Educational process guidance for Philippine lending and financing companies, not legal advice. Have your counsel confirm how each of your fees is classified and whether a product is covered before you change your pricing.
A branch manager opens the product sheet for the ₱10,000 two-month loan that has sold well since 2022: 6% a month, ₱800 processing fee taken out at release. Nobody touched it this year. Under the SEC rules in force since April 1, 2026, that product now breaks the cap on every new release and every renewal, even though the monthly rate never changed. The fee pushed it over.
The short answer: SEC Memorandum Circular No. 14, Series of 2025 sets four ceilings on unsecured, general-purpose loans of up to ₱10,000 with a tenor of up to four months, offered by lending and financing companies and entered into, restructured or renewed from April 1, 2026. Nominal interest is capped at 6% a month. The effective interest rate, which includes processing, service, notarial and other fees, is capped at 12% a month. Late and non-payment penalties are capped at 5% a month on the outstanding scheduled amount due. Everything together (interest, fees and penalties) cannot exceed 100% of the amount borrowed, no matter how long the loan stays open. Check every covered product against all four before the next release.
This guide is for owners, compliance leads and branch managers at Philippine lending and financing companies. You get the four caps in one table, a coverage test, a pricing check on six real-shaped products, the penalty and 100% total-cost math, the circumvention moves the SEC names, and a monthly review routine.
Who this is for (and who can skip)
Use this if you are an SEC-registered lending or financing company, or you run an online lending platform under one, and you offer any unsecured cash loan of ₱10,000 or less that is paid within four months.
You can skip it if every product you offer is secured by real collateral, above ₱10,000, or longer than four months, and you have never split, repackaged or re-termed a loan to land there. Banks, cooperatives and pawnshops fall outside the circular’s definitions of lending and financing companies and follow their own regulators’ rules.
The four caps in one table
| Cap | Ceiling | What counts inside it | What sits outside it |
|---|---|---|---|
| Nominal interest rate | 6% a month (about 0.20% a day) | The contract rate, as a percentage of the total amount borrowed | Fees and charges |
| Effective interest rate (EIR) | 12% a month (about 0.40% a day) | Nominal interest plus processing, service, notarial, origination, handling, verification, disbursement fees, documentary stamp tax and similar charges | Late-payment and non-payment penalties |
| Penalties | 5% a month | Charges when the borrower misses or underpays a due amount | Computed on the outstanding scheduled amount due, not the whole loan |
| Total cost cap | 100% of the amount borrowed | All interest, fees, charges and penalties combined | Nothing. It applies regardless of how long the loan is outstanding |
The EIR is the rate that exactly discounts the borrower’s payments back to the net proceeds they actually received, using the Truth in Lending Act calculation models. That is why a fee deducted at release does more damage than the same peso amount of interest: it shrinks what the borrower takes home while the payments stay the same.
The previous rule, SEC MC No. 3 of 2022 implementing BSP Circular No. 1133, allowed an EIR of 15% a month. Products priced to that ceiling are the ones most likely to fail now.
Is this product covered? Five yes/no questions
- Is it unsecured? No collateral required. Simulated collateral does not count as security; the circular treats it as circumvention.
- Is it general-purpose? The borrower can use the cash for anything: bills, gadgets, personal needs, small business needs.
- Is the principal ₱10,000 or less?
- Is the tenor four months or less?
- Was it entered into, restructured or renewed on or after April 1, 2026?
Five yeses means the four caps apply. A renewal or restructure of an older loan resets the clock, so a 2025 loan renewed last week is covered.
The pricing check: six products, run the numbers
Illustrative products. Flat add-on interest on the original principal, equal monthly installments, processing fee deducted at release. EIR solved as the monthly rate that discounts the installments to net proceeds.
| Product | Nominal | Fee at release | Net proceeds | Monthly installment | EIR a month | Result |
|---|---|---|---|---|---|---|
| ₱10,000 · 3 months | 5% | ₱500 | ₱9,500 | ₱3,833.33 | 10.20% | Pass |
| ₱10,000 · 3 months | 6% | none | ₱10,000 | ₱3,933.33 | 8.76% | Pass |
| ₱5,000 · 2 months | 5% | ₱300 | ₱4,700 | ₱2,750.00 | 11.15% | Pass, thin margin |
| ₱10,000 · 2 months | 6% | ₱800 | ₱9,200 | ₱5,600.00 | 14.18% | Fail (passed the old 15%) |
| ₱10,000 · 2 months | 5% | ₱800 | ₱9,200 | ₱5,500.00 | 12.79% | Fail, even at 5% |
| ₱10,000 · 1 month | 6% | ₱600 | ₱9,400 | ₱10,600.00 | 12.77% | Fail |
Three lessons sit in that table:
- Short tenors punish fees. A ₱600 fee spread over one month weighs far more than the same fee over three. The shortest product on your menu is the one most likely to fail.
- A legal nominal rate proves nothing. Every failing row is at or under 6% a month. The EIR test is the one that bites.
- The fix is usually the fee, not the rate. Cutting the fee on the ₱10,000, two-month, 6% product from ₱800 to ₱500 brings the EIR to 11.71%. At ₱400 it drops to 10.92%, which leaves room for documentary stamp tax and rounding.
