Overregulation: A Blow to innovative business models

The regulatory environment that government adopts should allow consumers to gain access to more choices and allow free market environment to respond to consumer needs the fastest time possible.

The Digital Age is with us. Emerging technologies have dictated the pace of activities of individuals. Business models and services continue to adapt to different approaches and changing consumer demand. New enterprises have sprung with innovative models that cater to the ease of consumers. One need not stop at a corner to ask for directions because Waze will guide you all the way to your destination. Grab has given the riding public another option, a cleaner, newer and safer mode of transportation that’s within the flick of a finger. Banking has become more convenient and snappier; now you can even deposit checks through photo messaging.

The challenge for government today is its ability to strike a balance where public safety and consumer protection are assured while allowing technological innovation to flourish. This means that the regulatory environment that government adopts should allow consumers to gain access to more choices and allow free market environment to respond to consumer needs the fastest time possible. Enterprises that are duly supervised by government should likewise be allowed to access sources of income by virtue of their innovative business models.

Lately, online lending companies (OLC) emerged as a popular vehicle where one can borrow cash without security or collateral. Information gathered reveals an astonishing number of clients who have taken advantage of this new innovative business model. Some companies will show hundreds of thousands of borrowers and repeat customers. However, a few problems have surfaced that endanger the continued operation of online lending.

One company that has serviced over a hundred thousand borrowers was a subject of complaints from some 40 individual clients. The charges filed before the Securities and Exchange Commission (SEC) were the supposed violation of the new privacy act. Said company allegedly resorted to threatening to call or have actually called on families, friends and/or officemates of borrowers to inform them that their clients are in default of their loans. The borrowers alleged that they have not given any permission to use the information they have submitted when applying for a loan.

Complaints have likewise been lodged before the National Privacy Commission and a few were filed before the courts. Apparently similar cases against online lending companies have been brought to the attention of authorities.

Recently, the SEC issued a memorandum circular detailing what constitutes unfair debt collection practices by OLC. While they do not require any collateral, borrowers need to submit a loan application form and a personal data sheet where some information about their family, work or business they are involved in are disclosed. These information are verified and once validated, the loan is approved. There are quite a number of instances that a personal visit at the office may not be necessary and transactions are done and completed electronically. Once the amount loaned is approved, this is deposited accordingly in the borrower’s account. Similarly, full payment or installments may be electronically transmitted to the company’s account.

Given the number of borrowers as well as repeat clients this new industry has developed, it appears that many are wanting fast cash, the snappy access to funds, which most of the time are used for business endeavors, high interest rates, notwithstanding. The SEC guidelines protect the borrowing public from OLC who allegedly communicate threats, cause unjust vexation, disclose or publish information of borrowers who refuse to pay their loans, contact them before 6 a.m. or 10 p.m. Such violations shall be meted with stiff monetary penalties to suspension or cancellation of license.

The new circular, noble as it pictures a government that cares for public interest, may just be double-edged. Yes, this memorandum sends a chilling effect to would be unscrupulous lenders. However, there are likewise a number of professional borrowers who may do the rounds of online lenders without any intention to settle their account. Yet, these lending companies register before government authorities, allow themselves to be under the ambit of regulators, put up bonds for their existence and heavily capitalize a very high-risk operations. How can government protect them?

Similarly, as statistics show, the complaints come from less than one percent of those being serviced. Do we ignore the 99 percent who see some use for OLC? Personally, those who continue to default on their obligations should be made public. They deprive many who regard OLC as their viable option.

The task of government, indeed, is a challenge. A balancing act is always difficult. But going against a technology that provides options for the public should not be dismantled with overregulation.