Regulation of Savings and Loan Associations

Law Summary

Declaration of Policy

Regulate and supervise savings and loan associations for sound operations.
Establish minimum requirements and standards for establishment and business.
Protect public and members from misfeasance and malfeasance.
Encourage savings, industry, and frugality among the public.

Definitions

"Savings and loan association" refers to corporations that accumulate savings from members or stockholders and use said savings plus capital for loans and investments in productive enterprises or government securities.
"Monetary Board" means the Monetary Board of the Central Bank of the Philippines.
"Central Bank" means Central Bank of the Philippines.

Organization of Savings and Loan Association

May be organized as a stock or non-stock corporation.
Stock corporations: minimum fully paid-up capital of ₱100,000, authorized to transact with the general public.
Conversion from non-stock to stock corporation possible after 3 years with capital of ₱50,000.
Non-stock associations limited to defined membership groups, transact only with members.
Entrance fees require Monetary Board approval and capped at 1% of payment contributed.

Powers of Savings and Loan Associations

Incorporation under Corporation Law plus additional powers.
May grant loans not exceeding deposits plus four months' salary or 70% of collateral's fair value.
Maximum loan maturity is one year.
Authorized salary deduction by employers for loan payments.
Interest and fees within legal limits.
Discount commercial papers and accounts receivables subject to Monetary Board rules.
Investment in sound non-speculative enterprises and government bonds/securities.
Profit participation for members based on deposits.
Borrow up to 5% of total assets, extendable to 10% upon Monetary Board approval.

Restrictions on Savings and Loan Associations

Prohibited from maintaining demand, commercial, or checking accounts.
Cannot represent as a bank or trust company.
Prohibited from misleading advertisements or claims about business activities or investor rights.

Approval for Incorporation and Use of Name

Articles of incorporation and by-laws require Monetary Board approval prior to filing with the Securities and Exchange Commission.
Pre-existing associations must submit information and comply within one year.
Unauthorized use of savings and loan association name or holding out as such is prohibited.

Application Requirements

Must include names, character, experience of incorporators, directors, officers.
Financial projection for first year.
Public convenience and advantage justification.
Filing fees: ₱200 for stock corporations; ₱5 for non-stock corporations.

Hearing on Application

Notice to existing associations.
Hearing at least 10 days after notice.
Opportunity for interested parties to oppose.
Favorable endorsement if compliant.

Grounds for Refusal

Formation for non-legitimate business.
Unsound financial program.
Adequate service by existing associations.

Annual Licensing and Suspension

License required prior to business operations.
Monetary Board may revoke or suspend license for insolvency, violation of law, or irregularities.

Branch Offices and Agencies

License required for branches.
Public convenience and advantage must be demonstrated.
₱50 application fee.
Public hearing before license issuance.

Agents and Salesmen

License required to act as agent or operate agency.
Collectors require written authorization.

Qualifications for Directors

Must be a member (non-stock) or own at least ₱5,000 in stock (stock corporations).

Bonding of Officers and Employees

Officers/employees handling money or stock issuance must post bonds.
Bond form and amount prescribed by Monetary Board.

Compensation Restrictions

No commission or reward based on loan volume or interest collected for directors/officers/employees.
Salaries, agents’ commissions, and profit-based bonuses allowed.

Stock Ownership Restrictions for Officers, Directors, Employees

Acquisition of shares only through direct investment, gift, bequest, descent.
Purchase up to ₱3,000 without approval; beyond requires Monetary Board and Central Bank Auditor approval.

Lending Limitations

Loans limited to available cash, realizable investments, and credit from financing institutions.
No loans to directors, officers, employees directly or indirectly.
No loans to corporations majority-owned by directors or officers.
Loans cannot be secured by association’s own stock.

Loan Agreement and Liability

Written loan agreements with express interest rates required.
Officers and employees knowingly making unauthorized loans or investments are personally liable.

Investment Limitations

Maximum 10% of total assets in bonds and securities.
Maximum 5% in real property.
Maximum 10% of paid-up capital in office furniture, fixtures, equipment.

Reserves

Mandatory withdrawable share reserve of 3% of outstanding shares or capital contributions.

Dividend Restrictions

Dividends prohibited if it reduces reserves below 3% threshold.

Annual Reporting

Financial statements due within 60 days after fiscal year end.
Statements to be sent to Monetary Board and mailed or published for investors.
Monetary Board may require additional disclosures.

Monetary Board’s Enforcement Powers

Order discontinuance of violations, unsafe practices, or insolvency conditions.
May take possession of association property and business for specific causes.
Retain possession until resumption or liquidation.

Supervisory Powers of the Monetary Board

Evaluate organizers’ fitness and associations’ operations.
Set loan limits, procedures, accounting standards.
Conduct examinations, audits, training.
Suspend operations or take over management upon violations or insolvency.
Require bonds from accountable personnel.
Resolve disputes involving associations’ rights and obligations.
Issue implementing rules and regulations.

Penalties

Fines and imprisonment for willful refusal of examination, false statements, or violations.
Court assistance to enforce compliance or order liquidation.

Effectivity

The Act takes effect upon approval on June 22, 1963.