Republic of the Philippines
HOUSE OF REPRESENTATIVES,
Quezon City, Metro Manila

EIGHTEENTH CONGRESS
Second Regular Session

House Bill No. 7967

Introduced by Representative GERALDINE B. ROMAN

AN ACT
PRESCRIBING THE RATES OF INTEREST UPON LOANS AND FORBEARANCES,
BY AMENDING CERTAIN SECTIONS OF R.A. NO. 2655, AS AMENDED,
OTHERWISE KNOWN AS THE USURY LAW

EXPLANATORY NOTE

BSP Governor Benjamin E. Diokno recently announced that the Monetary Board has
approved a cap on credit card rates and fees beginning November 3, 2020 to allow credit
cardholders more affordable pricing terms. In this time of pandemic, this move is laudable. “The
capping of credit card charges is a timely and much-needed measure to promote responsible
lending and ease the financial burden of consumers and micro, small and medium enterprises
amid the Covid-19 pandemic,” SEC Chairman Emilio B. Aquino said.' “We are hopeful that the
Monetary Board [would] likewise consider soon the commission’s proposal for similar limits on
interest rates and other fees imposed by lending and financing companies on consumer and
payday loans, as part of our efforts to put an end to predatory and other abusive lending
practices,” he added.”

The proposal is not unprecedented. The Philippines used to have a Usury Law, Republic
Act No. 2655, which capped the interest that can be imposed upon a loan and forbearance of
money. However, on March 17, 1980, the Usury Law was amended by P.D. No. 1684, giving the
Monetary Board the authority to prescribe rates of interest. Pursuant to such authority and in
response to the lobby from banks and lending institutions, the Monetary Board issued CB
Circular No. 905-1982, removing the ceilings on interest rates by declaring that such rates are no
longer subject to any ceiling prescribed under or pursuant to the Usury Law.’ Therefore, at
present, the debtor and creditor may enter into a contract providing for any amount of interest.
Consequently, many debtors especially those in the cusp of emergencies pay interests at 5 to
10% a month.

Nonetheless, the Supreme Court has found finance charges of 3.35% interest per month
and 6% penalty per month excessive.‘ It has also struck down a stipulated 5.5% per month or
66% per annum interest on a PS00,000 loan and a 6% per month or 72% per annum interest on a

1 Lee, K. L, (2020, October 7). SEC hails BSP’s move to cap charges on credit card transactions. The Manila Times.
htips://www.manilatimes.nev2020/10/07/business/columnists-business/sec-hails-bsps-move-to-cap-charges-on-
credit-card-transactions/777405/

2id.

3 Beltran, C. (2019, July 14). The curse of usury. Philstar: Com
hhups://vww.philstar.com/opinion/2019/07/15/1934714/curse-usury/

4 Louk v. Bank of the Philippine Islands, G.R. No. 225562, March 8, 2017.


P60,000 loan, for being excessive, iniquitous, unconscionable and exorbitant.’ Meanwhile, it
finds an interest rate of 12% per annum fair and reasonable.°

While courts are empowered to reduce interest rates found unconscionable, the delay in
and cost of litigation threaten to negate the benefit to the debtor resulting from any such
reduction.

Based on BSP data, the average annualized interest rate on credit card receivables range
from 18% to 58% from January to June 2020. Based on the credit card business activity report,
the average annualized interest rate for all types of cardholders both for premium and non-
premium as of June 2020 was around 26%.’ Given the economic hardships imposed by the
pandemic and guidance from our courts, these rates should be reduced.

This Bill seeks to restore the full effect of the Usury Law, while defining certain
standards upon which market forces may still come into play. Furthermore, this Bill also
regulates interests on credit cards and other cash advance arrangements. In doing so, this Bill
‘would benefit individual borrowers who are especially vulnerable to the economic impact of the
pandemic.

Immediate passage of this bill is earnestly sought.

ir Blow

‘5 Medel v. Court of Appeals, G.R. No. 131622, November 27, 1998.

