CA stops SEC from implementing rules

The Court of Appeals has issued an order preventing the Securities and Exchange Commission from implementing its rules on the creation and regulation of lending companies on the ground that the issuance was not derived from an existing law.

The order was in response to the petition filed by Easton Credit Corp., seeking to enjoin the SEC from exercising regulatory authority over lending investors since there is still no law regulating the same.

Easton argued that the SEC went beyond the scope of its authority when it imposed upon lending investors rules and regulations that should be applicable only to financing companies. These include requiring existing lending investors to convert into corporations within one year from the effectivity of the rules and securing a certificate of authority to operate as financing company.

"While the SEC has general jurisdiction and power of supervision and control over all corporations, such jurisdiction is not unconfined. It is settled that for the validity of administrative rules and regulations, it is necessary that the rules and regulations must have been issued on the authority of the law," the CA said in its order.

The CA said that there are pending bills in Congress intending to regulate the establishment and operation of lending companies in the Philippines.

The CA explained that the requirements of the Financing Company Act were never meant to apply to lending investors. "While the definition of financing companies includes those engaged in direct lending, it does not intend to include lending investors. Finance companies refer to the more sophisticated form of credit institutions," the CA said.

"Moreover, lending investors are not institutions to be envisioned. They were already in existence in 1998 when the Financing Company Act was amended," the CA said.

Under the proposed Lending Company Regulation Act of 2004, filed by Sen. Franklin Drilon, the measure, once approved, will lay down the minimum requirements and standards under which lending investors may be established and do business.

The bill gives the SEC the authority to issue rules and regulations on minimum capitalization, uses of funds received, method of marketing and distribution, maturity of funds received, restrictions or outright prohibition of purchases or sales of receivables with or without recourse basis.

It also provides that a lending company may grant loans in such amounts and interest rates and charges as may be agreed upon between the lending firm and the borrower or debtor provided that the agreement shall be in compliance with the provisions of the Consumer Act of the Philippines.