THIRTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
1 
"04 ,.it& 
30 j'iic 1x0 
First Regular Session 
) 
E 
Introduced by Senator Franklin M. Drilon 
The financial system is composed of both banks and non-banks financial 
institutions (NBFI). 
A Lending Investor (LI) or a lending company is a form of financial 
institution which had its beginnings in the country in the mid-70s. It crept 
unnoticed to service the small and not-so-small needs of customers left unserved 
by the more sophisticated form of credit institutions. 
The 1972 banking reforms gave the Central Bank (now Bangko Sentral ng 
Pilipinas - BSP) authority over the entire credit system and not merely over the 
banking system to allow it to effectively discharge its responsibilities. Thus, 
institutions engaged in credit operations without obtaining funds from the public 
were subjected to regulation by the BSP. Consequently, LIS, because of their 
primary functions of extending credit, were included under the regulatory 
umbrella of the Bangko Sentral. 
LIS, as non-bank financial institutions without authority to engage in 
quasi-banking function, are covered by BSP regulations on the 19-lender limit, 
i.e. LIS cannot accept deposits or placements or borrow from more than I9 
lender or from the public. Moreover, LIS, are required to strictly adhere to the 
provision of RA No. 3765, otherwise known as the "Truth in Lending Act" and to 
disclose the true and effective cost of borrowing for every loan granted. LIS are 
likewise not allowed to undertake financing activities under RA No. 5980 or the 
Financing Company Act, 
pawnbroking under PD 
No. 
114 and fund 
management/trust operations under RA No. 337. 
Republic Act No. 7653 or the New Central Bank Act, however, mandates 
BSP to phase out its regulatory powers over certain NBFIs, LIS included, not later 
than 3 July 1998 and the same to be assumed by the Securities and Exchange 
Commission (SEC). 
Lending company subsidiaries and affiliates of banks and 
quasi-banks, however, shall remain under BSP supervisory authority. 
Most NBFIs are governed by special laws such as the Financing Company 
Act, Investment Houses Act and Pawnshop Regulation Act. 
LIS, however, are 
not covered by any specific law. Due to the absence of a specific law and a 
government institution/agency with supervisory powers over LIS, no specific 
rules cover LIS on their organization, operations, minimum capital and sanctions 
for violation of regulations. 


As of 30 June 1997, the LI directory of BSP listed 2,138 head offices 
consisting of 1,163 single proprietorships (55%), 66 partnerships (3%) and 909 
corporations (42 O/O). 
As of endjof 1995, the 1,837 head offices with 169 branches of lending 
investors had total resources of P5.127 Billion, total loan portfolio of P3.198 
Billion and capital accounts of P1.757 Billion. 
The upsurge of LIS is expected to continue unabated as evidenced by the 
continuous registration of new LIS with BSP and some NBFIs converting into LIS. 
This may be partly attributed to the relatively free and unregulated operational 
atmosphere that gives LIS a distinct privilege over the regulated NBFIs, Common 
complaints on LIS cover high lending rates, non-disclosure of all charges on loans 
and non-issuance of official receipts. 
The enactment of a law that would regulate the establishment and 
operations of LIS appears imperative. 


I 
. .  
.,; .. . 
THIRTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
1 
First Regular Session 
) 
S E  
T 
Introduced by Senator Franklin 
AN ACT 
GOVERNING THE ESTABLISHMENT, OPERATI 
LENDING COMPA 
Chapter 
Declaration of Policy and 
f Terms 
Section I. 7i'tle. - This Act shall be known as the "Lending Company 
Regulation Act of 2004". 
Section 2. Declaration of Po/icy. - It is hereby declared the policy of the 
State to regulate the establishment of lending companies and to place their 
operation on a sound, efficient and stable basis to derive the optimum 
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 the 
minimum requirements and standards under which they may be established and 
do business. 
Section 3. Definition of Terms. - For purposes of implementing this Act, 
the following definitions shall apply: 
a. 
b. 
C. 
d, 
Lending Company shall refer to a corporation engaged in granting 
direct loans with interest and charges whether on a secured or 
unsecured basis, but shall not be deemed to include banking 
institutions, financing companies, pawnshops, insurance companies, 
cooperatives and other credit institutions already regulated by law. 
The term shall be synonymous with Lending Investors. 
Debtor shall refer to the borrower or person/entity granted a loan by 
the lending company. 
Quasi-Bank shall refer to a non-bank financial institution authorized 
by the Bangko Sentral ng Pilipinas to engage in quasi-banking 
functions or to borrow from the public or from twenty (20) or more 
lenders. 
Subsidatyshall refer to a corporation more than fifty percent (50%) 
of the voting stock of which is owned by a bank or quasi-bank. 


e. 
. 
f. 
Affiliate 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 quasi- 
bank which is related or linked to such institution through common 
stockholders or such other factors as may be determined by the 
Monetary Board of the Bangko Sentral ng Pilipinas. 
SECshaIl refer to the Securities and Exchange Commission. 
Bangko Sentral shall refer to the Bangko Sentral ng Pilipinas created 
under Republic Act No. 7653. 
Section 4. 
Form of Organkation, - A lending company shall be 
established only as a corporation; Provided, That existing LIS organized as single 
proprietorships or partnerships shall be disallowed from engaging in the business 
of granting loans to the public six (6) months after the date of effectivity of this 
Act. 
Section 5. 
Registration and Licensing. - A corporation desiring to 
File its Articles of Incorporation and By-Laws with and secure an 
Authority to Operate from the SEC; and 
engage in the lending company business shall: 
a. 
b. Secure a license from the appropriate city or municipality having 
territorial jurisdiction over the place of establishment and operation. 
Ownership 
Section 6. 
Capital - The minimum paid-in capital of any lending 
company which may be established after the effectivity of this Act shall be One 
Million Pesos (Pl,OOO,OOO.OO); 
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 time as 
may be prescribed by the SEC which time shall, in no case, be less than Three 
(3) years from the date of effectivity of this Act and, Provided, further, that the 
SEC may prescribe a 
higher minimum capitalization if warranted by 
circumstances. 
Section 7. Citfzeesb@ Requirements, - Upon the effectivity of this Act, 
at least a majority of the voting capital stock shall be owned by citizens of the 
Philippines. 
The percentage of foreign-owned voting stock in any domestic lending 
company existing prior to the effectivity of this Act, if such percentage is in 
excess of 49% of the voting stock of the lending company, shall not be increased 
but may be reduced, and, once reduced, shall not be increased thereafter 
beyond 49% of the voting stock of the lending company. 


