SEC’s Proposed Interest Rate Cap: What It Means for Lenders and Borrowers

The Securities and Exchange Commission (SEC) is moving to implement stricter limits on the interest rates and fees charged by lending and financing companies in the Philippines. This initiative is part of its intensified campaign to curb predatory lending while ensuring the sustainability of legitimate financial institutions.

Key Highlights of the Proposal

Under the draft circular on Recalibrated Ceilings on Interest Rates and Other Fees, the SEC proposes new rules for unsecured, general-purpose loans up to ₱20,000 with repayment terms not exceeding six months. These loans—whether offered online or through traditional channels—would be subject to the following limits:

• Maximum nominal interest rate: 6% per month (about 0.2% per day)

• Maximum effective interest rate: 10% per month (about 0.33% per day), inclusive of all processing, service, notarial, and handling fees

• Late payment penalties: Up to 5% per month on outstanding balances

• Total cost cap: All interest, fees, and penalties combined cannot exceed 100% of the original loan amount

➡️ Example: A borrower who takes out a ₱10,000 loan cannot be charged more than ₱10,000 in total interest, fees, and penalties over the life of the loan.

How It Differs from Previous Rules

The SEC first set an interest cap in 2022, but that rule applied only to loans up to ₱10,000 with terms of up to four months. The new proposal doubles both the loan amount and the term limit while lowering the effective monthly rate cap from previous levels.

This update aims to:

• Reflect current socioeconomic realities

• Balance consumer protection with sustainable lending operations

• Close loopholes that allowed some online lenders to impose excessive charges

The proposed rules also include stricter penalties:

Type of Company	1st Offense	2nd Offense	3rd Offense
Lending Companies	₱25,000	₱50,000	Up to ₱1 million fine, license suspension or revocation, and possible 60-day operational halt
Financing Companies	₱50,000	₱100,000	Same as above

How the Philippines Compares Globally

The SEC’s move aligns the Philippines with global trends. Many countries, such as the United States and Japan, enforce interest rate ceilings to protect consumers.

• In the U.S., small-loan regulations typically cap annualized interest rates at around 36%.

• In Japan, the cap stands near 20% annually.

While the SEC’s proposed 10% monthly limit (equivalent to about 120% per year) appears higher, it considers the higher risk associated with short-term, unsecured lending in the Philippine market.

What Lenders Should Do

Lending and financing companies should begin reviewing and restructuring their loan products to comply with the new limits. Recommended actions include:

• Reassessing interest rates and fees to stay within the 10% effective rate cap

• Adjusting internal systems to automatically monitor compliance

• Updating loan contracts and disclosures to ensure transparency

• Consulting with legal or CPA advisors to align policies with SEC guidelines

Early compliance will prevent penalties and enhance credibility as a fair and responsible lender.

What Borrowers Should Know

For borrowers, the proposal promises more affordable and transparent access to credit. Once implemented:

• Interest and fees will be clearly limited, reducing the risk of debt traps

• Total repayment amounts will be predictable and capped

• Borrowers can more easily identify illegal lending practices such as hidden or excessive fees

If a lender exceeds the new limits, consumers can report violations directly to the SEC.

The Bottom Line

The SEC’s recalibrated rate ceilings mark a major step toward fair lending and financial inclusion. By setting reasonable boundaries on loan costs, the Commission seeks to protect borrowers from exploitative practices while supporting a sustainable lending ecosystem.

For lenders, now is the time to reinforce compliance and transparency.For borrowers, it’s an opportunity to borrow smarter and safer.