Today is June 18, 2019

Lending Companies and Financing Companies

LENDING COMPANIES

Definition

A corporation engaged in granting loans from its own capital funds or from funds sourced from not more than nineteen (19) persons.

It shall not be deemed to include banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law.

The term shall be synonymous with lending investors.

(Section 3, Republic Act No. 9474 or the Lending Company Regulation Act)

It shall only be established as a stock corporation with the words “Lending Company”, “Lending Investor” or any other word descriptive of its primary activity of granting loans to the public, except words commonly used to identify financing companies, included in its corporate and trade name.

No lending company shall conduct business unless granted an authority to operate by the Securities and Exchange Commission (“SEC”).

(Sec. 4, R.A. No. 9474 and Rule 3 of its Implementing Rules and Regulations [“IRR”])

Powers

A lending company may grant loans in such amounts and reasonable interest rates and charges as may be agreed upon between the lending company and the debtor:

Provided, That the agreement shall be in compliance with the provisions of R.A. No. 3765 (Truth in Lending Act) and R.A. No. 7394 (Consumer Act of the Philippines);

Provided, further, That the Monetary Board, in consultation with the SEC and the industry, may prescribe such interest rate as may be warranted by prevailing economic and social conditions.

(Sec. 7, R.A. No. 9474)

FINANCING COMPANIES

Definition

Corporations primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises,

(1) by direct lending or by discounting or by factoring commercial papers or accounts receivable, or
(2) by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or
(3) by financial leasing of movables as well as immovable property.

It does not include banks, investment houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized or operating under other special laws.

(Sec. 3(a), R.A. No. 8556 or the Financing Company Act, as amended)

It shall be organized in the form of a stock corporations, subject to the following requirements:

(a) At least forty percent (40%) of the voting stock of the corporation shall be owned by citizens of the Philippines;
(b) A minimum paid-up capital as required by SEC issuances regarding financing companies; and
(c) The corporate name of financing companies shall contain the term “financing company”, “finance company”, “finance and investment company” or any other title or word(s) descriptive of its operations and activities as a financing company.

(Sec. 6, R.A. No. 8556)

Rights and Powers

(a) Engage in quasi-banking and money market operations with the prior approval of the Bangko Sentral ng Pilipinas (“BSP”);
(b) Engage in trust operations subject to the provisions of the General Banking Act upon prior approval by the BSP;
(c) Issue bonds and other capital instruments subject to pertinent laws, rules and regulations;
(d) Rediscount their paper with government financial institutions subject to relevant laws, rules and regulations;
(e) Participate in special loan or credit programs sponsored by or made available through government financial institutions; and
(f) Provide foreign currency loans and leases to enterprises that earn foreign currency by exports or other means subject to existing laws, rules and regulations promulgated by the BSP.

Such rights and powers may be included in the financing company’s Articles of Incorporation after submission of the appropriate license/authority issued by the government agency involved.

(Sec. 9, R.A. No. 8556)