The percentage of foreign-owned voting stocks in any lending company 
shall be determined by the citizenship of the individual stockholders in that 
lending company. 
In the case of corporations owning shares in a lending 
company, the citizenship of the individual owners of voting stock in such 
corporations shall be the basis of computing the percentage. 
. Amount and Charges on Loans. - A lending company may 
grant loans in such amounts and interest rates and charges as may be agreed 
upon between the lending company and the borrower or debtor. Provided, That 
the agreement shall be in compliance with the provisions of RA 3794, otherwise 
known as the Consumer Act of the Philippines; and Provided, further, That the 
Monetary Board, in consultation with the SEC and the industry, may prescribe 
such interest rate as may be warranted by prevailing economic and social 
conditions , 
Section 9. Maintenance of Books of Accounts and Records, - Every 
lending company shall maintain books of accounts and records as may be 
required by the SEC and prescribed by the Bureau of Internal Revenue and other 
government agencies. 
In case the lending company engages in other 
businesses, it shall maintain separate books of accounts for these businesses. 
The Manual of Accounts prescribed by the Bangko Sentral for lending 
investors shall continue to be adopted by lending companies for uniform 
recording and reporting of their operations, until a new Manual of Accounts shall 
have been prescribed by the SEC. 
. 
It shall issue the appropriate instruments and documents to the parties 
concerned to evidence its lending and borrowing transactions. 
ecti n IO. Authority of the S€i - The SEC is hereby authorized to: 
P 
rules and regulations to implement the provisions contained 
b. 
To issue rules and regulations on, among other things, minimum 
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; 
c. 
Require from lending companies reports of condition and such other 
reports necessary to determine compliance with the provisions of this 
Act; 
'F 
d. 
Exercise visitorial powers whenever deemed necessary; and 


e. 
Impose such administrative sanctions including suspension or 
revocation of the lending company's Authority to Operate and the 
imposition of fines for violations of this Act and regulations issued by 
the SEC in pursuance thereto. 
. Implementing Rules and Regulations. - Within six (6) 
months after the approval of this Act, the SEC shall promulgate the necessary 
rules and regulations implementing the provisions of this Act. 
n Delineation of Autborify between SEC and Bangko Sentral. 
- Lending companies shall be under the supervision of the SEC: 
Provided, 
however, that lending companies which are subsidiaries and affiliates of banks 
and quasi-banks shall be subject to Bangko Sentral supervision and examination 
in accordance with Republic Act No. 7653. 
Moreover, 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 their subsidiary/affiliate to circumvent or violate Bangko 
Sentral rules and regulations, may order an examination of the books and 
accounts of the lending company. 
Section 13. Penalty. - A fine of not less than Ten Thousand Pesos 
(PlO,OOO.OO) 
and not more than Fifty Thousand Pesos (P50,OOO.OO) or 
imprisonment of not less than six (6) months but not more than Ten (IO) years 
or both, at the discretion of the court, shall be imposed upon: 
1. Any person who shall engage in the business of a lending company 
without a validly subsisting authority to operate from the SEC. 
2. The President, Treasurer and other officers of the corporation, 
including the managing officer thereof, who shall knowingly and 
wi Ili ng ly : 
a. Engage in the business of a lending company without a validly 
subsisting Authority to Operate from the SEC; 
b. Hold themselves out to be a lending company, either through 
advertisement in whatever form, whether in its stationery, 
commercial paper, or other document, or through other 
representations without authority; 
c. Make use of a trade or firm name containing the words "lending 
companf or 'Yendng iffvesfor" or any other designation that 
would give the public the impression that it is engaged in the 
business of lending company as defined in this Act without 
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 application, 
report, or document required to be filed under this Act, which 


statement is false or misleading with respect to any material 
fact; and 
b. Overvalue or aid in overvaluing any security for the purpose of 
influencing in any way the action of the company in any loan, 
or discounting line. 
4. Any officer, employee or examiner of the SEC directly charged with 
the implementation of this Act or of other government agencies who 
shall commit, connive, aid, or assist in the commission of acts 
' 
enumerated under Subsections I and 2 of this Section. 
. Matters not covered by this Act. - The provisions of 
Republic Act No. 3765, otherwise known as the "Truth in Lending Act", Republic 
Act No. 7394 or the "Consumer Act of the Philippines" and other existing laws, 
insofar as they are not in conflict with any provision of this Act, shall apply in 
matters not otherwise specifically provided in this Act. 
Section 15. Repealing Clause. - All laws, executive orders, letters of 
instruction, rules and regulations, or provisions thereof which are inconsistent 
with the provisions of this Act are hereby repealed, amended or modified 
accordingly. 
Section 16. Separability Clause. - If any portion hereof shall be held 
invalid or unconstitutional, such invalidity or unconstitutionality shall not affect 
the other provisions which shall remain in full force and effect. 
. 
7. Effectiviw, - This Act shall take effect fifteen (15) days 
after its publication in at least two (2) national newspapers of general circulation. 
Approved.