BSP issues stricter guidelines for pawnshops

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has issued stricter guidelines governing pawnshops as the industry plays an important role in building a more inclusive financial system and protecting the welfare of financial consumers.

BSP Governor Amando Tetangco Jr. has issued Circular 938 amending the manual of regulation for pawnshops.

Last Dec. 23, the central bank approved a new supervisory framework governing pawnshops as part of a series of reforms instituted by the BSP to promote a more responsive regulatory environment for the industry and other non-bank financial institutions.

Under the new rules, there would be four classifications of pawnshop operator licenses. These are “A” for basic pawnshop business with not more than 10 offices; “B” for those with more than 10 offices and with or without BSP-registered corollary business activities excluding remittances; “C” for those with more than 10 offices and with remittance operations; and “D” for virtual operators or those engaged in electronic pawning.

The BSP requires a minimum paid up capital for P100,000 for class “A” pawnshops, P1 million for class “B”, and P50 million for both “C” and “D.”

As a prerequisite for the issuance by the BSP of the authority to operate, proponents are required to attend a briefing on pawnshop regulations and a seminar on the Anti-Money Laundering Act.

They are also required to comply with the requirements on corporate governance of the Securities and Exchange Commission (SEC).

The BSP now puts high regard on the fitness and propriety of the pawnshop operators, including its incorporators, directors, partners and officers, by focusing on their integrity, market reputation, competence and financial capacity.

The new rules also require the pawnshop operators to adopt the applicable BSP Regulations on Financial Consumer Protection mandating the disclosure of the effective interest rate of the loan, including the charges on the transaction to their customers.

Pawnshops are also mandated to inform the customers about the policy on insurance of pawned items, maturity date and grace period in cases when the customer failed to redeem the loan.

The new framework provides that the network-based approach will be adopted wherein pawnshop operators are only required to submit a notification to the BSP for the establishment and operation of pawnshop offices instead of the usual approval from the BSP prior to its operation.

The new rules introduce different types of BSP licenses to pawnshop operators depending on the type and/or level of complexity of business to be undertaken.

Further, it also instituted a limit on the borrowings of pawnshops to finance its pawning operations to not more than 19 creditors. However, the limit does not cover borrowings for purposes of acquiring fixed assets intended for business operations.

Existing pawnshop operators are given one year from the date of the effectivity of the new regulations to secure their BSP license to operate a pawnshop business.

It would be recalled the BSP revoked the licenses of Philrem Services Corp., Peso Remittance Express Inc. and Werquick Inc. for violations of section 451N of the Manual of Regulations for non-bank financial institutions and Circular 706 dated Jan. 5, 2011.

The three companies were implicated in the $81 million bank heist wherein funds of the Bangladesh Bank were stolen and laundered in the country using Rizal Commercial Banking Corp. (RCBC) as a conduit. The bank was fined P1 billion.

There are more than 16,200 BSP-authorized pawnshops consisting of 5,400 head offices and 10,800 branches nationwide. Of the total number, 6,700 are multi-functioning as foreign exchange dealer, money changer and remittance agent.