Debt Collection: Know Your Rights

With the COVID-19 pandemic continuously wreaking havoc on economies around the world, more and more people are finding themselves strapped for cash. We, in the Philippines, are no exception to this. With hundreds – if not thousands – of businesses closing shop either temporarily or permanently and a lot more downsizing their operations, employees are left without any means of livelihood. True, a good number of Filipinos have tapped into their entrepreneurial acumen and have started businesses to make a living, a substantial number have resorted to borrowing money from a multitude of lending companies now operating within the country. With the advent of online lending companies, the process of borrowing money has become so much more convenient leading to an increase of borrowers.

The problem starts when the borrowers become unable to pay back their loans. Let’s admit it, financial literacy is not that widespread among Filipinos. This leads to a lot of our kababayans being “victimized” by lending companies who charge obscenely high-interest rates which in turn make the loan that much harder to pay.

In the last few years, we have learned of horror stories of borrowers being bullied and shamed on social media by debt collectors. Complaint after complaint was filed before the Securities and Exchange Commission (SEC) regarding these practices. In response to this, the SEC issued the Memorandum Circular No. 18 series of 2019 that prohibits unfair collection practices and provides penalties such practices. It would then be prudent for us to know what the rights of the borrowers are when the time comes for the debt to be collected.

First, a debt collector or any of its agents cannot make threats to commit an act that is penalized as a crime against the borrower if the borrower fails or delays in paying his/her debt. The threat may be physically harming the borrower, besmirch his/her reputation, or say destroy his/her property in order to force payment. [(Sec. 1 (a)]

 Second, the debt collector or any of its agents cannot threaten the borrower of any act that cannot be legally be taken should the latter fail to pay back the loan. This includes, say, automatically taking ownership or possession of the borrower’s property if the same is not the collateral for the debt or even if it is the collateral, without undergoing foreclosure proceedings as provided for by law. [Sec. 1 (b)]

 Third, the debt collector or any of its agents shall, at all times, be respectful and shall not use obscenities, insults, or profanities in collecting the unpaid debt. Even when the borrower is being difficult and refuses to pay the debt despite repeated demands, the debt collector or any of its agents must remain respectful. [Sec. 1 (c)]

 Fourth, the names and personal information must be kept confidential and shall not be disclosed or published unless authorized under the Memorandum Circular. Under Section 2 of the MC No. 18 s. 2019, the names and circumstances of the borrowers can only be disclosed when: 1. The borrower gives his/her written or recorded consent; 2. Sharing of information with other financial institutions, credit information bureaus, or their agents and/or representatives; 3. Upon lawful order of the court; 4. Disclosure to collection agencies or counsels for purposes of enforcing the legal rights of the lender; 5. Disclosure to third party service providers that assist or serves the lender in its business; 6. Disclosure to insurance companies for purposes of procuring insurance against default or non-payment. [Sec. 1 (d)]

 Fifth, the debt collector or any of its agents cannot threaten to disclose or threaten communication of loan information of the borrower when such information is known or should be known to the lender or debt collector to be false. Also, it must be disclosed, when necessary and/or relevant, the fact that the debt is disputed must be disclosed. [Sec. 1 (e)]

 Sixth, the debt collector or any of its agents must at all times be truthful in the act of collecting the payment from borrowers. They cannot make any false statements or use deception in order to force borrowers to pay. [Sec. 1 (f)]

 Seventh, debt collection activities cannot be done from 10:00pm to 6:00am. This is to ensure that the borrower is not unduly inconvenienced or disturbed during the time when normally people are resting. Debt collection can be done during these hours, however, when the account is past due for more than fifteen days or the borrower has given consent either by written, electronic, or recorded means. [Sec. 1 (g)]

Finally, the debt collector or any of its agents shall not contact persons in the borrower’s contact list except those who are guarantors or co-makers to the debt. This means that the debt collector cannot sift through a borrower’s contacts and mass messaging them informing them of the debt of the borrower with the purpose of forcing the borrower to pay out of sheer shame. [Sec. 1 (h)]

 Should any of these be done against a borrower, said borrower can file a complaint against the lender before the SEC. The penalties range from fines to the revocation of Certificate of Authority to operate as a financing or lending company. Does it mean that when a lender/debt collector commits any of the acts discussed here, the debt is no longer due? NO. The debt remains due and need to be paid back even when the lender or debt collectors commits any of the prohibited acts. As stated, the lender can be meted a penalty by the SEC.

Note, however, that SEC MC No. 18 s. 2019 applies only to financing or lending companies. How about banks and credit card companies, can they do the acts that are prohibited as discussed above? The answer is no. Loan collection practices of banks and credit card companies are governed by Bangko Sentral ng Pilipinas Circular No. 1003 series of 2018 which prohibits exactly the same acts prohibited under SEC MC No. 18 s.2019

It is often said that “walang nakukulong nang dahil sa utang.” This is true and stems from no less than the Constitution that guarantees non-imprisonment for debt. That does not mean that one can just refuse to pay a debt owed. There are multiple legal recourses available to lenders in order to exact payment from defaulting borrowers. Sometimes, if the elements are present, the non-payment of debt may even be considered a criminal offense.

Disclaimer: The information presented in this article is for informational purposes only. It should not be taken as a legal advice or be used a basis for legal action or defense.