Unfair Collection Practices

By: Jennidy S. Tambor

Benjamin Franklin said, “creditors have better memories than debtors”. Comically, Ambrose
Bierce in his book, the Devil’s Dictionary, defined ‘forgetfulness’ as a gift from God bestowed
upon debtors in compensation for their destitution of conscience.

Incurring a debt is very omnipresent that everyone, from the richest of the rich to the poorest of
poor, can relate to. Thus, a good material for comedy. An anecdote would usually start with a
debtor being extra friendly and pleasing with a prospective creditor, full of promises and
guarantees, but once the financial assistance is given, the debtor would usually magically
disappear to the land of Narnia, leaving the creditor with a memory of the debt and the hurt
feeling of not being paid.

However, this is only taking the subject matter lightly. In reality, many people seek help from
creditors i.e., financing and lending corporations just to make ends meet. Given what appears
to be a lack of substantial improvement in the economy, a lot of these people fail to make good
of their debts and consequently avoid their creditors. Thus, the cat-and-mouse chase for
payment. As debt collection becomes an arduous task for the financing and lending
corporations, some of these corporations, unfortunately, employ abusive, unethical, and unfair
means to collect debts.

Acting on the numerous complaints against financing and lending corporations’ unfair
collection practices, the Securities and Exchange Commission (SEC) issued Memorandum
Circular No. 18, Series of 2019, on 19 August 2019, entitled “Prohibition on Unfair Debt Collection
Practices of Financial Companies (FC) and Lending Companies (LC).” This memorandum states that
financial and lending corporations may resort to all reasonable and legally permissible means to
collect amounts due them under the loan agreement, provided that, in the exercise of their
rights and performance of their duties, they must observe good faith and reasonable conduct
and refrain from engaging in unscrupulous and untoward acts.

Under the memorandum, the acts which constitute unfair collection practices include: (a) the
use or threat of use of violence or other criminal means to harm the physical person, reputation,
or property of any person; (b) the use of threats to take any action that cannot legally be taken;
(c) the 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 when the borrower consents to the disclosure, or when the
information is released to other financial institutions, credit information bureaus, lenders, or
their agents or representatives, or when disclosure is upon orders of a court of competent
jurisdiction or any government office of agency authorized by law, or when the information is
disclosed to third party service providers solely for the purpose of assisting the companies in
the administration of its lending and financial business, or when the disclosure to third parties
is solely for the purpose of insuring the companies from borrower default or other credit loss;
(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; (f) the use of any false representation or deceptive means to collect or
attempt to collect any debt or obtain information concerning a borrower; (g) making contact at
unreasonable/inconvenient times or hours, which the memorandum defines as contact before
6:00 A.M or after 10:00 P.M., unless the account is past due for more than fifteen (15) days, or
the borrower has given express consent that the said times are the only reasonable or
convenient opportunities for contact; and (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-maker.

The commission of unfair collection practices shall subject the financial and lending
corporations to a penalty of PhP25,000.00 for lending corporations and PhP50,000.00 for
financial corporations, for their first offense; PhP50,000.00 for lending corporations and
PhP100,000.00 for financial corporations, for their second offense; and for their third offense,
subject to the facts, circumstances and gravity of the offense, the SEC, at its discretion, may
impose a fine of not less than twice the fine for the second offense but not more than
PhP1,000,000.00, or suspension of lending and financing activities for a period of sixty (60) days,
or revocation of certificate of authority to operate as a financing or lending company, as
appropriate for each circumstance.

The computation for the progression of offenses shall lapse every three (3) years from the last
order of payment. The number of violations shall be determined on a per loan transaction per
complaint basis, and thus, individual circumstances of unfair collection shall not be counted
separately against the companies if the same pertains to the same loan of the same complainant
with the same financial company or lending corporation. Also, these penalties shall be without
prejudice to any other penalties that may be imposed by the SEC pursuant to the Revised
Corporation Code of the Philippines and other relevant laws, rules, and regulations being
implemented by the SEC and further to the penalties that may be imposed by the court or other
government agencies in the exercise of their respective mandates.

The issuance of this memorandum is a commendable action on the part of the SEC, as it aims to
protect debtors against threats, intimidation and harassment and to regulate the creditors—
financial and lending corporations—in the exercise of their right to collect what is due them.
This may not improve the debtor’s memory nor cure their forgetfulness acquired upon the due
date of the debt, but it may protect those debtors who are trying their best to make good of their
promises from abuse and harassment. There might still be the cat-and-mouse chase for
collection, at least, it is one that is regulated and is in accordance with the law.
(The views and opinions expressed in this article are those of the author. This article is for general
informational and educational purposes only and not offered as and does not constitute legal advice or
legal opinion.)

Jennidy S. Tambor is an Associate of the Angara Abello Concepcion Regala & Cruz Law Offices
(ACCRALAW), Davao Branch.

(6382) 224-0996

jstambor@accralaw.com