SEC restricts debt collection practices of lending firms

The Securities and Exchange Commission (SEC) has issued rules prohibiting financing and lending companies from employing unfair debt collection practices.

In a draft memorandum circular, the SEC said lending entities could no longer resort to unfair debt collection practices which include the use of threat, violence or any criminal means; the use of obscenities, insults or profane language by the lender; and disclosure or publication of names and other personal information of borrowers that refuse to pay debts.

Lenders are also prohibited from making calls to their borrowers early morning or late at night to seek collections.

“Making contact at unreasonable/ inconvenient times or hours, which shall be defined as contact before 8 a.m. or after 9 p.m., unless the account is past due for more than 60 days or the borrower has given express permission that the said times are the only reasonable opportunities for contact (shall constitute unfair collection practices),” the SEC said.

Financing companies and lending companies are also required to keep strictly confidential the data on the borrower except in some cases such as when there is written consent from the borrower, upon orders of a court of competent jurisdiction and disclosure to third parties for the purpose of preventing borrower default.

Even if the financing companies and the lending companies outsource their collection to third party providers, the ultimate responsibility of ensuring proper collection practices and compliance to the SEC circular remains with the companies themselves, the corporate regulator said.

It is a common practice of many financing and lending companies to outsource their collection activities to third party providers to avoid liability for client harassment

The SEC issued the circular because it has been receiving numerous complaints against financing companies and lending companies that allegedly harass borrowers and employ abusive means to collect debts.