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13TH CONGRESS OF THE REPUBLIC 
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Hrst Regular Session 
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OF THE PHILIPPINES 
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S E N A T E  
S.B. NO. __ 
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(In substitution of Senate Bill Nos. 1103, 1180 and 1762) 
Prepared by the Committee on Banks, Financial Institutions and Currencies, 
With Senators Drilon, Magsaysay and Madrigal, as authors. 
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AN ACT 
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GOVERNING THE ESTABLISHMENT, OPERATION AND REGULATION OiF 
LENDING COMPANIES 
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Phihppines in Congress assembled: 
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Be it enacted by the Senate and the House of Representatives of the 
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Section 1. 
Ttle. -This Act shall be known as the "Lending Compa, y 
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Regulation Act of 2005". 
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Section 2. 
Declaration ofPdicv. -It is hereby declared the policy of the 
State to regulate the establishment of Lending Companies and to place thkir 
operation on a sound, efficient and stable condition to derive the optimbm 
advantages from them as an additional source of credit; to prevent and mitigate, 
as far as practicable, practices prejudicial to public interest; and to lay down ?he 
minimum requirements and standards under which they may be established and 
do business. 
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Section 3. 
Definition of Terms. -For purposes of implementing this #ct, 
the following definitions shall apply: 
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a. Lendjng Company shall refer to a corporation engaged in granting 
direct loans from their own funds or from other persons, not exceeding 
nineteen (19) at any one time, with interest and charges whether &I a 
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secured or unsecured basis, but shall not be deemed to include 
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banking institutions, investment houses, savings and loan associati&, 
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financing companies, pawnshops, insurance companies, cooperatides 
and other credit institutions already regulated by law. The term stlall 
be synonymous with Lending Investors. 
b. Debtor shall refer to a borrower or person granted a loan by the 
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Lending Company. 
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c. 
Quasi-Bankshall refer to a non-bank financial institution authorizediby 
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the BSP to engage in quasi-banking functions or in the 
funds from more than nineteen (19) lenders through 
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endorsement or assignment with recourse or acceptance of depdsit 
substitutes as defined in Section 95 of Republic Act No. 7653 (the 
"New Central Bank Act") for purposes of relending or purchasingllof 
receivables and other obligations. 
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d. Subsidialyshall refer to a corporation more than fifty percent (5O0/~jiof 
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the voting stock of which is owned by a bank or quasi-bank. 
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e. Afliate shall refer to a corporation, the voting stock of which, to the 
extent of fifty percent (50%) or less, is owned by a bank or qL 
bank which is related or linked to such institution through comt 
stockholders or such other factors as may be determined by 
Monetary Board of the BSP. 
f. DTIshall refer to the Department of Trade and Industry. 
g, BSPsha//refer to the Bangko Sentral ng Pilipinas. 
Section 4. 
Bureau of Internal Revenue Form of Organization. 
Lending Company shall be established only as a corporation; Provided, - 
existing Lending Investors organized as single proprietorships or partners 
shall be disallowed from engaging in the business of granting loans to the pi 
one (1) year after the date of effectivity of this Act. 
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No Lending Company shall conduct business unless granted an 
to operate by the DTI. 
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Section 5. 
Capita/. - The minimum paid-in capital of any Lending 
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Company which may be established after the effectivity of this Act shall be One 
Million Pesos (P1,000,000.00); 
Provided, however, that Lending Companies 
established and in operation prior thereto shall comply with the minimum 
capitalization required under the provisions of this Section within such timelias 
may be prescribed by the DTI which time shall, in no case, be less than Thtee 
(3) years from the date of effectivity of this Act and, Provided, further, that the 
DTI 
may prescribe a higher minimum capitalization if 
warranted ljby 
circumstances. 
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Section 6. 
Citizenship Requirements. - Upon the effectivity of this kct, 
at least a majority of the voting capital stock shall be owned by citizens of !he 
Philippines. 
