Unfair Debt Collection

May 20, 2019 CORPORATE GOVERNANCE AND FINANCE DEPARTMENT NOTICE The Commission hereby requests comments on the attached draft Memorandum Circular on Unfair Debt Collection. Please submit duly signed written comments on the exposure draft to the Corporate Governance and Finance Department of this Commission within fifteen (15) days from the date hereof, by way of any of the following: Letter Corporate Governance and Finance Department Ground Floor, North Wing Hall, Secretariat Bldg. PICC Complex, Vicente Sotto St. 1307 Pasay City Email [emailprotected] Fax No. (02) 818-5990 All interested parties are requested to use the attached Comments Table in submitting comments and proposed revisions. Issued on May 20, 2019. cSEDTC ATTACHMENT SEC MEMORANDUM CIRCULAR NO. ______ Series of 2019 TO : ALL FINANCING AND LENDING COMPANIES SUBJECT : PROHIBITION ON UNFAIR DEBT COLLECTION PRACTICES OF FINANCING COMPANIES (FC) AND LENDING COMPANIES (LC) DATE : ____________ 2019 WHEREAS ,the Commission has been receiving numerous complaints against Financing Companies (FCs) and Lending Companies (LCs) that allegedly harass borrowers and employ abusive, unethical, and unfair means to collect debts; WHEREAS ,the Commission is aware of the practice of FCs and LCs of purposefully engaging the services of third party service providers (TPSPs) in their efforts to avoid liability for client harassment, by invoking the latter's separate juridical personality; WHEREAS , the Commission exercises regulatory and supervisory authority over FCs and LCs by virtue of Republic Act No. 8556, or the Financing Company Act of 1998, as amended, and Republic Act No. 9474 or the Lending Company Regulation Act of 2007; SDAaTC IN VIEW OF THE FOREGOING , without limiting the general application of the foregoing and without prejudice to the application of the New Civil Code, Revised Penal Code, Revised Corporation Code of the Philippines, Data Privacy Act, and other applicable laws and regulations, the Commission hereby issues this Memorandum Circular. SEC. 1. Unfair Collection Practices . FCs, LCs, and TPSPs hired by them may resort to all reasonable and legally permissible means to collect amounts due them under the loan agreement, provided that, in the exercise of their rights and performance of their duties, they must observe good faith and reasonable conduct and refrain from engaging in unscrupulous and untoward acts. Without limiting the general application of the foregoing, the following conduct shall constitute unfair collection practices, which shall be subject to the penalties provided herein: a. The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person; b. The use of threats to take any action that cannot legally be taken; c. The use of obscenities, insults, or profane language the natural consequence of which is to abuse the borrower and/or which amount to a criminal act or offense under applicable laws; d. Disclosure or publication of the names and other personal information of borrowers who allegedly refuse to pay debts, except as may be allowed under Section 2 hereof; e. Communicating or threatening to communicate to any person loan information, which is known, or which should be known, to be false, including the failure to communicate that the debt is being disputed, except as may be allowed under Section 2 hereof; f. The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a borrower; and g. Making contact at unreasonable/inconvenient times or hours, which shall be defined as contact before 8:00 A.M. or after 9:00 P.M.,unless the account is past due for more than sixty (60) days or the borrower has given express permission that the said times are the only reasonable or convenient opportunities for contact. SEC. 2. Confidentiality of Information . FCs and LCs shall keep strictly confidential the data on the borrower, except under the following circumstances: a. Disclosure of information with the written consent of the borrower; b. Release, submission or exchange of customer information with other financial institutions, credit information bureaus, lenders, their subsidiaries and affiliates; c. Upon orders of a court of competent jurisdiction or any government office or agency authorized by law; d. Disclosure to collection agencies, counsels and other agents of the FCs and LCs to enforce the latter's rights against the borrower; e. Disclosure to third party service providers solely for the purpose of assisting or rendering services to the FCs and LCs in the administration of its lending business; and f. Disclosure to third parties such as insurance companies, solely for the purpose of insuring the FCs and LCs from borrower default or other credit loss, and the borrower from fraud or unauthorized charges. SEC. 3. Outsourcing of Collection . FCs and LCs may outsource the conduct of collection to a TPSP which shall be regarded as agent of the FCs and LCs. The ultimate responsibility for collection practices and compliance with this Circular remain with the FCs and LCs. acEHCD SEC. 4. Handling of Collection Accounts . FCs and LCs shall adopt policies and procedures to ensure that personnel handling the collection of accounts, whether these are in-house collectors or TPSPs, shall disclose his/her full name or true identity to the borrower. The President or Chief Executive Officer of FCs and LCs shall submit, within thirty (30) days from effectivity of