Frequently-Asked Questions About Lending Companies

2011 FREQUENTLY-ASKED QUESTIONS ABOUT LENDING COMPANIES Organization 1. What is a Lending Company? It is a corporation organized to engage in the business of lending money. Republic Act No. 9474 governs the organization and operation of lending companies. 2. What is the difference between a lending company and a financing company? A lending company can only engage in direct lending activities , while a financing company can, in addition to direct lending do other activities, such as, discounting of commercial papers and receivables; trading of contracts, leases, chattel mortgages and other evidence of indebtedness; and financial leasing of movable and immovable properties. 3. How can a lending company be organized and operated? By registering as a stock corporation and getting a certificate of authority from the Securities and Exchange Commission (SEC). 4. What are the requirements for registration of a lending company? All documents needed for registration as a corporation under the law; Application for Certificate of Authority to Operate as a Lending Company, and other documentary requirements; Minimum paid-up capitalization of PhP1,000,000. 5. Can foreigners invest in a lending company? Yes, as long as the foreign investments do not exceed 49% of the company's voting stocks. The percentage of foreign-owned voting stock is determined by the citizenship of the individual stockholders. If the investor is a corporation, the citizenship of the individual stockholders shall be the basis in determining the percentage of ownership. SAcaDE For example: ABC LENDING CORPORATION Stockholder 1 25% (Foreign) 49% 2 24% (Foreign) 49% 3 17% (Filipino) 51% 4 17% (Filipino) 51% 5 17% (Filipino) 51% Reportorial Requirements 6. What reports should lending companies submit to the SEC? The reports that should be submitted and their filing dates are as follows: Document Filing Period General Information Sheet Within 30 calendar days from the date the annual stockholders' meeting was held Audited Financial Statements (AFS) Depends on the last numerical digit of its signed by an SEC-accredited auditor registration number, as announced by the SEC, if filed at its head office; if filed in the extension office, within 120 days from its fiscal year. Interim semi-annual financial statements (using special form) including the following: Balance Sheet Income and Expense Statement Cash Flow Every July 15 and January 15 Statement of Changes in Equity Schedule of Liabilities List of Directors and Officers Aging of Receivables Corporate Governance Scorecard Every 30th day of January 7. What will happen if the reports are not submitted on time? The Certificate of Authority may be suspended or revoked if the reports are not submitted on time. Loan Amount, Interest and Other Charges 8. How much can be lent and what interest and other charges can be imposed by a lending company? A lending company can grant loans in such amounts and impose such interest rate and other charges as may be agreed upon by it and the borrower. 9. Is there a limit on the interest rate and other charges that a lending company can impose? Yes. They should be reasonable and should be disclosed to the borrower before he signs the loan agreement or promissory note. 10. If a borrower finds the interest rate and other charges excessive, can he refuse the loan? Yes. A borrower cannot be compelled to accept the interest rate and other charges imposed if he does not agree with them. 11. What can a borrower do if, after getting a loan, he finds the interest rate and other charges excessive? He can file an action in court to question their reasonableness and ask for their reduction. DIcTEC 12. What information should the lending company disclose to the borrower before he signs the loan agreement or promissory note? The following information should be disclosed by the lending company to the borrower in a Disclosure Statement before he signs the loan agreement or promissory note. principal amount of the loan interest rate service or processing fee, if any amortization payment schedule penalty charge for late payment collection fee, if any notarial fee all other fees in connection with the loan collection and enforcement procedures manner of computation of the debt in case of non-payment Here are samples on the computation of the interest and other charges, and amortization schedule: Sample Computation of Loan Interest and Charges Loan granted PhP20,000.00 Finance charge interest 3.0% per month (3 months) 3,000.00 Non-Finance Charges a. Processing/handling Fee 1,000.00 b. Documentary stamp tax 30.00 c. Notarial fee 100.00 4,130.00 Net proceeds PhP15,870.00 Total Maturity Value (Principal + Interest) PhP24,130.00 ========== Additional charges in case certain stipulations are not met by the borrower: a. late payment of charges penalty of 5% on arrears b. attorney's fee of not more or less than 25% of all amount c. liquidated damages of 10% of the amount due but not less than P1,000.00 SEDIaH Sample Amortization Schedule Date: 4/20/2010 Principal PhP20,000.00 Monthly Loan length in months: 3 Interest Rate: 15.00% No. Date Principal Interest Total 4/20/10 Release 1 6/3/10 PhP6,666.66 1,000.00 7,666.66 2 7/3/10 PhP6,666.66 1,000.00 7,666.66 3 8/3/10 PhP6,666.68 1,000.00 7,666.68 PhP20,000.00 PhP3,000.00 PhP23,000.00 ========== ========= ========== Date Principal Interest Total 4/20/10 Release 23,000.00 6/3/10 PhP6,666.66 1,000.00 15,333.34 7/3/10 PhP6,666.66 1,000.00 7,666.68 8/3/10 PhP6,666.68 1,000.00 - Penalties Under the Law 13. What acts of lending companies and their officials are punishable under the law? A fine of not less than PhP10,000.00 and not more than PhP50,000.00 or imprisonment of not less than 6 months but not more than 10 years or both, at the discretion of the court, shall be imposed on: a) Any person engaged in the business of a lending company without a valid authority to operate from the SEC; b) The president, treasurer and other officers of a corporation, including the managing officer, who knowingly and willingly: 1. engage in the business of a lending company without valid authority from the SEC; 2. hold themselves out as a lending company, either through advertisement of whatever form, whether in its stationery, commercial paper, or other document, or through other representations; 3. make use of a trade or firm name containing the words lending company or "lending investor" or any other designation that would give the public the impression that it is engaged in the business of a lending company without the appropriate SEC authority. c) Violators and violations of the provisions at R.A. 9474; d) Any officer, employee or agent of a lending company who: 1. knowingly and willingly make any statement in any application, report, or document to be filed under the Act, which is false or misleading with respect to any material fact; cSTHAC 2. overvalue or aid in overvaluing any security for the purpose of influencing in any way the action of the company in any loan;