Your real schedule may use reducing-balance interest, weekly collections or a fee split across installments. Run the same test with your actual cash flows, from the same amortization preview the borrower sees. For weekly or daily schedules, fix the period conversion once with your compliance adviser, write it on the product sheet, and use it every time.
Penalties and the 100% total-cost cap
Take the first product above: ₱10,000 over three months, ₱3,833.33 due each month. The borrower misses the second installment.
- Penalty ceiling: 5% a month on the outstanding scheduled amount due. On one missed ₱3,833.33 installment, that is at most ₱191.67 a month. It is not 5% of the ₱10,000 principal or of the whole remaining balance.
- Total cost ceiling: interest (₱1,500) plus the fee (₱500) is already ₱2,000. However long the account runs late, penalties can add no more than ₱8,000, because the total of interest, fees and penalties cannot exceed the ₱10,000 borrowed.
Put a running “total cost to date” field on every covered account, and stop accruing penalties the day it reaches 100% of principal. That is a ledger rule, not a collector’s judgment call. For how penalties should be worded and posted, see late fees and penalties that fund ops legally and clearly.
The circumvention moves the SEC already named
Section 5 of the circular lists what counts as getting around the caps: restructuring, repackaging, splitting of loan amounts, recharacterization of fees, shifting of loan tenor, simulated collateral, sham guaranty arrangements and disguised charges. In desk language:
- Releasing two ₱8,000 loans to the same borrower the same week instead of one ₱16,000 loan.
- Stretching a 30-day product to “four months and one day” on paper while collecting in 30 days.
- Renaming a processing fee a “membership fee”, “insurance” or “platform charge” to move it outside the EIR.
- Adding a guarantor or a “collateral” form nobody intends to enforce, just to call the loan secured.
- Rolling unpaid interest into a “new” loan as a restructure to reset the cost cap.
Penalties for breaching the ceilings are ₱50,000 for a first offense; up to ₱1,000,000 and/or a 60-day suspension of lending for a second; and revocation of the Certificate of Authority and Certificate of Incorporation for a third.
Monthly cap review: a one-hour routine
| Step | Who | Evidence kept |
|---|---|---|
| 1. List every product that passes the five coverage questions | Compliance lead | Product register with tenor, amount range, security |
| 2. Recompute EIR from the current fee table and schedule | Finance | One-page calculation per product, dated |
| 3. Spot-check five releases: fees charged match the product sheet | Branch manager | Loan IDs, disclosure statement, release record |
| 4. List covered accounts within 10% of the total-cost cap | Collections lead | Account list with cost to date |
| 5. Flag same-borrower releases within 30 days that add up above ₱10,000 | Credit | Report with reviewer’s note on each |
| 6. Sign off or suspend the product | Owner or general manager | Signed review, kept with the product file |
Common mistakes
- Checking the nominal rate only. The EIR includes fees; that is where products fail.
- Forgetting documentary stamp tax and notarial charges. The circular lists them as other fees and charges, so they sit inside the 12%.
- Treating renewals as old loans. A renewal or restructure on or after April 1, 2026 is covered.
- Computing penalties on the whole balance. The base is the outstanding scheduled amount due.
- No hard stop at 100%. Without a ledger rule, a long-delinquent account quietly crosses the cap.
- Disclosure that doesn’t match pricing. The loan disclosure statement must show the same finance charge your cap check used.
Decision framework: keep, reprice, or retire
- EIR under 11% a month with fees and taxes included? Keep it. Review monthly.
- EIR between 11% and 12%? Keep it only if the fee table is locked in the system and staff cannot add charges at the counter. Otherwise reprice.
- EIR above 12%? Reprice before the next release: cut or remove the upfront fee first, then lengthen the tenor within four months, then lower the rate.
- Still fails, or only works with a “new” fee name? Retire the product, or move it to a genuinely secured or larger product with proper underwriting, not a relabelled one.
Where PesoLend fits today
PesoLend has no built-in SEC cap checker, and it does not decide for you whether a fee is covered. What it gives your desk is the raw material for the check: loan products with flat or reducing interest, a fee configuration set once per product so staff don’t improvise charges, the amortization preview before disbursement, a loan statement the borrower can read, and maker-checker on release. Run the EIR calculation on those numbers, file the result in the product record, and keep the counter from changing them. See features and pricing.
FAQ
Does the cap apply to loans above ₱10,000?
Not under this circular, which covers loans of up to ₱10,000 with a tenor of up to four months. Splitting a larger need into several small loans to stay under the cap, or inflating a small loan to escape it, is named as circumvention.
Is documentary stamp tax part of the 12% EIR?
The circular lists documentary stamp tax among “other fees and charges”, which sit inside the EIR. Include it in your calculation.
We are a cooperative. Does this apply to us?
The circular is addressed to financing and lending companies, and its definition of a lending company excludes cooperatives. Follow the CDA’s rules, and confirm with your counsel.
Can the SEC change the caps again?
Yes. Section 6 says the ceilings are subject to periodic review. Re-check the SEC’s issuances page at least once a quarter.
Next step: today, list every unsecured product of ₱10,000 or less with a tenor of four months or less, and run the EIR on its current fee table. Any product above 12% stops releasing until it is repriced. Existing teams can log in to PesoLend to pull each product’s fee setup and amortization preview into the check.