BSP requires pawnshops to secure license to operate

PAWNSHOPS will now have to secure licenses to operate from the Bangko Sentral ng Pilipinas (BSP) under new rules released as 2016 closed.

The guidelines — under Circular 938 posted on the BSP’s Web site over the weekend — require pawnshops to secure an authority to operate from the central bank, compared to the old requirement of simply registering as entities covered by the regulator.

“In considering the application to operate a pawnshop business, the BSP shall take into account the fitness and propriety of the pawnshop operator and/or its incorporators/directors/trustees/ partners/officers,” read the Dec. 23 circular signed by BSP Governor Amando M. Tetangco, Jr.

“In determining whether a person is fit and proper to be an operator of a pawnshop business, regard shall be given to… integrity/probity, market reputation, competence and financial capacity.”

Pawnshops engage in the lending business by using personal properties as collateral.

Among financial entities, they have the widest reach in the country, with 5,420 pawnshops running 10,952 branches as of September last year.

The BSP may grant four kinds of licenses: type A, or a basic license for pawnshops with up to 10 branches; a type B license for those with more than 10 branches that also run another BSP- registered business activities; and a type C license for pawnshops with more than 10 branches that also run a remittance service. The type D license covers virtual operations called e-pawning, whereby customers can offer assets through electronic channels.

BASIC CONDITIONS

The BSP said it will not issue licenses to the last three types of pawnshops if these belong to a single proprietorship or partnership.

Type A and B licenses require minimum paid-up capital of P100,000 and P1 million respectively, while types C and D licenses require P50 million.

In an effort to improve the financial footing of pawnshops, the central bank has also required that borrowings cannot be financed “from more than 19 creditors” — except those covering loans for acquiring fixed assets for businesses.

It also capped borrowings at a maximum of 50% of pledged loans.

Existing operators are given one year upon the effectivity of the new rules to secure their licenses.

The central bank also retained the required learning sessions on pawnshop regulations and antimoney laundering seminars for officers and owners of the nonbank entities before granting the licenses.

Pawnshop operators are also required to adhere to the “know your customer” rule which aims to thwart efforts to launder money or engage in other illegal practices.

In a December press briefing, Mr. Tetangco had said pawnshops would not have to seek prior central bank approval to open new branches.

Instead, pawnshops are required only to notify the central bank upon start of operations of a new unit.

The central bank also requires licensed pawnshops to submit reports regularly.

A pawnshop may also engage in “corollary” businesses like money changing and remittance services and as bills payment agent, the central bank said, although such accounts should be “separate” from pawning activities and must be disclosed to the regulator.

Interest rates and loan surcharges must be in line with market conditions. In the absence of an express contract on loan rates, the default is at 6% per annum, the central bank said.

The new rules also provide a maximum service charge of P5 or else not exceeding 1% of the principal loan. —