A GROUP of consumer advocates has urged the Securities and Exchange Commission (SEC) to reconsider its proposed interest rate cap for small, unsecured loans, warning that this might cause legitimate lenders to withdraw or scale down their services.
On Tuesday, November 25, CitizenWatch Philippines noted that the SEC is eyeing to put a 10-percent monthly interest rate cap on unsecured loans amounting to a maximum of P20,000 starting December, based on a draft circular published last Oct. 29.
The proposed rule is an update to a 2022 policy that only applied to small personal loans not more than P10,000 and payable up to four months.
The move, according to SEC Chair Francis Lim, is supposed to “reflect current socioeconomic conditions.”
In a previous statement, he noted the increasing number of borrowers who are struggling under excessive interest rates, with “certain entities” exploiting the accessibility of online lending applications to trap Filipinos into “cycles of debt.”
For CitizenWatch lead convenor Orlando Oxales, however, the proposal “strikes at the core of the small credit system that millions of Filipino families rely on every single day.”
“Ordinary Filipinos rely on small loans for emergencies, basic expenses, and the cash flow they need to keep their work or small businesses going. If the SEC pushes through with this cap, it will choke an accessible formal lending channel available to ordinary consumers,” he said.
‘Financially unsustainable’
Oxales said regulated lenders may be forced to scale down or withdraw their small-loan products due to it becoming “financially unsustainable” due to the new interest rate cap, leading to millions of borrowers being left with no formal options and having to resort to “underground lenders.”
These underground lenders, he said, charge interest rates as high as 20 percent per week. Borrowers also face daily collection pressure, verbal intimidation and public shaming when they fall behind in payments under such lenders.
“If responsible providers of small loans pull out, where will people go?” Oxales said. “Families will still need cash for emergencies whether for medicine, school expenses, or to finance their small livelihoods.”
According to him, the proposed interest rates could dismantle the “limited yet functioning ecosystem of regulated small-loan providers,” which would “create a vacuum that illegal lenders would quickly exploit.”
“We support consumer protection, but it must be done in a way that keeps formal credit available to those who need it most,” he said. “Protect consumers by targeting abusive, unregistered lenders—not by weakening the legitimate providers who follow the rules.”
Instead of “weakening” lawful providers, Oxales urged the SEC to strengthen enforcement against illegal and abusive lenders instead. He also called on the agency to invest in consumer education that will help borrowers make informed financial decisions.
“We urge the SEC to look closely at the full spectrum of affected stakeholders,” he said. “Each group carries its own risks and constraints. A policy this broad must account for those differences.”
“Real protection means understanding how people actually borrow, how responsible lenders operate, and how every regulatory shift can either support or weaken the fragile system that keeps millions of Filipinos financially afloat,” Oxales added. (Gillian Villanueva © Philippine Daily Inquirer)