6 Castro v. Angelina de Leon Tan, G.R. No. 168940, November 24, 2009.

7 BAP will comply with BSP cap on credit card rates. (2020, September 25). Manila Bulletin
hteps://mb. com.ph/2020/09/25/bap-will-comply-with-bsp-cap-on-credit-card-ratcs/


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

EIGHTEENTH CONGRESS
Second Regular Session

House Bill No, 7967

AN ACT
PRESCRIBING THE RATES OF INTEREST UPON LOANS AND FORBEARANCES
BY AMENDING CERTAIN SECTIONS OF R.A. NO. 2655, AS AMENDED,
OTHERWISE KNOWN AS THE USURY LAW

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

Section 1. Section lof R.A. No. 2655, as amended, is hereby amended to read as follows:

Section 1. The rate of interest for the loan or forbearance of any money, goods, or
credits, OR CHARGES ON CREDIT CARDS AND OTHER CASH
ADVANCE ARRANGEMENTS, and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall NOT EXCEED
TWELVE per centum per annum, or such rate as may be prescribed by the
Monetary Board of the BANGKO SENTRAL NG PILIPINAS for that purpose
in accordance with the authority hereby granted.

See. 2. Section 1-a of R.A. No. 2655, as amended, is hereby amended to read as follows:

Sec. 1-a, The Monetary Board is hereby authorized to prescribe the maximum rate
or rates of interest for the loan or renewal thereof or the forbearance of any
money, goods or credits, OR CHARGES ON CREDIT CARDS AND OTHER
CASH ADVANCE ARRANGEMENTS, and to change such rate or rates
whenever warranted by prevailing economic and social conditions: PROVIDED,
THE MAXIMUM RATE SHALL NOT BE MORE THAN THREE
PERCENTAGE POINTS HIGHER THAN THE RATE OF NINETY ONE
DAY TREASURY BILLS ON THE QUARTER PRECEDING THE
MONETARY BOARD’S IMPOSITION OF SAID MAXIMUM RATE.

In the exercise of the authority herein granted, the Monetary Board may prescribe
higher maximum rates for loans of low priority, such as consumer loans or
renewals thereof as well as such loans made by pawnshops finance companies and
other similar credit institutions although the rates prescribed for these institutions
need not necessarily be uniform. The Monetary Board is also authorized to
prescribe different maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial intermediaries,
WITHIN THE LIMITS PRESCRIBED ABOVE.

See. 3. Section 2 of R.A. No. 2655, as amended, is hereby amended to read as follows:


See. 4.

See. 5.

See. 2.No person or corporation shall directly or indirectly take or receive in
money or other property, real or personal, or choses in action, a higher rate of
interest or greater sum or value, including commissions, premiums, fines and
penalties, for the loan or renewal thereof, or forbearance of money, goods, or
credits, OR CHARGES ON CREDIT CARDS AND OTHER CASH
ADVANCE ARRANGEMENTS, where such loan or renewal or forbearance is
secured in whole or in part by a mortgage upon real estate the title to which is
duly registered, or by any document conveying such real estate or an interest
therein, than twelve per centum per annum or the maximum rate prescribed by the
Monetary Board and in force at the time the loan or renewal thereof or
forbearance is granted: Provided, That the rate of interest under this section or the
maximum rate of interest that may be prescribed by the Monetary Board under
this section may likewise apply to loans secured by other types of security as may
be specified by the Monetary Board, PROVIDED FINALLY, THAT SAID
MAXIMUM RATE SHALL NOT BE MORE THAN THREE
PERCENTAGE POINTS HIGHER THAN THE RATE OF NINETY ONE
DAY TREASURY BILLS ON THE QUARTER PRECEDING THE
MONETARY BOARD’S IMPOSITION OF SAID MAXIMUM RATE.

