Regulation of Non-Stock Savings and Loan Associations

Declaration of Policy

Encourage industry, frugality, and accumulation of savings.
Regulate and supervise non-stock savings and loan associations to ensure sound operations.
Establish minimum requirements and standards for organization and operation.
Maximize protection of members against misconduct by trustees and officers.

Definition of Terms

"Non-stock savings and loan association" means a non-stock, non-profit corporation for savings accumulation and loans to members.
"Association" refers only to non-stock savings and loan associations organized under this Act and the Corporation Code.
"Monetary Board" and "Bangko Sentral" refer to respective bodies of the Bangko Sentral ng Pilipinas.

Organization of an Association

Formed by 5 to 15 members of a well-defined group.
Must secure a license from the Monetary Board and register with the SEC before business.
License application requires articles of incorporation, bylaws, financial statements, and fees.
Monetary Board has authority to deny applications on grounds of unsound purpose or financial program.
Association membership limited to well-defined groups, such as company employees or government workers and their immediate families.
Entrance fee capped at 1% of member contribution.
Unauthorized use of the term "Savings and Loan Association" is prohibited.

Tax Exemption

Associations exempt from income tax on their income including interest on deposits.
Income from property or profit-making activity is taxable.
Interest earnings on deposits and members’ share from net income are tax-exempt.

Confidentiality of Deposits

Deposits are confidential and cannot be inspected except with depositor’s consent, court order, or in specific legal cases.
Disclosure by association officials or employees is unlawful, punishable under existing laws.

Powers of Associations

May accept deposits and grant loans only to members.
Loans limited by members’ deposits plus 12 months’ salary or 70% of collateral fair market value.
Loan maturity generally not more than 5 years; exceptions apply for real estate or agricultural loans up to 25 years.
Employers required to deduct loan payments from members’ salaries and remit to associations.
May charge reasonable interest, fees; invest in sound enterprises and government securities.
May borrow up to 20%, possibly 30%, of total assets.
May maintain bank deposits, require adequate office space, and run death benefit programs.

Restrictions on Associations

No demand, commercial or checking accounts permitted.
Cannot represent themselves as banks or advertise prohibited business.

Service Units

Associations may operate service units to serve members, subject to Monetary Board approval.

Agents and Salesmen

Agents/sales representatives must be licensed by the Monetary Board.
Collectors require written authorization but no license.

Merger or Consolidation

Associations of one company or department may merge with Monetary Board approval.

Trustees

Only members eligible as trustees.
Merger allows temporary expansion of board size.

Bond of Officers and Employees

Officers/employees with access to money or securities must post bonds for indemnity.

Compensation

Trustees, officers, employees cannot receive commissions or rewards based on loan volume or interest collected.
Salaries, commissions for agents, and performance-based bonuses are permitted.
Salary increases above 10% require Bangko Sentral approval.

Lending Authority Limitations

Loans limited to cash available, realizable investments, and credit from financing institutions.
No loans to officers/trustees without majority trustee approval, limits on loans to trustees capped at 20% of capital contributions.
Violations lead to vacancies and penalties including imprisonment and fines.

Loan Agreement

Written loan note with interest rate mandatory for each loan.

Officer Liability for Unauthorized Loans

Officers knowingly making unauthorized loans or investments liable for full amount to association.

Investment Limitations

Investments in bonds/securities capped at 10% of assets without approval.
Investments in real property capped at 5% of assets.
Office-related investments capped at 10% of capital contributions.

Reserve Requirements

Must maintain a withdrawable share reserve of 2%-3% of total capital contributions.
No net income distribution if reserve is below minimum.

Withdrawal by Members

Revalued surplus added to withdrawn capital to allow equitable asset distribution.
Reasonable payment period prescribed by Monetary Board.

Annual Reports

Associations must submit financial statements to Monetary Board within 120 days after fiscal year-end.
Monetary Board may require additional disclosures to protect members.

Regulatory Powers of Monetary Board

Monetary Board oversees capital, administration, integrity, and operations.
Regulates credit limits, loan terms, accounting systems, audits, and training.
Requires bonding of responsible officers/employees.
May fix limits on loans, investments and reserves.
Can revoke or suspend licenses for non-compliance or impaired solvency.
Authorized to administer oaths and compel document production.

Penalties

Refusal of lawful examination punished under laws applicable to financial entities.
False or misleading statements punishable by law.
Violations of the Act or Monetary Board rules punishable with fines and imprisonment.
Officers/agents accepting bribes or overvaluing securities face heavy fines and imprisonment.
Loan applicants committing fraud also face fines and imprisonment.
Bangko Sentral examiners committing misconduct face penalties.

Annual Fees

Associations may be required to pay annual fees to Bangko Sentral.

Implementation Support

Bangko Sentral may require assistance from government agencies for implementing the Act.

Annual Report to Congress

Monetary Board must report annually on rules and regulations promulgated under the Act.

Industry Association

Membership in recognized associations of associations encouraged.

Applicability of Other Laws

Relevant provisions of Republic Act Nos. 7653 and 337 apply where compatible.

Separability Clause

Invalidity of any provision does not affect other provisions or applications.

Repealing Clause

Repeals Republic Act No. 3779 and laws inconsistent with this Act.
Price stability provisions under RA No. 7653 take precedence.

Effectivity

Act takes effect 15 days after publication in Official Gazette or two national newspapers.