Online lending worse than 5-6

During his term, former President Rodrigo Roa Duterte declared his intention to eradicate the 5-6 system, which ensnares our fellow Filipinos in perpetual debt bondage. True to his word, in 2016, he initiated a crackdown on the 5-6 lending scheme and issued warnings to foreigners involved that they would face arrest and deportation.

The 5-6 lending scheme offers small loans at a hefty interest rate of 20 percent per month until fully paid. It is primarily attractive to poor people and small businesses because it requires no collateral or other stringent requirements. The name 5-6 originates from lending P5,000 and expecting P6,000 in return after one month.

Although some criticize this practice, it has aided numerous small and medium-sized enterprises, as our banking system often makes it exceedingly challenging to secure loans.

This has made the government realize the importance of providing easier access to formal sources of credit. This has become a battle cry to the banking and financial sectors in collaboration with the government. This financial inclusion as an aspect of governance will be discussed in a different article.

Enter today's online lending services. I can readily say they are far worse than 5-6, with interest rates reaching 30-40 percent in just seven days. These rates are difficult to repay and keep borrowers in perpetual financial bondage.

As an Undersecretary of the Department of the Interior and Local Government, I have received complaints from my fellow citizens regarding this practice and its illegal collection methods.

These violate the Financial Products and Consumer Protection Act, the Lending Company Regulation Act, and the Data Privacy Act. These criminal offenses can incur fines of up to P2,000,000.

Apart from the unethical and sometimes outright criminal tactics these online companies employ to collect debts, we need to emphasize the excessive interest rates they impose. One example shared with me provides the following details:

Loan Terms:

Credit Amount                      P12,000

Period                                     180 days

Assessment Fee                   P840

Platform Fee              P1,560

Payment Expense    P960

Transfer Charge                    P25

Amount Received     P8,615

Total Interest             P1,764

Payment upon Due Date     P13,764

In the illustration above, despite stating a loan period of 180 days, the due date is only within seven days, with a nominal fee of 100 pesos due in 180 days, which is waived if you pay the total amount within seven days.

From the above illustration, when you borrow P12,000, you receive an amount of P8,615, and within seven days, you are required to repay P13,764, which is an additional 37.4 percent of the received amount. This online borrowing scheme makes the 5-6 system appear far less obnoxious. It even makes the latter system seem reasonable.

Upon further inquiry, I discovered that when you download these types of online apps, you must grant permission for them to access your location, contacts, and camera. In addition to contacting emergency references during debt collection, some lenders even send collection messages to those in your contact list, which may include your friends.

This is deeply concerning. The practice could be more intrusive and unnecessary. On top of the data protection, cybercrime, and privacy issues it legally straddles, the ethical considerations alone are worth noting.

This is only the beginning of my investigation into this issue, and I hope that, with the assistance of our government, we can crack down on illegal and heartless lending practices that are plaguing our country, leading to the closure of these predatory lending companies and the imprisonment of their owners.