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The percentage of foreign-owned voting stock in any Lending Company 
existing prior to the effectivity of this Act, if such percentage is in excess of 49% 
of the voting stock, shall not be increased but may be reduced, and, oyice 
reduced, shall not be increased thereafter beyond 49% of the voting stock of \he 
Lending Company. 
The percentage of foreign-owned voting stocks in any 
Lending Company shall be determined by the citizenship of the individlal 
stockholders. In the case of corporations owning shares in a Lending Compdny, 
the citizenship of the individual owners of voting stock in such corporations shall 
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be the basis in the computation of the percentage. 
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Section 7. 
Amount and Charges on Loans. - A Lending Company may 
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grant loans in such amounts and reasonable interest rates and charges as may 
be agreed upon between the Lending Company and the Debtor. Provided, That 
the agreement shall be in compliance with the provisions of RA 3765, othedise 
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known as the Truth in Lending Act and Republic Act 7394, otherwise known :as 
the Consumer Act of the Philippines; and Provided, further, That the Monetdry 
Board, in consultation with the DTI and the industry, may prescribe such interest 
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rate as may be warranted by prevailing economic and social conditions. 
Section 8. 
Maintenance of Books of Accounts and Records. - Evdry 
Lending Company shall maintain books of accounts and records as may  be 
required by the DTI and prescribed by the Bureau of Internal Revenue and otder 
government agencies. I n  case a Lending Company engages in other businesses, 
it shall maintain separate books of accounts for these businesses. 
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The Manual of Accounts prescribed by the BSP for lending investors sqall 
continue to be adopted by Lending Companies for uniform recording and 
reporting of their operations, until a new Manual of Accounts shall have bden 
prescribed by the DTI. 
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It shall issue the appropriate instruments and documents to the padies 
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concerned to evidence its lending and borrowing transactions. 
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Section 9. 
a. Create a new division or bureau within its control to regulate dnd 
Authorify of the DT. -The DTI is hereby authorized to: 
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supervise the operations and activities of Lending Companies in the 
country. 
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b. Issue rules and regulations to implement the provisions contaiked 
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herein; 
C. Issue rules and regulations on, among other things, minim'um 
capitalization, uses of funds received, method of marketing and 
distribution, maturity of funds received, restrictions or outright 
prohibition of purchases or sales of receivables with or without 
recourse basis; 
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d. Require from Lending Companies reports of condition and such otd)er 
reports necessary to determine compliance with the provisions of this 
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Act; 
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e. Exercise visitorial powers whenever deemed necessary; and 
f. Impose such administrative sanctions including suspension 1,or 
revocation of the Lending Company's authority to operate and (he 
imposition of fines for violations of this Act and regulations issued lby 
the DTI in pursuance thereto. 
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Section 10. Implementing Rules and Regulations, - Within six (6) 
months after the approval of this Act, the DTI shall promulgate the necessary 
rules and regulations implementing the provisions of this Act. 
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Section 11. Delineation of Authority between DTI and BSP. - Lending 
companies shall be under the supervision and regulation of the DTI: Provide4 
however, that Lending Companies which are subsidiaries and affiliates of banks 
and quasi-banks shall be subject to BSP supervision and examination '/in 
accordance with Republic Act No. 7653. Provided, further, That the Monetary 
Board, after being satisfied that there is reasonable ground to believe that a 
Lending Company is being used as a conduit by a bank, quasi-bank or td,Lir 
subsidiary/affiliate to circumvent or violate BSP rules and regulations, may oraer 
an examination of the Lending Company's books and accounts. 
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Section 12. Penalty. - A fine of not less than Ten Thousand Pesos 
(Pl0,OOO.OO) 
and not more than Fifty Thousand Pesos (P50,OOO.OO) 
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imprisonment of not less than six (6) months but not more than Ten (10) years 
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or both, at the discretion of the court, shall be imposed upon: 
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1. Any person who shall engage in the business of a Lending Company 
without a validly subsisting authority to operate from the DTI. 
