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HOUSE OF REPRESENTATIVES || DATE _July 18, 2022
Quezon City * TIME 8:00am
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NINETEENTH CONGRESS %,

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First Regular Session Hy
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House Bill No.__ 2020

Introduced by: REPRESENTATIVE IRENE GAY F. SAULOG
KALINGA PARTY-LIST

EXPLANATORY NOTE

The lifting of the ceilings for interest rates by the Monetary Board pursuant to
the issuance of its CB Circular No. 905 and upholding the parties’ freedom of contract
to agree freely on the rate of interest has led to the imposition of an unconscionable
rates of interest or finance charges on money debts. As such, many of the borrowers
were enslaved by their creditors and became victims of loan sharks engaged in
usurious practices.

Borrowers of a “five-six” lending scheme pay a hefty interest rate of at least 20
percent a month, which the public, especially those people who are mostly poor and
underprivileged, are nevertheless forced to tap either because they do not have the
capacity or means to go through the tedious loan processing of banks, or do not have
the documents and collateral required when borrowing from traditional financial
institutions.

Furthermore, with the advancement of technology, these loan sharks have
widened their coverage and are now operating through their respective mobile
platforms imposing an interest rate of 2 percent a day or 60 percent a month, targeting
the public who were left with no other option but to consent in order to strive and
survive during this time of pandemic.



Worse, even traditional financial institutions like banks, impose exorbitant
interest rates. BSP data will show that the average annualized interest rate on credit
card receivables issued by these banks ranges from 18% to 58% from January to June
2020.

While the Supreme Court already made a pronouncement that “The imposition
of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation
and an iniquitous deprivation of property, repulsive to the common sense of man. It
has no support in law, in principles of justice, or in the human conscience nor is there
any reason whatsoever which may justify such imposition as righteous and as one that
may be sustained within the sphere of public or private morals.”', there have been no
law or any pronouncement, as to what stipulated interest rates are excessive,
iniquitous, unconscionable and exorbitant.

There is no clear rule in determining whether an interest rate is unconscionable.
It "may be iniquitous and unconscionable in one case but may be totally just and
equitable in another."? As observed by Justice Leonen in his dissenting and concurring
opinion, “This Court had previously found that the stipulated monthly interest rates of
2.5%, five percent (5%), 14 5.5%, six percent (6%), and 10% were unconscionable.
However, in Toledo v, Hyden, this Court upheld as valid a monthly interest rate of six
percent (6%) to seven percent (7%). It noted that in that case, the borrower was not in
dire need of money when she obtained a loan, and it was the borrower herself who was
guilty of inequitable acts”

While the courts are empowered to reduce interests which they consider as
unconscionable, the delay in the proceedings and the expenses, by way of court and
legal fees, plus the effort for such litigation, may even be more costly than the money
matter in question. This scenario gives the lender an opportunity to take advantage and
impose an interest rate at his own will. As of the moment, and with the suspension of
the effectivity of the Usury Law, there is no law to criminally hold these persons or
entities who engaged in usurious practices, making it easy for them to victimize the
public, especially the poor, who were only forced by circumstances to “cling to the
knife”.

, Medel v. CA, 359 Phil. 820 (1998),

2 Rizal Commercial Banking Corporation v. Court of Appeals, 352 Phil. 101, 126 (1998)
[Per J. Melo, Second Division).

> GR. No. 225433, August 28, 2019, Concurring and Dissenting Opinion, Leonen,


The State shall treat the rich and poor equally, but today, people who are poor
are systemically treated worse than the wealthy. People without financial means are
the common victims of these loan sharks, sending them into an inescapable cycle of
financial hardship, making them poorer and trapping them in an endless cycle of
poverty.

It is perhaps in light of these considerations that I strongly believe that there is
aneed to set a ceiling on what interest rate should be considered conscionable, without
having the need to resort to courts for its determination, and to readily penalize those
who will violate it. We must seriously address this current issue faced by ordinary
Filipinos who are forced to seek temporary financing despite the exorbitant interest
rates, in order to meet their daily needs.

“Allowing money to produce more money-for instance, lending money at
excessive interest rates as a way of increasing money-lays the foundation for a
growing wealth disparity, since loans are usually extended by those who are richer
(with capital) to those who are poorer (without capital). This does not serve the
demands of social justice; that is, "the humanization of laws and the equalization of social
and economic forces by the State so that justice in its rational and objectively secular conception may
at least be approximated."*

This Bill seeks to declare as iniquitous and unconscionable an interest rate of more than twice
the prevailing legal rate of interest on a money debt and penalize those who will violate it. It is in
accordance with the wisdom of the Supreme Court which held that “Thus, the maximum interest rate
that will not cross the line of conscionability is "not more than twice the prevailing legal rate of
interest.” If the stipulated interest exceeds this standard, the creditor must show that the rate is
necessary under current market conditions, or that the parties were on an equal footing when they

stipulated on the interest rate.*
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Kalinga Party-list

4 Calalang v. Williams, 70 Phil. 726, 734 (1940) [Per J. Laurel, First Division].

ilippine National Bank v. Court of Appeals, 308 Phil. 18, 24 (1994) [Per J. Puno, Second
vision] citing Philippine National Bank v. Court of Appeals, 273 Phil. 789 (1991) [Per J. Grino-Aquino, First
Division]



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

NINETEENTH CONGRESS
First Regular Session

2020

Introduced by: REPRESENTATIVE IRENE GAY F. SAULOG
KALINGA PARTY-LIST

AN ACT
PENALIZING PERSONS OR CORPORATIONS WHO IMPOSE INIQUITOUS
OR UNCONSCIONABLE FINANCE CHARGE ON CREDIT
TRANSACTIONS

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembled:

SECTION 1. Short Title. — This Act shall be known as the “Conscionable
Interest Rate Act”.

