Penalty on Past Due Rural Bank Loans

BSP Circular No. 1255 amends Subsection 3304.5 a(1) of Book III of the Manual of Regulations for Banks and Other Financial Intermediaries.
The amendment establishes a rule on how rural banks may impose penalties on past due loans.
The circular also directs the deletion of Subsection 3304.5, a (2) of the Manual of Regulations for Banks and Other Financial Intermediaries.

The circular governs the conditions under which rural banks may impose penalty on past due loans.
The regulatory framework allows penalties while imposing limits to ensure the penalty is reasonable and not unconscionable.

Rural banks may impose penalty on past due loans of borrowers.
The penalty may be imposed only if the borrower’s failure to pay on time is due to inexcusable neglect.
The penalty must be reasonable and not unconscionable.
The circular applies specifically to the penalty rule under Subsection 3304.5 a(1) of Book III of the Manual of Regulations for Banks and Other Financial Intermediaries.

Inexcusable neglect means the failure of the borrower to pay the loan on its due date for any reason except (1) natural calamities such as typhoons and floods, or (2) grave illness or death of the borrower or any immediate member of the borrower’s family, or (3) any other similar emergency beyond the control of the borrower.
The allowed calamities or emergencies must be the direct cause of the non-payment of the loan on its due date.

Penalties on past due loans may be imposed by rural banks only when the borrower’s late payment is attributable to inexcusable neglect.
Penalties must be reasonable and not unconscionable.

BSP Circular No. 1255 replaces Subsection 3304.5 a(1) with an amended text that includes the inexcusable neglect standard.
BSP Circular No. 1255 deletes Subsection 3304.5, a (2) from Book III of the Manual of Regulations for Banks and Other Financial Intermediaries.
The circular takes immediate effect upon adoption on October 12, 1990.