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2. The President, Treasurer and other officers of the corporatidn, 
including the managing officer thereof, who shall knowingly 
willingly: 
a. Engage in the business of a Lending Company without a va 
subsisting authority to operate from the DTI; 
b. Hold themselves out to be a Lending Company, either thro 
advertisement in whatever form, whether in its station 
commercial paper, or other document, 
or through o 
representations without authority; 
c. Make use of a trade or firm name containing the words Yen 
Company" or "Lending Investor" or any other designation 
would give the public the impression that it is engaged in 
business of a Lending Company as defined in this Act wit1 
authority; and 
d. Violate the provisions of this Act. 
3. Any officer, employee, or agent of a Lending Company who shall: 
a. Knowingly and willingly make any statement in any applica 
report, or document required to be filed under this Act, w 
statement is false or misleading with respect to any material i 
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b. Overvalue or aid in overvaluing any security for the purpos 
influencing in any way the action of the company in any loar 
discounting line. 
4. Any officer, employee or examiner of the DTI directly charged witb 
implementation of this Act or of other government agencies who 
commit, connive, aid, or assist in the commission of acts enumer 
under Subsections 1 and 2 of this Section. 


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Section 13. Matters not covered by this Act. -The provisions of Republic 
No. 3765, otherwise known as the "Truth in Lending Act", Republic Act N 1 . 
4 or the "Consumer Act of the Philippines" and other existing laws, insofar as 
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I are not in conflict with any provision of this Act, shall apply in matters r 
mvise specifically provided in this Act. 
Section 14. Repealing Clause, - All laws, executive orders, letters 
ruction, rules and regulations, or provisions thereof which are inconsistc 
1 the provisions of this Act are hereby repealed, amended or modifi 
3rdingly. 
Section 15. Separabiliw Clause. - If any portion hereof shall be hc 
iiid or unconstitutional, such invalidity or unconstitutionality shall not affc 
other provisions which shall remain in full force and effect. 
Section 16. Effectivity. -This Act shall take effect fifteen (15) days afi 
iublication in at least two (2) national newspapers of general circulation. 
Approved. 


SUMMARY OF PROCEEDINGS 
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Location 
Metro Manila and 
Other i5t Class 
Cities 
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Minimum Paid- 
Up Capital 
P 10 Million 
Municipalities 
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Other Classes of 
Cities 
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P 5 Million 
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Period of Complianck 
Circular 
Within three (3) years I 
from effectivity of the I j 
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Circular 
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I n  view of the CBP's mandated authority over the entire credit system. 
banks or quasi banks were taken out of the regulatory powers of the BSP.. 
"Finance companies without quasi-banking functions" which are not 


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As of February 2005, only 360 lending investors have converted to fin; 
companies and 81 applications for conversion were pending. The failure of 
majority of lending investors to comply with Memorandum Circular No. 13 
mainly due to their inability to meet the high capitalization requirement. 
Circular, which is currently suspended by the SEC, endangers the legitir 
existence of Lending Companies. 
Lending Companies, which failed to comply with the provisions of 
Finance Company Act, were left without specific regulatory framework. 
absence of adequate guidelines on the operations of these Lending Compz 
caused the proliferation of loan sharks which charge unconscionable intc 
rates, Moreover, this void made possible massive scams. 
The passage of a law that will regulate the lending investors is esse 
for the continued operation of these companies and the protection of the ger 
public. 
11. COMMITTEE ACTION 
A. The Committee on Banks, Financial Institutions and Currencies 
"Committee") conducted a public hearing on the proposed bills on Jan 
14, 2005. 
B. The discussions in the hearings, as well as the comments and suggesl 
in the position papers submitted to the Committee, were taken 
consideration in the drafting of the Substitute Bill. 
111. FINDINGS 
A. On the supervising agency 
Discussion 
There are differing opinions on the appropriate government agency 
should govern the lending companies. 
