The Securities and Exchange Commission (SEC) has revoked the Certificate of Authority (CA) of Familyhan Credit Corporation to operate as a lending company after the latter engaged in unfair debt collection practices and failed to disclose the true cost of loans extended to borrowers.
In an order dated April 13, the SEC Corporate Governance and Finance Department (CGFD) found Familyhan liable for three violations of SEC Memorandum Circular No. 18, Series of 2019 (SEC MC 18), which provides for the Prohibition on Unfair Debt Collection Practices of Financing Companies and Lending Companies.
In addition, the CGFD found Familyhan to have committed eight violations of Republic Act No. 3765, or the Truth in Lending Act (TILA), in relation to SEC Memorandum Circular No. 7, Series of 2011 (SEC MC 7), which outlines the rules on the Implementation of the TILA to Enhance Loan Transaction Transparency.
Familyhan violated the prohibition on unfair debt collection practices when it contacted persons in the debtor’s contact list other than those named as guarantors or co-makers of the loan agreement, according to the CGFD.
“Notwithstanding the borrower’s consent, contacting the persons in the borrower’s contact list other than those who were named as guarantors or co-makers shall also constitute unfair debt collection practice,” the CGFD explained, citing Section 1(h) of SEC MC 18.
Whether or not contacting third parties in the borrower’s contact list was standard operating procedure for Familyhan prior to the issuance of SEC MC 18, the CGFD noted that the company should have changed its collection practices the moment such was prohibited by the memorandum circular.
SEC MC 18 took effect on September 8, 2019, as part of the Commission’s response to several complaints for unreasonable, abusive, and unfair practices that lending and financing companies employed to collect debt from borrowers.
“Enough time has been given to Respondent to adjust its collections procedure to conform with SEC MC 18,” the CGFD said. “This violation cannot, therefore, be overlooked.”
Meanwhile, Familyhan violated SEC MC 7 when it failed to disclose the net proceeds of the loan to its borrowers.
“[I]t is clear that the net proceeds of the loan is one of the minimum information that needs to be disclosed by a creditor to its borrower,” the CGFD said. “Thus, missing such information, Respondent cannot contend that they have duly complied or substantially complied with the TILA.”
SEC MC 7 adopted the implementing rules of the TILA provided under Bangko Sentral ng Pilipinas (BSP) Circular No. 730, Series of 2011 to enhance transparency in loan transactions and prevent the uninformed use of credit.
BSP Circular No. 730, Series of 2011 requires lenders to disclose to all types of borrowers the loan terms, including the total amount to be financed, finance charges, net proceeds of the loan, and the percentage that the finance charge bears to the total amount to be financed, prior to the consummation of the transaction.
“Wherefore, in view of the foregoing, the Certificate of Authority to Operate as a Lending Company of Familyhan Credit Corporation is hereby revoked,” the CGFD held.
Familyhan subsequently filed a motion for reconsideration of the said order, however, the same was denied for lack of merit by the CGFD in a resolution dated June 18, 2021.
The SEC continues to monitor lending and financing companies for their compliance with applicable laws, rules and regulations.
So far, the Commission has cancelled the licenses of 35 financing/lending companies due to various violations of applicable rules and regulations.
The SEC has also revoked the certificate of registration of a total of 2,081 lending companies for their failure to secure the requisite certificate of authority, pursuant to Republic Act No. 9474, or the Lending Company Regulation Act of 2007.
Moreover, 58 online lending applications have been ordered to cease operations for lack of authority to operate as a lending or financing company.
To see the list of licensed lending and financing companies and their registration status, please visit the Lenging and Financing Companies corner on the SEC website at //www.sec.gov.ph/lending-companies-and-financing-companies-2/lending-companies-and-financing-companies/.