| Regulating the Business of Lending (Part I) |
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Lending Investor (LI) or lending company, as others would call it, is a form of an institution which had its beginnings in the country in the mid-70s. It emerged to address the needs of individuals left unserved by the more sophisticated form of credit institutions. Lending investors are no different from institutions engaged in micro-finance. Lending companies or lending investors are those engaged in granting direct loans with interest and charges, whether on a secured or unsecured basis. Simply put, they are the ones that provide credit to borrowers who are left out of the sophisticated formal fmancial system. Lending companies are different from banks and quasi-banks in that they lend their own funds. Although they may source the funds from other persons, such sources do not exceed 19 at any single time. In 1972, the Central Bank of the Philippines had the jurisdiction and authority over the entire credit system. Consequently, lending investors, although they do not obtain funds from the general public, were placed under the regulatory umbrella of the old Central Bank. However, when the BSP Charter (R.A. No. 7653) was enacted, lending investors were removed from the regulatory powers of the Bangko Sentral. While most non-bank financial institutions are governed by special laws like the Financing Company Act, the Investment Company Act and the Pawnshop Regulation Act, lending companies were left in limbo. The lack of regulation resulted in a host of unacceptable practices. High-lending rates were charged, official receipts were not issued, and charges were not wholly disclosed to the borrowers. A number of multibillion scams were 'pulled off by unscrupulous lending investors against the public, in large part due to the lack of appropriate in industry regulation. A Department of Justice opinion caused the Securities and Exchahge Commission to assume authority over lending investors in 2001. However, still bereft of a regulatory framework over these institutions, the SEC issued a circular directing lending, investors to incorporate as financing companies and conform to the requirements of the Financing Company Act, including the minimum capitalization of P10 million for Metro Manila and other first-class cities. The circular requiring the conversion of lending investors to financing companies was met with various criticisms. Only a few were able to afford the P10 million capitalization. In fact, of the 10,885 lending investors operating all throughout the country, only 360 were able to register as financing companieis as of the start of this year. Owing their ontinued existence to the extension of the deadline set forth in the SEC circular and the recent Court of Appeals order prohibiting the ihplementation of the said circular, lending investors address the financing needs of the common tao who were left unserved by the more sophisticated forms of credit institutions. They provide much needed capital to the country's entrepreneurs especially in the areas where growth opportunities are abundant but financial resources are scarce. They likewise lend temporary remedy to those who have troubles making both ends meet. The industry, however, should not be allowed to continue unregulated. And with the recent Court of Appeals decision invalidathg the SEC circular, we now find the industry again back to the non-regulatory regime. The absence of adequate guidelines on their operations only lead to the proliferation of loan sharks who victimize the poor who are in due need of ready credit. (Read Part II)
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Newer posts:
- Trading down in a slowing economy --
- Jeepney Fare back to P7.50 minimum by November 2 --
- Stronger Peso ahead: P42.50:$1 at year-end --
- Credit Cards and Access Devices Regulation: Explained --
- Regulating the Business of Lending (Part 2) --
Older posts:
- The Truth in Lending Act explained --
- Insolvency and Criminal Cases --
- Personal Finance: Pay Yourself First --
- Task force to target credit card fraudsters --
- Consumer protection in electronic banking (e-banking), e-commerce --
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