SEC to lift online lending moratorium under enhanced regulatory framework
The Securities and Exchange Commission (SEC) is looking to lift the moratorium on the registration of new online lending platforms (OLPs) of financing and lending companies (FLCs), as part of efforts to improve access to credit but under stronger consumer protection measures to ensure responsible practices in the lending industry.
The Commission on March 12 issued for public comment the draft memorandum circular providing for the guidelines lifting the moratorium on online lending platforms (OLPs) and prescribing prudential, disclosure, and market conduct requirements for financing and lending companies.
The moratorium on new OLPs has been in place since November 5, 2021, pursuant to SEC Memorandum Circular No. 10, Series of 2021.
The proposed lifting of the moratorium recognizes the need to promote responsible innovation, stimulate economic activity among FCs and LCs, and ensure that the operation of OLPs is aligned with consumer protection, market integrity, prudential objectives, financial inclusion, ease of market access, and the global trend toward digitalization.
While allowing the registration of new OLPs, the proposed guidelines provide for stronger safeguards against abusive and unfair debt collection practices, in line with provisions of Republic Act (RA) No. 3765, or the Truth in Lending Act; RA No. 11765, or the Financial Products and Services Consumer Protection Act, and RA No. 10173, or the Data Privacy Act.
New capital requirements
Pursuant to the lifting of the moratorium, the SEC is proposing new paid-up capital requirements for FLCs based on the number of OLPs they operate.
Financing companies that do not operate any OLP shall maintain a minimum paid-up capital of ₱20 million, while lending companies will be subject to ₱10 million.
For financing companies with one OLP, the minimum paid-up capital will be ₱30 million; ₱60 million for two to five OLPs; and ₱100 million for a maximum of 10 OLPs.
Meanwhile, lending companies must maintain ₱20 million minimum paid-up capital for one OLP; ₱30 million for two to five OLPs; and ₱50 million for up to 10 OLPs.
The proposed rules seek to limit the number of OLPs that FLCs operate to not more than 10, to ensure manageable oversight and mitigate systemic risk.
Existing FLCs will be given a three-year period to meet these new capital requirements in line with a Capital Compliance Plan that will be submitted to the Commission.
Single license policy
The proposed guidelines adopt a Single Certificate of Authority (CA) policy, wherein each FLC will only be issued one CA covering its principal office and all branch offices. Separate CAs per branch office will no longer be issued.
All existing and proposed branch offices must be declared in the Business Plan or Amended Business Plan submitted to the Commission.
In view of the adoption of the Single CA Policy and the removal of branch-level annual fees, the SEC is moving toward an asset-based Annual Licensing Fee (ALF), ranging from 0.10% to 0.35% of a company’s total assets.
Strengthened consumer protection standards
The draft MC further reinforces the commitment of the SEC to strengthen consumer protection standards in the lending industry.
Among others, the proposal strictly prohibits FLCs from accessing or scraping borrower contact lists, social media contacts, or messaging records from mobile devices.
The use of such personal data for debt collection, borrower harassment, reputational pressure, or disclosure of a borrower’s indebtedness to third parties is strictly prohibited.
OLPs are also barred from using automated, system-generated, or pre-programmed messages for debt collection purposes, except for neutral payment reminders that do not contain threats, coercive language, or demands. Such messages must also comply with the standards of fair and responsible collection practices under applicable laws.
FLCs are likewise prohibited from outsourcing, delegating, assigning, or transferring its core lending or financing functions to third party service providers.
In addition, all FLCs operating OLPs will be required to register with the Credit Information Corporation and regularly submit complete and accurate credit data information, in accordance with Republic Act No. 9150, otherwise known as the Credit Information System Act.
FLCs must use CIC credit reports and available credit data as part of their credit risk assessment process before approving a borrower’s loan.
The public may submit comments and recommendations on the proposed guidelines through this link on or before March 25.
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