Central Banker: FAQs on Lending Investors, Financing Companies and Pawnshops

OF LIs, FCs and PAWNSHOPS

Source: Central Banker, A Publication of the Bangko Sentral ng Pilipinas Sept.-October 2004 Vol. II Nos. 9 and 10

Following are some of the basic questions often asked of lending investors (LIs), financing companies (FCs) and pawnshops.
Lending investors (LIs) are in the business of granting direct loans to the public. Does BSP then supervise operations of LIs?
No. BSP does not supervise the operations of LIs as there is no specific law granting BSP supervisory powers over LIs.

Does BSP grant LIs their license or permit to operate?
No. An LI should get a license from the city or municipality where it intends to operate or do business. Moreover, if an LI is organized as a single proprietorship, it has to register its business with the Dept. of Trade and Industry (DTI). If it is a partnership or a corporation, its Articles and By-laws must be registered with the Securities and Exchange Commission (SEC).
How does LI differ from a financing company?

While LIs grant direct loans to the public, they do not engage in financing operations like discounting, factoring and leasing activities, primary functions allowed only of financing companies under Republic Act 5980. LIs cannot undertake these FC activities without proper authority from the SEC.
How does an LI differ from a pawnshop?

LIs are not allowed to accept personal items, e.g., jewelry, precious stones as pledge or securityto the loan since these are pawnbroking activities. An LI is not allowed to engage in operations of a pawnshop and vice versa.

Does BSP supervise financing companies (FCs)?

FCs are generally supervised by the SEC.

In what way is BSP involved with FC operations

Under existing law, BSP has supervision over FCs that are granted BSP authority to engage in quasi-banking function or borrow from the public. These are known as “NBQBs” or “quasi-banks.” The BSP also has supervision over FCs that are subsidiaries or affiliates of banks or NBQBs that are engaged in allied activities.
What law governs the organization and operation of FCs?
Republic Act 5980, otherwise known as The Financing Companu Act, and its Implementing Rulesgovern the operations of financing companies

What then is the concern of BSP regarding non-bank financial intermediaries (NBFIs), e.g. LIs and FCs, that are not affiliates of banks or NBQBs?
- BSP requires NBFIs to submit certain documentary requirements for listing in the BSP directory of NBFIs as well as financial statements for statistical purposes.
- Its main concerns are the NBFIs’ compliance with the 19-lender limit and Truth in Lending Act.
Which is the BSP department in charge of these NBFIs?The Supervision and Examination Department III (SED III) in the Supervision and Examination Sector.
What about pawnshops? Can these commence operations without registering with the BSP?
No. A licensed pawnshop cannot legally commence business operations unless it is registered with, and has obtained a certificate of registration from BSP, through SED III.

Where will the pawshop secure a license?
The pawnbroker’s license or permit shall be secured from the local government of the city or municipality where the pawnshop is to be located. The business name of the pawnshop to be established should be registered with the DTI, if it is a single proprietorship, or with the SEC if it is a corporation or a partnership.
What is the law that governs the operations of pawnshops?
Pawnbroking activities are governed by Presidential Decree No. 114, otherwise knowm as the Pawnshop Regulation Act.