On the Computation of Interest Rates

June 6, 2019

SEC NOTICE

ON THE COMPUTATION OF INTEREST RATES

The Securities and Exchange Commission ("SEC"), in its commitment to foster consumer protection, enhance loan information transparency and promote the adoption of fair lending practices, advises the public to observe the updated rules in implementing the Truth in Lending Act (Republic Act No. 3765), particularly the Bangko Sentral ng Pilipinas ("BSP") Circular No. 730 dated 20 July 2011 and the SEC Memorandum Circular No. 7, Series of 2011. This Notice is issued in view of the numerous queries entertained by the operating department/s of the SEC with regard to the correct computation of the interest rates imposed by Lending Companies ("LCs") and Financing Companies ("FCs").

Adopting BSP Memorandum No. M-2011-040 in the case of LCs and FCs, an effective interest rate ("EIR") calculation model for a loan, founded on established principles of discounted cash flow analysis, should be based on the actual features thereof. Attached herein are some Illustrations/models of common loan features, which are also present as annexes in the BSP memorandum. Moreover, LCs and FCs...

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