SEC sets limits on interest, fees for small consumer loans

By Alexandria Grace C. Magno

THE Securities and Exchange Commission (SEC) has issued a memorandum imposing recalibrated ceilings on interest rates and fees charged by financing and lending companies on small consumer loans.

Memorandum Circular (MC) No. 14, Series of 2025, sets a 6% per month cap on nominal interest rates and a 12% monthly cap on effective interest rates for loans of up to P10,000 with terms of up to four months.

Previously, the Monetary Board and the SEC allowed a maximum effective interest rate of 15% per month.

“The recalibrated interest rate cap offers a balanced and sustainable framework that considers the interests of both lenders and borrowers, consistent with the Commission’s mandate of promoting consumer protection while also ensuring the viability of legitimate financing and lending companies,” SEC Chairperson Francisco Ed. Lim said in a statement on Thursday.

Nominal interest rate (NIR) refers to the basic rate charged on the principal without additional fees, while effective interest rate (EIR) reflects the total cost of the loan by including mandatory fees, in line with Truth in Lending Act rules.

“The new rules are intended to help the most vulnerable segment of financial consumers, particularly those who avail of small loans to cope with daily expenses or emergencies,” China Bank Capital Corp. Managing Director and University of the Philippines College of Law Senior Lecturer on Credit Transactions Juan Paolo E. Colet said in a Viber message.

“It’s a timely move that should remind lenders that loans must be a virtuous means of financial empowerment and economic productivity rather than a tool for profiteering that forces people into a debt spiral,” he added.

“The interest rate cap reduces the risk of micro, small, and medium enterprises (MSMEs) falling into a debt trap and should encourage borrowers to transact with regulated lenders. In turn, this enhances credit risk visibility and may expand lending activities between MSMEs and larger banks,” AP Securities, Inc. Equity Research Analyst Shawn Ray R. Atienza said.

MC No. 14 also limits late-payment penalties to 5% per month of the outstanding scheduled amount and sets a total cost cap so that interest, fees, charges, and penalties cannot exceed 100% of the original loan amount. The caps will apply to loans made, restructured, or renewed starting April 1, 2026.

“A total cost cap of 100% of the amount borrowed applies to all interest, other fees and charges, and penalties, regardless of the loan’s outstanding duration,” the memorandum said.

Mr. Colet noted that the SEC’s caps are aligned with borrower risk and prevailing economic conditions. “Regulating consumer financing costs is not unusual, as the Bangko Sentral ng Pilipinas has set limits on credit card interest rates. A clear framework benefits both lenders and consumers, providing access to credit at a fair cost.”

Violations of the new loan pricing ceilings carry penalties ranging from a P50,000 fine for the first offense, to a P1-million fine and a 60-day suspension for the second. A third offense may result in revocation of the company’s Certificate of Authority and Certificate of Incorporation.

The SEC also warned that attempts to circumvent the caps — such as restructuring or repackaging loans, disguising fees, or other similar methods — may be treated as separate violations, which can lead to administrative, civil, or criminal action under existing laws.