statements, overvaluation of securities, and collusion by officials are punishable.
Application of Other Laws
- Truth in Lending Act, Consumer Act, and other applicable laws continue to apply unless conflicting.
Repealing Clause
- Conflicting laws, orders, or regulations are repealed or amended accordingly.
Separability Clause
- Invalidity of any provision does not affect the rest of the Act.
Effectivity
- Act becomes effective 15 days after publication in two national newspapers.