The BSP sees the Department of Trade and Industry (DTI) as the agi 
which has the capacity to regulate lending companies in view of the age1 
wider network which will complement the widespread existence of the 
companies all over the ~ountry.~ 
Moreover, lending companies are in 
business of providing credit to the public which necessitates const 
protection. Unlike the deposit-taking institutions which are under 
supervision of the BSP, the lending companies cannot borrow funds from 
public. In this kind of business, what is needed is not the prudential-tyl: 
regulation4 but the consumer-protection type (which is geared primaril! 
the protection of the consumers - the borrowers). The BSP and the SEC 
not the appropriate agencies to primarily provide consumer pr~tection.~ 
Letter dated 29 October 2004. 
This is applicable only in the supervision of deposit-taking institutions (e.g. banks and quas 
Assistant Governor Nestor Espeniila of the BSP. 
banks) for the protection of the public who provide credit to such institutions. 
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The DTI, however, has reservations on the proposal to make it the 
regulatory body of lending companies on the ground that "Lending 
Companies are non-bank financial institutions extending credit facilities to 
consumers and enterprises, hence, (they are) under the authority of the SEC 
by virtue of RA 8556 or the Financing Company Act.'I6 
Committee Consensus 
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Because of the wide distribution of DTI offices throughout the countrylit 
has the capability of regulating lending companies. Moreover, the DTI was 
designated as the implementing agency of the Consumer Act7 on matters 
concerning consumer credit transactions.' 
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In view of the foregoing, the Committee agreed to put the lending 
companies under the supervision of the DTI to ensure the protection of the 
borrowers. In order for the DTI to effectively perform its duties under t$s 
proposed law, it shall be mandated to create a separate division for the 
supervision of lending companies. 
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B. On the form of organization 
Discussion 
The three bills require that a lending company shall be established only as 
a corporation. At present, there are about ten thousand (10,000) lending 
investors and yet around 53% operate as single proprietorship and 7% as 
partnesrship. The bills allow SIX months to one year allowance for these 
Although some sectors are indifferent with respect to the form of 
organization, the SEC is adamant on requiring the incorporation of the 
lending investors for easy regulation. The incorporation of ail the lending 
investors is one of the objectives of SEC's active support on the bills since 
most of the investment scams that it had caught were perpetrated by lending 
investors operating as single proprietorship. 
Committee Consensus 
lending investors to incorporate. 
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In view of the difficulty in regulating lending investors operating as sole 
proprietorship or partnership, the Committee decided to require all lending 
investors to incorporate. 
C. On the use of the term "microfinance" 
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Discussion 
Senate Bill Nos. 1180 and 1762 define "lending company" as an entity 
primarily engaged in the business of microfinance by granting direct loans 
from their own funds or from other persons x x x." 
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DTI's Position Paper dated 3 February 2005. 
Article 6 of RA 7394 in relation to Title I V  thereof. 
' Republic Act 7394, otherwise known as the Consumer Act of the Philippines 


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The afore-quoted definition was opposed on the ground that the term 
"microfinance" is "applicable only to banks engaged in lending microfinance 
loan. Microfinance loan is defined under BSP Circular Nos. 272 and 273, dated 
Committee Consensus 
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30 January and 27 February 2001.'' 
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To avoid confusion, the Committee adopted the definition in SBN 1105, 
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with certain revisions. 
D. On the involvement of the DSWD in the promulgation of the IRR. 
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Discussion 
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Senate Bill Nos. 1180 and 1762 call for the involvement of the Departmdnt 
of Social Welfare and Development ("DSWD") 
in the promulgation bf 
Implementing Rules and Regulations ("IRR). BSP opined that the DSWD 
need not be involved in the promulgation of the 1RR.I' 
Committee Consensus 
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The IRR will be promulgated by the DTI without DSWD's involvement. i 
BSP's Position Paper dated 29 October 2004. 
lo Ibid.