An SEC official said the commission has received reports that several lending and/or financing companies have gone beyond their required business activity by soliciting funds from the public with the promise of high yielding returns.
"Lending firms are not authorized to source funds from the public. Remember that they are the ones which should lend money to the public and not the other way around," the SEC official said.
The SEC admitted that it is helpless in regulating the activities of the existing 200 finance companies and about 7,000 lending corporations in the country.
Lending companies grant direct loans from their own funds and are engaged in microfinance.
The SEC official stressed that while it recognized the role of micro-finance in the fight against poverty, it could not close its eyes to the dangers of thousands of unregulated lending investors who derive their funding requirements from the investing public.
To protect the public against deceptive schemes and "fly-by-night" operators, a bill seeking to regulate the establishment and operations of lending companies has been filed by Bacolod City Rep. Monico Puentevella.
Puentevella said while there are special laws, such as the Financing Company Act, that govern most non-bank financial companies, there is no specific law that covers lending firms.
Dubbed "Lending Company Regulation Act", the bill will lay down the minimum requirements and standards for the creation of lending firms.
The proposed bill gives the Department of Trade and Industry the authority to supervise the operations of lending companies.
Lending corporations will be required to register as a corporation and mandated to file with the DTI a schedule of liabilities, identifying debtors and indicating the maturity pattern of transactions, as well as other reports that the DTI may require. These reports shall be signed under oath by the companys principal executive officer, and principal financial officer.
The proposed bill also provides stiffer penalties for erring lending firms. Violators would be fined not less than P10,000, or maximum imprisonment of 10 years, both at the discretion of the courts.
Last year, the SEC directed all companies engaged in direct lending activities to convert themselves into financing companies and increase their capitalization to P10 million for those operating in Metro Manila and P2.5 million for those in the provinces.
Lending companies registered as financing companies will be subjected to the reportorial requirements under the law and can be closely monitored by the SEC.
Under existing rules, an SEC official said commission can only investigate lending investors "on a general basis" as a corporation.
A group of lending investors, claiming to have 15,000 members all over the country has called on the SEC to temporarily hold the implementation of its circular as this would result in the extinction of small lending firms.
The group said that requiring lending investors to convert to financing companies is against the nature of micro-lending which is to remain small in order to cater to small borrowers denied credit by banks and bigger lenders.