SEC lifts ban on new online lending apps

THE SECURITIES and Exchange Commission (SEC) is lifting the moratorium on the registration of new online lending platforms (OLP) starting Aug. 1.

At the same time, the SEC raised the capital and disclosure requirements for financing and lending companies, as it seeks to improve the regulatory oversight of the sector and boost consumer protection.

The corporate regulator on Tuesday issued Memorandum Circular No. 20, which sets the guidelines prescribing prudential, disclosure and market conduct requirements for financing companies (FC) and lending companies (LC), as well as lifts the moratorium on new OLPs.

“The commission recognizes the need to lift the moratorium… in order to promote responsible innovation, stimulate economic activity among FCs and LCs, and ensure the operation of OLPs is aligned with consumer protection, market integrity, prudential objectives, financial inclusion, ease of market access, and alignment with the global trend of digitalization,” the SEC said.

The moratorium on new OLPs has been in place since November 2021 as the SEC developed new rules to address predatory lending and abusive debt collection practices.

“The lifting of this moratorium shall not be construed as an automatic or unconditional approval of any OLP. All FCs and LCs, whether existing or newly incorporated, shall remain subject to the disclosure, business plan, minimum paid-up capital, operational, consumer protection, data privacy, and supervisory requirements,” the SEC said.

Under the new circular, FCs and LCs seeking to operate OLPs will be required to maintain higher paid-up capital depending on the number of platforms they own, operate, control, or utilize.

An OLP is defined as any borrower-facing digital platform, app or system that is used for financing and lending activities such as loan applications, credit evaluation and loan repayment.

Financing companies with one OLP are required to have a minimum paid-up capital of P20 million, P40 million for two OLPs, P60 million for three OLPs, P80 million for four OLPs, and P100 million for five OLPs.

Lending companies with one OLP should have a paid-up capital of P10 million, P20 million for two OLPs, P30 million for three OLPs, P40 million for four OLPs, and P50 million for five OLPs.

New financing firms are required to have a minimum paid-up capital of P15 million, while new lending firms should have P5 million in paid-up capital. Existing ones are not required to adjust their capital immediately unless they expand operations.

The Lending Company Regulation Act of 2007 sets the minimum paid-in capital for lending companies at P1 million but allows the SEC to impose higher capitalization requirements when warranted.

The SEC also capped the number of OLPs that can be owned and operated by financing and lending firms to five as a “prudential limit to ensure effective supervision, adequate governance and manageable consumer risk exposure.”

Existing FCs and LCs with one or more OLPs should comply with the paid-up capital requirements corresponding to the number of platforms within 12 months.

Those that do not intend to comply with the capital requirements should reduce their OLPs and disclose only OLPs supported by their existing capital levels. If an OLP is not disclosed, it may no longer be operated.

Also, the SEC rules state that new financing and lending firms will be issued with only one certificate of authority, regardless of the number of branches or location. No separate certificates will be issued for OLPs.

The SEC is also imposing an annual licensing fee (ALF) at the entity level “to reflect the cost of continuing supervision, monitoring, and regulatory oversight of FCs and LCs, including those operating through digital or platform-based channels.” This is computed based on the total assets reflected in the latest audited financial statements.

CONSUMER PROTECTION
The SEC also tightened consumer protection standards in the industry, including preventing financing and lending firms from releasing loan proceeds without borrowers’ “explicit and informed” confirmation of final loan terms.

Under the new guidelines, companies must provide complete loan disclosures and allow borrowers reasonable time to review them before obtaining confirmation. Loan approvals and confirmations must also be properly recorded and traceable to the transaction.

“In collecting payments from borrowers, the FCs and LCs shall ensure that all collection communications… are conducted in a manner that is fair, transparent and not misleading and consistent with applicable laws, rules and regulations,” SEC said.

The borrower will have the right to disregard any collection communication that fails to reasonably identify the FC, LC or OLP.

“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 said.

For unfair debt collection practices, LCs face a P60,000 fine for a first offense and P250,000 for a second offense, while FCs face a P100,000 fine for a first offense and P500,000 fine for a second offense.

For succeeding offenses, the SEC may impose a fine of not less than twice the fine for the second offense but not more than P1 million and suspend the firm for 60 days or revoke their certificate of authority. — A.G.C.Magno