this Circular, a sworn certification stating the company's compliance with this provision. SEC. 5. Applicable Penalties . Violation of this Circular shall subject FCs and LCs to the following penalties: LCs FCs First Offense: P25,000.00 P50,000.00 Second Offense: P50,000.00 P100,000.00 Third Offense: Suspension/revocation of Certificate of Authority to operate as a Financing or Lending Company With respect to Section 1, the number of violations shall be determined on a per loan transaction per complainant basis. Hence, individual circumstances of unfair collection shall not be counted separately against the FC/LC if the same pertain to the same loan of the same complainant with the same FC/LC. The foregoing penalties shall be without prejudice to the penalties that may be imposed by the courts or other government agencies in the exercise of their respective mandates. This Circular shall take effect fifteen (15) days after publication in a newspaper of general circulation. Pasay City, Philippines, _________________. EcTCAD For the Commission: EMILIO B. AQUINO Chairperson Comments on the Proposed Memorandum Circular on Unfair Debt Collection RULES COMMENTS PROPOSED REVISIONS SEC. 1. Unfair Collection Practices . FCs, LCs, and TPSPs hired by them may resort to all reasonable and legally permissible means to collect amounts due them under the loan agreement, provided that, in the exercise of their rights and performance of their duties, they must observe good faith and reasonable conduct and refrain from engaging in unscrupulous and untoward acts. Without limiting the general application of the foregoing, the following conduct shall constitute unfair collection practices, which shall be subject to the penalties provided herein: a. The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person; b. The use of threats to take any action that cannot legally be taken; c. The use of obscenities, insults, or profane language the natural consequence of which is to abuse the borrower and/or which amount to a criminal act or offense under applicable laws; d. Disclosure or publication of the names and other personal information of borrowers who allegedly refuse to pay debts, except as may be allowed under Section 2 hereof; e. Communicating or threatening to communicate to any person loan information, which is known, or which should be known, to be false, including the failure to communicate that the debt is being disputed, except as may be allowed under Section 2 hereof; f. The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a borrower; and g. Making contact at unreasonable/inconvenient times or hours, which shall be defined as contact before 8:00 A.M. or after 9:00 P.M.,unless the account is past due for more than sixty (60) days or the borrower has given express permission that the said times are the only reasonable or convenient opportunities for contact. SEC. 2. Confidentiality of Information . FCs and LCs shall keep strictly confidential the data on the borrower, except under the following circumstances: a. Disclosure of information with the written consent of the borrower; b. Release, submission or exchange of customer information with other financial institutions, credit information bureaus, lenders, their subsidiaries and affiliates; c. Upon orders of a court of competent jurisdiction or any government office or agency authorized by law; d. Disclosure to collection agencies, counsels and other agents of the FCs and LCs to enforce the latter's rights against the borrower; e. Disclosure to third party service providers solely for the purpose of assisting or rendering services to the FCs and LCs in the administration of its lending business; and f. Disclosure to third parties such as insurance companies, solely for the purpose of insuring the FCs and LCs from borrower default or other credit loss, and the borrower from fraud or unauthorized charges. SEC. 3. Outsourcing of Collection . FCs and LCs may outsource the conduct of collection to a TPSP which shall be regarded as agent of the FCs and LCs. The ultimate responsibility for collection practices and compliance with this Circular remain with the FCs and LCs. SEC. 4. Handling of Collection Accounts . FCs and LCs shall adopt policies and procedures to ensure that personnel handling the collection of accounts, whether these are in-house collectors or TPSPs, shall disclose his/her full name or true identity to the borrower. The President or Chief Executive Officer of FCs and LCs shall submit, within thirty (30) days from effectivity of this Circular, a sworn certification stating the company's compliance with this provision. SEC. 5. Applicable Penalties . Violation of this Circular shall subject FCs and LCs to the following penalties: LCs FCs First Offense: P25,000.00 P50,000.00 Second Offense: P50,000.00 P100,000.00 Third Offense: Suspension/revocation of Certificate of Authority to operate as a Financing or Lending Company With respect to Section 1, the number of violations shall be determined on a per loan transaction per complainant basis. Hence, individual circumstances of unfair collection shall not be counted separately against the FC/LC if the same pertain to the same loan of the same complainant with the same FC/LC. The foregoing penalties shall be without prejudice to the penalties that may be imposed by the courts or other government agencies in the exercise of their respective mandates.