Section 3 of R.A. No. 2655, as amended, is hereby amended to read as follows:

Sec. 3. No person or corporation shall directly or indirectly demand, take, receive
or agree to charge in money or other property, real or personal, a higher rate or
greater sum or value for the loan, or forbearance of money, goods, or credits, OR
CHARGES ON CREDIT CARDS AND OTHER CASH ADVANCE
ARRANGEMENTS, where such loan or forbearance is not secured as provided
in Section two hereof, than fourteen per centum per annum or the maximum rate
or rates prescribed by the Monetary Board and in force at the time the loan or
forbearance is granted, PROVIDED, THAT SAID MAXIMUM RATE SHALL.
NOT BE MORE THAN FOUR PERCENTAGE POINTS HIGHER THAN
THE RATE OF NINETY ONE DAY TREASURY BILLS ON THE
QUARTER PRECEDING THE MONETARY BOARD’S IMPOSITION OF
SAID MAXIMUM RATE.

Section 4 of R.A. No. 2655, as amended, is hereby amended to read as follows:

Sec. 4. No pawnbroker or pawnbroker's agent shall directly or indirectly stipulate,
charge, demand, take, or receive any higher rate or greater sum or value for any
loan or forbearance than TWO per centum per month when the sum lent is less
than FIVE THOUSAND PESOS or more but not exceeding TEN THOUSAND
PESOS; and FIFTEEN per centum per annum when it is more than the amount
last mentioned; or the maximum rate or rates prescribed by the Monetary Board
and in force at the time the loan or forbearance is granted. PROVIDED, THAT
SAID MAXIMUM RATE SHALL NOT BE MORE THAN THREE
PERCENTAGE POINTS HIGHER THAN THE RATE OF NINETY ONE.
DAY TREASURY BILLS ON THE QUARTER PRECEDING THE
MONETARY BOARD’S IMPOSITION OF SAID MAXIMUM RATE.

A pawnbroker or pawnbroker's agent shall be considered such, for the benefits of
this Act, only if he be duly licensed and has an establishment open to the public.

It shall be unlawful for a pawnbroker or pawnbroker's agent to divide the pawn
offered by a person into two or more fractions in order to collect greater interest
than the permitted by this section.

It shall also be unlawful for a pawnbroker or pawnbroker's agent to require the


Sec. 6.

See. 7.

Sec. 8.

See. 9.

See. 10. Repealing Claus.
letters of instruction, admit

pawner to pay an additional charge as insurance premium for the safekeeping and
conservation of the article pawned.

Section 4-a of R.A. No. 2655, as amended, is hereby repealed.
Section 4-b of R.A. No. 2655, as amended, is hereby renumbered as 4-a.
Section 9-a of R.A. No. 2655, as amended, is hereby amended as follows:

Sec. 9-a. The Monetary Board shall MAKE KNOWN TO THE PUBLIC BY
ALL MEANS NECESSARY THE NINETY-ONE DAY TREASURY BILL
RATE EVERY QUARTER AND SHALL promulgate such rules and
regulations as may be necessary to implement effectively the provisions of this
Act.

Section 10 of R.A. No. 2655, as amended, is hereby amended as follows:

Sec. 10. 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 THREE HUNDRED THOUSAND pesos nor
more than FIVE MILLION pesos, or to imprisonment for not less than FOUR
YEARS nor more than TWELVE YEARS, or both, in the discretion of the court,
and to return the entire sum received as interest from the party aggrieved PLUS
ALL COSTS AND EXPENSES INCURRED IN THE PROSECUTION OF
THE OFFENSE, and in the case of non-payment, to suffer subsidiary
imprisonment at the rate of one day for every EIGHT pesos: Provided, That in
case of corporations, associations, societies, or companies the manager,
administrator or gerente or the person who has charge of the management or
administration of the business shall be criminally responsible for any violation of
this Act

this Act are hereby repealed or modified accordingly.

Sec. 11. Separability Clause. -- Should any part of this Act be declared unconstitutional, the

validity of remaining provision hereof shall remain in full and effect.

See. 12. Effectivity Clause. — This Act shall take effect fifteen (15) days from its publication in a

newspaper of general circulation.

Approved.

- All laws, presidential decrees or issuances, executive orders,
trative orders, rules or regulation inconsistent with the provisions of