Regulation of Non-Stock Savings and Loan Associations

Law Summary

Declaration of Policy

Encourages savings, frugality, and judicious credit use among members.
Aims to regulate and supervise non-stock savings and loan associations for sound, stable, and efficient operations.
Protects members against misfeasance and malfeasance of trustees and officers.
Sets minimum standards for organization and operation.

Definitions

"Non-stock savings and loan association": a non-profit corporation accumulating members' savings and providing long-term financing for home building and personal finance.
"Association": refers only to non-stock savings and loan associations organized under this Act and the Corporation Code.
"Monetary Board": Monetary Board of the Bangko Sentral ng Pilipinas.
"Bangko Sentral": Bangko Sentral ng Pilipinas.

Organization of an Association

Minimum 5, maximum 15 members who form a well-defined group.
Must secure license from Monetary Board and register with SEC before starting business.
Application requires articles of incorporation, bylaws, proof of character and fitness of officers, financials, fee payment, and other info as required.
Monetary Board may deny application if association is not legitimate, financial program unsound, or members already served.
Membership confined to well-defined groups such as employees of one company, government employees of one branch, or their immediate families.
Entrance fees capped at 1% of member contributions.
Unauthorized use of the name "Savings and Loan Association" is prohibited.

Tax Exemption

Income including bank interest exempt from tax.
Income from property or profit-generating activities subject to tax.
Interest earnings and share of net income are income tax-exempt for members.

Confidentiality of Deposits

Deposits are absolutely confidential.
Disclosure only allowed with depositor's consent, court order (for bribery/duty dereliction cases), impeachment, or litigation.
Officials disclosing information unlawfully punished under RA 1405.

Powers of Associations

Accept deposits and grant loans only to members.
Loans limited to members' deposits plus allowable salary-based amount or up to 70% of fair market collateral.
Loan maturities capped at 5 years, except for home building (up to 25 years) and agricultural projects.
Payroll deductions required for loan payments.
May charge interest, collect fees, invest in sound enterprises and government securities, allow profit participation, borrow up to 20% of assets, maintain deposits, and run death benefit programs.

Restrictions on Associations

Cannot carry demand, commercial or checking accounts.
Cannot advertise or pose as a bank or claim to engage in prohibited business.

Service Units

May operate service units with Monetary Board approval.

Agents and Salesmen

Must secure license from Monetary Board to act as agent or sales representative.
Collectors do not need license but must be authorized in writing.

Merger or Consolidation

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

Trustees

Only members may be trustees.
Special rule for mergers allowing increased trustees up to 3 years.

Bond of Officers and Employees

Officers/employees with access to money/securities must post bond for indemnity as prescribed by Monetary Board.

Compensation of Trustees, Officers and Employees

No commissions or rewards based on loan volume or interest collected.
Salaries, agent commissions, and performance-based bonuses allowed.
Compensation increases over 10% require Bangko Sentral approval.

Limitations on Lending Authority

Loans limited to available cash, realizable investments, and credit from financiers.
Loans to trustees/officers require majority trustee approval; collectively capped at 20% of capital contributions.
Terms for such loans must not be more favorable than those to other members.
Violation results in vacancy and penalties including imprisonment and fines.

Execution of Loan Agreement

All loans require a written note or obligation expressing interest rate.

Liability of Officers for Unauthorized Loans

Officers knowingly making unauthorized loans/investments are personally liable to the association.

Limitations on Investment

Investments capped at 10% of total assets for bonds/securities (requires approval to exceed).
Real property investments capped at 5%.
Office-related fixed assets capped at 10% of capital contributions.

Reserves

Must create withdrawable share reserve at 2% of capital contributions, adjustable up to 3%.
Net income distribution prohibited if reserve below minimum.

Withdrawal by Member

Upon withdrawal, revalued surplus is added to capital for equitable asset distribution.
Monetary Board to prescribe rules including timing for payment.

Annual Reports

Must furnish Monetary Board and post financial statements within 120 days after fiscal year-end.
Monetary Board may require additional disclosures.

Regulatory Powers of Monetary Board

Regulate capital, financing, administration, loan limits, accounting systems, audits, training, bonding, loanable funds, investments, reserves, and issue necessary rules.
May revoke or suspend licenses for violations or solvency issues.
Officers/employees subject to sworn examinations and compelled document production.

Penalties

Willful refusal of lawful examination punished under RA 7653.
False or misleading statements to Monetary Board punished accordingly.
Violations of the Act or rules subject to penalties per RA 7653.
Officers/employees accepting bribes/fraudsters overvaluing securities subject to fines and/or imprisonment.
Monetary Board examiners aiding overvaluation also penalized.

Annual Fees

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

Implementation

Bangko Sentral authorized to require assistance from government departments for this Act's purposes.

Annual Report of Monetary Board

Monetary Board to submit annual report to Congress on rules issued and reasons therefor.

Industry Association

Membership in accredited associations of associations encouraged.

Applicability of Other Laws

RA 7653 and RA 337, as applicable and not conflicting, shall apply to these associations.

Separability Clause

Invalidity of any provision does not affect the rest of the Act.

Repealing Clause

RA 3779 and inconsistent laws repealed.
Provisions of RA 7653 prevail on price stability matters.

Effectivity

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