Home Money Ensuring Unfair Debt Collection Practices: SEC’s 2019 Circular Sets New Standards

Ensuring Unfair Debt Collection Practices: SEC’s 2019 Circular Sets New Standards

by Axl Stanley

In a bid to curb unfair debt collection practices, the Securities and Exchange Commission (SEC) released a groundbreaking memorandum circular No. 18 in August 19, 2019.

The circular aims to rein in financing companies, lending institutions, and their third-party service providers, preventing them from resorting to harassment and adopting unjust means to collect debts.

Observing Good Faith: In this latest directive, the SEC underscores the importance of observing good faith and reasonable conduct. The circular emphasizes that while financial entities can employ reasonable and legally permissible means to collect outstanding amounts, they must refrain from engaging in unscrupulous and untoward acts.

Prohibited Practices: The SEC explicitly outlines a series of practices deemed unacceptable in the pursuit of debt collection. These include the use of obscenities, insults, or profane language, as well as the publication of borrowers' names and personal information. False representation and deceptive means are also sternly prohibited in the circular.

Time Constraints for Contact: Recognizing the need for respecting borrowers' privacy, the SEC imposes restrictions on the timing of debt collection efforts. Contacting borrowers before 6 a.m. or after 10 p.m. is strictly prohibited, unless the account is past due for more than 15 days or the borrower has expressly consented to these specific timeframes.

Penalties for Violations: To ensure compliance, the SEC has outlined penalties for entities found in violation of the circular. Lending companies may face fines of P25,000 for the first offense, while financing companies could be penalized with P50,000. For repeat offenses, the fines escalate, ranging from P50,000 to up to P1 million for both entities. Additionally, there's a possibility of license suspension or revocation.

Rooted in Regulatory Authority: The SEC justifies the issuance of this circular by highlighting its regulatory and supervisory jurisdiction over financing and lending companies. Citing Republic Act 8556 (Financing Company Act of 1998) and Republic Act 9474 (Lending Company Regulation Act of 2007), the SEC asserts its authority to establish and enforce guidelines that protect borrowers from abusive practices.

National Privacy Commission's Involvement: In tandem with the SEC's efforts, the National Privacy Commission (NPC) has also taken a stand against unscrupulous practices. In May, the NPC investigated 48 online lending applications accused of shaming borrowers who failed to meet their obligations promptly. With over 400 complaints received, the NPC highlighted the misuse of personal information, including the unauthorized disclosure of unpaid balances.

The SEC's recent circular marks a significant step towards ensuring fair and ethical debt collection practices. By setting clear guidelines and imposing stringent penalties, the regulatory body aims to protect borrowers from harassment and abuse. This move not only safeguards individual rights but also reinforces the integrity of the lending and financing industry, fostering a more transparent and responsible financial ecosystem.

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