Summary of the SEC Memorandum Circular №18 series of 2019 on Prohibition on Unfair Debt Collection Practice
A. Background of the Memorandum:
The Securities and Exchange Commission (SEC) has been receiving numerous complaints against Financing Companies (FCs) and Lending Companies (LCs) that allegedly harass borrowers and employ abusive, unethical, and unfair means to collect debt. It has also come to the attention of the SEC that these FCs and LCs are purposely employing third-party service providers (TPSPs) to avoid liability for client harassment. In line with these developments, the SEC issued Memorandum Circular 18 Series of 2019 to regulate and supervise such practices.
B. General Provision of the Memorandum Circular:
Section 1 of SEC Memorandum Circular allows FCs, LCs and TPSPs to resort to all reasonable and legally permissible means to collect the amounts due them under a loan agreement. Such companies must exercise good faith and reasonable conduct and must refrain from engaging in unscrupulous and untoward acts. (emphasis supplied)
C. Prohibited Acts (Unfair Collection Practices):
Section 1 provides a list of acts that are considered unfair collection practices.
a. Use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person;
b. Use of threats to take any action that cannot be legally taken;
c. Use of obscenities, insults, or profane language, the natural consequence of which is to abuse the borrower and/or which amount to a criminal act or offense under applicable laws;
d. Disclosure or publication of the names and other personal information of borrowers who allegedly refuse to pay debts, except as may be allowed under Section 2 hereof;
e. Communicating or threatening to communicate to any person loan information, which is known, or which should be known, to be false, including the failure to communicate that the debt is being disputed, except as may be allowed under Section 2 hereof;
f. Use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a borrower; and
g. Contacting at unreasonable/inconvenient times or hours, which shall be defined as a contact before 6 a.m. or after 10 p.m., unless the account is past due for more than 15 days, or the borrower has given express consent that the said times are only reasonable for convenient opportunities for contact.
h. Notwithstanding the borrower’s consent, contacting the persons in the borrower’s contact list other than those who were named as guarantors or co-makers shall be also constitute unfair debt collection practice. (emphasis supplied)
D. Institutionalized Strict Confidentiality Requirements, Exception:
The Memorandum Circular also provides for strict confidentiality of borrower’s information, except under the following circumstances:
a. Disclosure of information with the written or recorded consent of the borrower;
b. Release, submission, or exchange of customer information with other financial institutions, credit information bureaus, lenders (potential or actual), their agents, and/or representatives;
c. Upon orders of a court of competent jurisdiction or any government office or agency authorized by law;
d. Disclosure to collection agencies, counsels, and other agents of FCs and LCs to enforce the latter’s rights against the borrower;
e. Disclosure to TPSPs solely for assisting or rendering services to the FCs and LCs in the administration of its lending or financing business; and
f. Disclosure to third parties, such as insurance companies, solely for insuring FCs and LCs from borrower default or other credit loss, and the borrower from fraud or unauthorized charges. (emphasis supplied)
E. Outsourcing of the Collection Process:
FCs and LCs may outsource the conduct of collection to TPSPs, which shall act as an agent. The ultimate responsibility for collecting shall be with the principal. FCs and LCs shall also adopt policies and procedures to require personnel, whether in-house collectors or TPSPs, handling the collection to disclose their full name or true identity to the borrower.
F. Mandatory Requirement for a Customer Service:
FCs and LCs should also establish a customer service department, which shall be responsible for promptly addressing borrower complaints, questions, and concerns. A sworn certification stating the company’s compliance shall be submitted to the SEC within 30 days from the effectivity of this Memorandum Circular.
G. Penalties for the Violation:
Violation of this Memorandum Circular shall incur the following penalties.
