Change of heart

Last February, the Department of Education issued an order that will bring chaos to the private banking sector and make public school teachers and other personnel no longer credit worthy.

Under Department Order no. 5, deductions from salaries and other benefits of government employee may be allowed for the payment of their contributions or loans in the order stated: (1) BIR, Philhealth, GSIS and HDMF; (2) non-stock savings and loan associations, mutual benefit associations, and cooperatives managed by and/or for the benefit of government employees; (3) associations or provident funds organized and managed by government employees for their benefit and welfare; (4) government financial institutions authorized to engage in lending; (5) licensed insurance companies; and (6) thrift banks and rural banks.

But no deductions will be made that will reduce the employee’s net take home pay to lower than P5,000 which is a mandatory threshold, it said.

Payment for employees’ premiums or loans to the BIR, Philhealth, GSIS and HDMF will be deducted first from their salaries. In the case of the other categories, they will be deducted on a first-in, first served system based on the date of receipt of the authority to deduct.

But unlike in the case of the first category, there shall be no splitting of deductions for the others.

And, if for instance a public school teacher has a loan with a rural bank and it is deductible until December 2018, but because by the time the list gets to no. six, there is always only P5,000 left in the teacher’s payslip, and there is always nothing left to pay for her loan with the bank, the DepEd order says the terminations dates for deductions as indicated in the authority to deduct cannot be extended even if they are considered undeducted obligations. The teachers are advised to just pay their loans directly to their respective lenders if the loans are not deducted.

The order of preference applies to both existing and new obligations and this is where the problem lies.

Private banks agreed to lend to the teachers after having agreed with DepEd to be part of the auto payroll deduct system (APDS) on a first-in, first served system, meaning the older loan gets priority in terms of payment. And now, they are being told that not only have they been pushed to the bottom of the list in terms of order of preference, now they have to compete with newer obligations incurred by public school teachers and DepEd employees falling under the first five categories.

Prior to the entry of private lending institutions, DepEd borrowers had limited choices and were therefore, forced to avail of loans from other sources that impose effective interest rates as high as 50 percent. In some cases borrowers even resort to ATM backed loans due to lack of access to funds.

The entry of PLIs in the last 10 years made the market more competitive, bringing rates down to as low as 7.5 percent per annum.

And because of this, some traditional lenders like cooperatives, which have generally higher rates and which have seen their market shrinking, are suspected to have pressured not only the DepEd, but also Congress into making sure that PLIs are taken out of the equation. Who knows in the next GAA if PLIs will even make it to the list?

Why on earth would PLIs continue lending to DepEd teachers and personnel borrowers, if there is no assurance they will get paid?

According to the agreement (contract) for the APDS between DepEd and the banks, the DepEd shall deduct from the salary of the concerned DepEd borrowers until the loan amount is fully paid, subject to the minimum monthly net take home pay. It also says “the DepEd shall strictly observe the ‘first in-first served’ queuing system in managing the order of salary deductions. If deductions cannot be made due to insufficient take home pay, the claim of the lender shall be considered in the order of queuing until such time that deduction may be validly made.”

Thus, it is clear that regardless of the lending institution, whether government or private, loans with priority in date should have priority in payment, and that giving preference to lenders regardless of the date of loan availment will constitute a breach by DepEd of its obligation under the MOA.

In fact, in DepEd Order No. 38 (2017), the department said that “notwithstanding the new threshold limit on NTHP, deductions already incorporated in the payroll, shall be continued, even if this effectively reduces the NTHP. This is in accordance with the constitutional guarantee that no law impairing the obligation of contracts shall be passed. Otherwise, discontinuing or reducing existing deductions could result in the imposition of penalties upon borrowers that would be very disruptive, as it would require significant changes in the payroll system, and would also lead to unreasonable exercise of discretion as to which deductions should be retained or postponed.”

Also, in DepEd Order no. 27 issued last year, it noted that in so far as contractual agreements between DepEd personnel and entities with which the former has outstanding financial obligations are concerned, interruption of salary deductions would be inconsistent with the constitutional provision against impairment of the obligation of contracts. Effects would be the imposition of penalties on the loans of borrowing employees, and termination of memberships and claims to benefits for insurance and mutual aid system of member employees, it added. So why the sudden change of heart? DepEd’s new policy will not help anybody. Teachers and personnel will suffer from accrual of additional interests and other finance charges, as well as adverse credit records which will impair their access to the banking system. If the PLIs start refusing to lend to them, they will once again be at the mercy of loan sharks and other unscrupulous sources that collect exorbitant interest rates.

For comments, e-mail at mareyes@philstarmedia.com