Rules and Regulations for Lending Investors

May 11, 1999 RULES AND REGULATIONS FOR LENDING INVESTORS Pursuant to R.A. 7653, transferring the regulatory authority over Lending Investors from the Bangko Sentral ng Pilipinas to the Securities and Exchange Commission, the Securities and Exchange Commission hereby promulgates the following rules and regulations governing the operations of Lending Investors: SECTION 1. Definition of Terms . The following terms shall apply for purposes of these rules: a) INVESTORS are single proprietorships and partnerships, except pawnshops, cooperatives and credit unions, which are engaged in the business of extending direct loans to consumers. b) CAPITAL FUNDS are funds contributed to the Lending Investors by the owners or partners, either as equity investments or as loans or advances. c) COMMISSION shall mean the Securities and Exchange Commission of the Philippines. SECTION 2. Licensing . Lending Investors shall be licensed by the Commission to operate as Lending Investors, with a minimum paid-up capital of ONE HUNDRED THOUSAND (P100,000.00) PESOS. The license issued shall be renewed yearly within fifteen (15) days before its expiry date. For this purpose the following document shall be submitted to the Commission by the applicant. a) A copy of the Certificate of Registration of the Business name issued by the Department of Trade and Industry or the Certificate of Registration of the Articles of Partnership issued by the Commission. b) A statement, signed under oath by the owner or partner of the Lending Investors, describing clearly the nature of its lending activity. c) A statement signed under oath by the owner or partner of the Lending Investor, showing the computation of the amount of interest, fees and other charges to be paid by the borrowers. SECTION 3. Business Activity . Lending Investors shall limit their principal business activity only to the granting of direct loans to consumers and shall not engage in any other credit transactions which are defined as "financing company activity" under the Financing Company Act of 1998, subject to the following conditions: a) That only capital funds and retained earnings of the Lending Investors shall be used for its direct lending business; b) That lending investors shall comply strictly with Republic Act 3765, otherwise known as the TRUTH IN LENDING ACT; c) That the lending investors may borrow funds from sources other than its owners or partners, provided that no portion of the proceeds thereof shall be used for its direct lending business; d) That existing Lending investors which are presently engaged in the extension of credit facilities other than direct lending activity, shall desist from and discontinue said business from the date of the effectivity of these rules. e) That existing lending investors which have already obtained loans from sources other than its owners or partners, where the proceeds thereof were used for its lending business, shall desist from and discontinue such practice from the date of the effectivity of these rules. SECTION 4. Reportorial Requirements . All lending investors shall submit their annual financial statements to the Commission, audited by an Independent Certified Public Accountant, within ONE HUNDRED TWENTY (120) DAYS from the end of their fiscal year, with the following schedules: a) Schedule of loans receivable as of the date of the balance sheet showing the names of borrowers and individual amount of receivables. b) Schedule of paid-up capital as of balance sheet date showing the names of the owners or partners and individual amount of paid-up capital. c) Schedule of loans or advances from the owner or partners as of balance sheet date, showing the names of the owner or partners and amount of individual loans or advances. d) Schedule of other liability accounts as of balance sheet date showing the names of creditors and the amounts payable to them. SECTION 5. Administrative Sanctions . Any violation of these rules shall subject the offender to the following sanctions: a) Fine of an amount equivalent to the following: First violation 1/10 of 1% of the paid in capital but not less than P5,000.00 Second violation 1/5 of 1% of the paid-up capital but not less than P10,000.00 Third violation 1/2 of 1% of the paid-up capital but not more than P5,000,000.00 b) In serious cases, by suspension or revocation of the license issued after due notice and hearing. c) Such other legal action as the Commission may deem appropriate under the circumstances. SECTION 6. Effectivity . These rules shall take effect ___ days after its publications in two (2) newspapers of general circulation for two (2) consecutive weeks. llcd (SGD.) PERFECTO R. YASAY, JR. Chairman