Regulators must swim faster than online loan sharks



It’s so easy to get microloans.

Chel, 36, took out a loan from an online lending application (OLA) for P3,500 with an advertised repayment period of 120 days. Instead, she received 1,300 pesos to be paid in seven days, with interest.

The OLA then demanded payment of P3,500, almost three times the proceeds of the loan, in less than a week. Chel said she didn’t see those obligations in the terms of the loan.

On the fifth and sixth days, she received text messages reminding her of the due date. If she didn’t pay, she would be “posted,” a term used by OLAs referring to social media shaming.

Out of fear, Chel paid in full. But the OLA offered another loan, this time for 5,500 pesos. She didn’t take the bait.

Chel said she actually turned down an offer of 15,000 pesos because she knew she couldn’t pay it back, certainly not in seven days as her family was barely making ends meet.

Chel, who was unemployed, was able to take out a loan even without proof of income. His only valid ID was from the Philippine Health Insurance Corp.

Victorio Dimagiba, chairman of advocacy group Laban Konsyumer, thinks the rollout of digital financial services in the Philippines has happened too quickly.

“In the Philippines, we moved very quickly to digital financial products and services without going to the basics: financial literacy education,” said the former undersecretary of commerce.

“Consumers in countries like ours are more at risk because we don’t have the basics to understand what digital financial services are. Many companies have gone there without informing consumers of their rights and responsibilities,” Dimagiba said.

Complaints flood the SEC

As of November 2, 2021, there were 101 registered finance and loan companies, according to the Securities and Exchange Commission (SEC).

The SEC backpedaled to understand the OLA-related data, Rachel Esther Gumtang-Remalante, director of the SEC’s corporate governance and finance department, said in an interview.

At the time of the interview, the SEC was unable to provide the Philippine Center for Investigative Journalism (PCIJ) with historical data on OLA complaints.

To be fair to responsible loan or finance companies, the commission also validates complaints, Gumtang-Remalante said.

The SEC official agreed that the growth of OLAs has left lenders’ debt collection practices unchecked.

“Technology has given access to credit,” she said.

Additionally, OLAs allowed people to borrow money without understanding the terms of the loan, she said.

Gumtang-Remalante said the SEC partnered with Google Play, an app store for smartphones running the Android operating system, in 2019 to strengthen regulation.

However, the complaints kept coming. Google Play began removing OLAs, and in April 2022 the tech giant finally decided to be strict about approving lending apps in the store.

Location map not required

One way to find where loan sharks might be hiding is to check the location of the OLA.

But locator cards were no longer required to form a legal credit corporation in the Philippines from September 9, 2016.

This was in line with President Rodrigo Duterte’s directive to streamline requirements and processing times for more efficient public service and less “public inconvenience”.

Asked about removing certain requirements for SEC registration, specifically the card requirement, Gumtang-Remalante said, “We’ll see…it’s a good move to start.”

The commission does not condone underground companies that legitimize their illegal actions through SEC registration, she stressed.

The SEC said it penalizes offending lenders, based on official complaints.

SunCash, registered as SunCash Lending Investors, an app known for its collection practices, is one of them.

Four Chinese nationals own 99.5% of SunCash Lending Investors’ foreign stock, according to the company’s general information sheet filed with the SEC.

In February 2022, the SEC ordered SunCash to pay a fine of 50,000 pesos for unfair debt collection practices. A borrower had complained that SunCash had threatened his contacts that they would be labeled on social media as scammers.

SunCash also allegedly used slurs and profane language and engaged in false representations or deceptive means to collect debts. He even had access to the victim’s contact list without his consent.

This was the company’s second violation. The first was in January 2022; he paid 75,000 pesos.

Going forward, the SEC said it will require credit companies to submit a “clear business plan for product offerings.”

Gumtang-Remalante said the SEC is also drafting an agreement with the National Bureau of Investigation, the law enforcement agency that deals with white-collar crimes.

Amid the growing number of OLA victims, the Bangko Sentral ng Pilipinas (BSP) in March 2022 capped interest charges on loans. But this is only for amounts of P10,000 and below.

Financial literacy, regulation

For advocates, one solution is long-term: financial literacy.

Gilberto Llanto, former president of the Philippine Institute for Development Studies, the state’s think tank, said BSP should coordinate with the Ministry of Education to include financial literacy in the school curriculum. .

The secondary school curriculum should at least offer courses in economics and finance, with up-to-date learning materials on e-commerce, e-money and e-finance.

“Economics and finance are not easy subjects. Mahirap that. We really have to talk about the financial system, the financial markets, the various products of the financial system. So you really need to develop understanding and skill. A very large part of the population is perhaps uneducated and poorly educated. Let us reform and strengthen primary and secondary education,” Llanto said.

“Unfortunately, those who access microloans belong to class C and D. Kung sino pa ang hindi masyadong financially literate, sila ang nangangailangan ng pera (those who need money are those who are not financially literate),” said Llanto.

Victorio Dimagiba’s Laban Konsyumer is part of a BSP-led financial literacy task force. It also works with other consumer groups in the Association of Southeast Asian Nations.

“We are developing a training module for consumers of all sectors, ABCDE…especially classes D and E, on the rights and responsibilities of digital financial products and services,” he said.

The former trade chief cited Thailand, Indonesia and Malaysia as good examples of police fintechs; in Singapore, OLAs are not proliferating, he said.

“This is what the country lacks at the moment: simplified, well-documented, easily understandable and transparent loan/financing documents, financial education programs and consumer education,” Dimagiba said.

People rarely read the fine print, for example, so workgroups will advocate larger fonts and the use of icons, he said.

“It’s a homecoming for consumers, to alert them to what they’re about to experience,” Dimagiba said.

The program will develop financial education modules in up to six local languages.

Since the head of the SEC is also chairman of Credit Information Corp. (CIC), both agencies worked on financial literacy efforts. Their activities include webinars on credit rating and consumer debt.

Third globalization

But consumer education is only one side of the coin. The ecosystem is subject to abuse.

“Digital technology is an enabler. Too many good things also allow for many bad policies. It is caused by the platform economy. Some call it ‘the third globalization’ – cloud computing, big data and algorithmic decision-making,” Llanto said.

Given the growth of online lending, data privacy boundaries need to be set, he said.

“That’s the difficulty. You cannot monitor. Regulators are unable to monitor how online lenders use your personal information. There are now questions about who owns the data. Everyone’s data is aggregated, processed, reprocessed, reimagined and re-stored somewhere in the cloud,” he said.

Llanto called for institution-based regulation, which implies greater coordination between different regulatory agencies.

“Traditionally, you regulate institutions. But what we see now is activity-based regulation; regulation of different activities performed by different institutions,” he said. “Regulators need to talk to each other.”

As of this writing, victims are still sharing stories and advice with each other in public and private Facebook groups. Most of the comments showed that they did not know which authorities to turn to.

They don’t know which government agencies can and should protect them. As victims abroad turn to charities and community centers for help, Filipinos turn to what is accessible to them – the Freedom of Information portal and social media – through despair.

To stop online lending platforms from ruining people’s lives, regulators need to swim faster than sharks. END

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