SEC. 2. Declaration of Policy. — The State shall protect and serve the demands
of social justice by the humanization of laws and the equalization of social and
economic forces by the State so that justice in its rational and objectively secular
conception may at least be approximated.

The rights of the parties to have the freedom to stipulate interest while ensuring
that they have an equal footing during bargaining and that neither of the parties has a
relatively greater bargaining power to command a higher or lower interest rate shall be
the paramount consideration in the enactment of this Bill.



Towards this end, the State shall ensure that the finance charges on credit
transactions are neither iniquitous nor unconscionable, without the parties having to
undergo court proceedings and incur expenses for the determination on what interest
rates on money debt are iniquitous or unconscionable.

As such, the State shall establish a standardized rate ceiling on credit
transactions imposing finance charge, as the basis in determining whether such finance
charge is iniquitous or unconscionable, without prejudice to such rates as maybe
prescribed by the Monetary Board of the BANGKO SENTRAL NG PILIPINAS or
other laws for that purpose in accordance with the authority granted to it.

SEC. 3, Scope. — This Act shall cover all credit transactions imposing a finance
charge, whether regulated or not by the Monetary Board of the BANGKO SENTRAL
NG PILIPINAS or other laws, except those transactions wherein the said Monetary
Board or other laws has already prescribed a maximum interest rate for that purpose
which shall not exceed twenty four percent (24%) per annum.

SEC. 4. Definition of Terms. — As used in this Act.

(a) Credit transactions refers to any loan, mortgage, deed of trust, advance, or
discount; any credit card and credit card cash advancements; any conditional
sales contract; any contract to sell, or sale or contract of sale of property or
services, either for present or future delivery, under which part or all of the
price is payable subsequent to the making of such sale or contract; any
rental-purchase contract; any contract or arrangement for the hire, bailment,
or leasing of property; any option, demand, lien, pledge, or other claim
against, or for the delivery of, property or money; any purchase, or other
acquisition of, or any credit upon the security of, any obligation of claim
arising out of any of the foregoing; and any transaction or series of
transactions having a similar purpose or effect.

(b)Credit card refers to any card or other credit device intended for the purpose
of obtaining money, property, or services on credit.

(c) Credit card cash advancements refers to cash obtained from the credit card
account in any manner availed by the cardholder,

(d)Finance charge refers to interest, fees, service charges, discounts, and such
other charges incident to the extension of credit.

(e) Iniquitous or unconscionable finance charge refers to interest, fees, service
charges, discounts, and such other charges incident to the extension of credit
which is more than twice the prevailing legal rate of interest on loans or


forbearance of any money good or credit as prescribed by Monetary Board
of the BANGKO SENTRAL NG PILIPINAS.

SEC, 5. Punishable Act, — No person or Corporation shall directly or indirectly
impose an iniquitous or unconscionable finance charge from any credit transactions as
defined in this Act unless the Monetary Board of the BANGKO SENTRAL NG
PILIPINAS or other laws has already prescribed a maximum interest rate for that
purpose which shall not exceed twenty four percent (24%) per annum.

SEC. 6. Penalties. — Without prejudice to the proper civil action, violation of
this Act and the implementing rules and regulations promulgated by the Monetary
Board shall be subject to criminal prosecution and the guilty person shall, upon
conviction, be sentenced to a fine of not less than the amount equivalent to the
principal obligation nor more than double the amount equivalent to the principal
obligation, or to imprisonment for not less than thirty (30) days nor more than one
year, or both, in the discretion of the court, and to return the entire sum received as
interest from the party aggrieved, including all costs and expenses incurred in the
prosecution of the offense, and in cases of nonpayment, to suffer subsidiary
imprisonment at the rate of one day for each amount equivalent to the highest
minimum wage rate prevailing in the Philippines at the time of the rendition of
judgment of conviction by the trial court subject to the rules set forth under
REPUBLIC ACT NO. 10159 (AN ACT AMENDING ARTICLE 39 OF ACT NO.
3815, AS AMENDED, OTHERWISE KNOWN AS THE REVISED PENAL CODE):
Provided, that in case of corporations, associations, societies, or companies the
manager, administrator or gerent or the person who has charge of the management or
administration of the business shall be criminally responsible for any violation of this
Act.

SEC. 7. Information Dissemination. — The Monetary Board of the BANGKO
SENTRAL NG PILIPINAS, in coordination with Philippine Information Agency,
Department of Finance, Department of Trade and Industry, Securities and Exchange
Commission, and other departments/instrumentalities/agencies, including the private
sector, which the Monetary Board may deem proper to coordinate, shall make known
to the public by all means necessary, information regarding this Act and its
implementation to the public.

SEC. 8. Implementing Rules and Regulations. — Within ninety (90) days, the
Monetary Board of the BANGKO SENTRAL NG PILIPINAS, after due consultation
with Philippine Information Agency, Department of Finance, Department of Trade
and Industry, Securities and Exchange Commission, and other
departments/instrumentalities/agencies, including the private sector, which the


Monetary Board may deem proper to consult, shall promulgate the rules and
regulations to implement this Act.

SEC. 9. Separability Clause. — If any provision or part of this Act is declared
unconstitutional or invalid, the remaining parts or provisions not affected shall remain
in full force and effect.

SEC. 10. Repealing Clause. — Laws, decrees, letters of instructions, executive
issuances, resolutions, orders, or parts thereof which are inconsistent with the
provision of this Act are hereby repealed, modified, or amended accordingly.

SEC. 11. Effectivity. - This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in a newspaper of general circulation.

Approved,