SEC draft rules set new capital requirements for online lenders

THE SECURITIES and Exchange Commission (SEC) is asking for more public feedback for its latest draft guidelines for online lending firms that seek to lift a 2021 registration moratorium and tighten regulatory requirements for these companies.

The latest draft issued on June 9 proposes new capital, governance, and consumer protection requirements for financing and lending companies operating online lending platforms (OLP).

New financing companies (FC) will be required to put up and maintain a minimum paid-up capital of P15 million, while new lending companies (LC) need at least P5 million.

Meanwhile, existing companies will not be required to immediately adjust their capital levels unless they expand their operations.

The previous draft sought to impose new capital requirements on both upcoming and existing companies.

The SEC is also proposing capital requirements for financing or lending companies that own, operate, control, or use OLPs, which will be higher if they have more than one.

“All FCs and LCs, whether existing or incorporated after the effectivity of this circular,… shall possess and maintain paid-up capital commensurate with the scale, complexity, and risk of its digital lending operations,” it said.

The draft rules limit financing and lending companies to operating a maximum of five online lending platforms “as a prudential limit intended to ensure effective supervision, adequate governance, and manageable consumer risk exposure.”

Financing companies operating just one OLP will be required to maintain a minimum paid-up capital of P20 million. This would increase to P60 million for a maximum of three OLPs, and then to P100 million for those operating with four or five.

For lending companies, the proposed minimum paid-up capital would be at P10 million for those with one OLP, P30 million for at most three OLPs, and P50 million for five OLPs at maximum.

“Each OLP shall be determined on the basis of a distinct borrower-facing brand, name, application, or digital identity under which lending services are offered to the public. Multiple brands or applications that appear to borrowers as separate platforms shall be treated as separate OLPs, notwithstanding the use of shared systems or infrastructure,” the SEC said.

The draft sets a two-year transition period for compliance with these capital requirements.

The proposal also adopts a Single Certificate of Authority policy, under which a financing or lending company would be issued one certificate covering its principal office, branch offices, and OLPs.

It also sets minimum operational features and functionalities for OLPs, including system controls, transaction traceability, and access controls to ensure that borrower interactions and transactions remain secure.

CONSUMER PROTECTION
The latest proposal also includes provisions on loan disbursement and term disclosures, as well as debt collection.

Under the draft guidelines, financing and lending companies will be prohibited from disbursing loan proceeds without a borrower’s explicit and informed confirmation of the final loan terms. Automatic renewal is also prohibited. 

The SEC said financing and lending companies must ensure that their OLPs “clearly, prominently, and comprehensibly” disclose to borrowers the computation that shows the true cost of credit that must be easily understandable. These information must include the total loan amount, how much will be disbursed, applicable rates shown on a monthly basis and the corresponding effective interest rate, and all other fees or charges. They must also present the payment schedule and applicable penalties for late payments, exact loan terms in days or months.

The proposed rules also require collection communications, whether conducted directly by the company or through third-party service providers, to clearly identify the registered name of the company and the specific OLP involved.

“In no case shall any person appearing in the borrower’s contact list, character references, or similar personal information be treated, represented, or contacted as a guarantor, surety, co-maker, or person liable for the borrower’s loan obligation, unless such person has separately and expressly agreed in writing to assume such legal obligation.”

The SEC is also proposing higher penalties for violations of SEC Memorandum Circular No. 18, Series of 2019, which prohibits unfair debt collection practices. These range from P50,000 to P100,000 for the first offense.

For the third and succeeding offenses, the SEC may impose a fine of up to P1 million, suspend the activities of the financing or lending companies, or revoke their certificates of authority.

The SEC said feedback on the latest draft guidelines may be submitted until June 15. — Alexandria Grace C. Magno