PESOLENDING

Securities and Exchange Commission COMMISSION EN BANC Republic of the Philppines Department of Finance PESOLENDING. In the matter of: SEC CDO Case No. 09-19-054 DEPARTMENT, ENFORCEMENT AND INVESTOR PROTECTION Movant. Y RESOLUTION Commission against its online lending application Pesolending be lifted. and Desist Order' filed by Movant First Quantum Financing Corp. praying that the Cease and Desist Order2 issued by the Securities and Exchange For consideration of the Commission En Banc is a Motion to Lift Cease THE PARTIES authority to operate and the imposition of fines for violations of the Act and regulations issued by the SEC in pursuance thereto. Moreover, Section 179(f) of the Revised Corporation Code of the Philippines (RCC) grants the propio or upon a verified complaint by the public, after conducting a proper issuance of the CDO or injunction are present. Likewise, under Section 9(f) of Republic Act No. 9474, otherwise known as the Lending Company Regulation Act of 2007, the SEC is authorized to impose such administrative sanctions including suspension or revocation of the lending company's Rules of Procedure of the Securities and Exchange Commission ("SEC"), an the General Counsel ("OGC"), by any operating department, either motu investigation or verification, if there is a finding that the grounds for the referral, violations of the law and the rules and regulations of the Commission action for the issuance of a CDO or injunction may be commenced upon the filing of an application with the Commission En Banc, through the Office of the Department tasked to investigate, motu propio or upon complaint or and to, among others, initiate the issuance of a Cease and Desist Order ("CDO") by the Commission. Pursuant to Section 4-1, Rule IV of the 2016 Movant Enforcement and Investor Protection Department ("EIPD") is 2 Dated 12 September 2019 1 Dated 19 September 2019 SEC En Banc Case No. 09-19-054 Page 2 of 11 In the matter of: Pesolending, Movan. For: Motion to Lift Cea nd Desist Orde imminent fraud or injury to the public and to enjoin an act or practice which is fraudulent or can reasonably be expected to cause significant, imminent, and irreparable danger or injury to public safety or welfare. Commission among others, the power to issue CDOs ex parte to prevent in lending activities on the basis of the Certificate of Authority No. 1195 registered under the laws of the Republic of the Philippines with SEC Registration No. CS201825674 and authorized by the Commission to engage issued on 18 December 2018 in its favor.3 Movant First Quantum, on the other hand, is a corporation duly ANTECEDENT FACTS right to privacy of their debtors and complainants.5 Operators, as defined in the Memorandum, impose high interest rates, unilaterally implement onerous and unreasonable terms and conditions, make misrepresentations as to non-collections of charges and fees, and violate the 2019 from the Corporate Governance and Finance Department ("CGFD") endorsing for its appropriate action a list of Online Lending Applications Companies or Financing Companies.4 Included in the Memorandum are applications/platforms. Most of these complaints alleged that Online Lending which have not been issued Certificates of Authority to Operate as Lending several On 13 August 2019, EIPD received a Memorandum dated 07 August complaintsreceived bytheCGFDagainstentities/online and/or Google Applications of the subject Online Lending Operators. where it was able to confirm the existence of the websites, Facebook Accounts Acting on the said Memorandum, EIPD conducted its investigation contained in the mobile phone which also includes the contact list, Facebook online lending operator gains access to the applicant's personal information and information gathered by the EIPD also disclosed that before a person can apply for a loan from the Online Lending Operators, the online lending phone. By downloading and installing the online lending application, the Google Applications, however, do not state the name of the corporations or applications must be downloaded and installed in the applicant's mobile Operators are being advertised and promoted to entice people to avail of the loans they are offering. Most of these websites, Facebook Accounts and/or entities who owns and/or operates them. Moreover, the pieces of evidence The lending businesses and related activities of the Online Lending 5 Annex "C" of the Motion for Issuance of Cease and Desist Order dated 11 September 2019 Annex "B" of the Motion for Issuance of Cease and Desist Order dated 11 September 2019 3 Annex "A" of First Quantum's Motion to Lift Cease and Desist Order dated 19 September 2019 Annex "A" of the Motion for Issuance of Cease and Desist Order dated 11 September 2019 SEC En Banc Case No. 09-19-054 Page 3 of 11 In the matter of: Pesolending, Movan For: Motion to Lift Cease and Desist Order be filed before the proper barangay and/or the matter will be posted in the social media if payments of the amount due is not made. contained in the latter's mobile phones informing the same that the person accounts, and email addresses of all individuals stored therein. This personal information is being utilized by the online lending operators to exact prompt and full payments from its debtors by sending a text blast to the persons concerned obtained a loan from them but refuses to pay the amount due. Likewise, the Online Lending Operators threatens its debtors that cases will to have suffered depression, sleepless nights, embarrassment, humiliation, and adversely affected their health and well-being. Due to these abusive collection practices, debtors/complainants alleged sites from operating, engaging in," carrying out and/or promoting its lending/financing business. September 2019, enjoining the operators and owners of the subject online lending applications, their agents, representatives, promoters, and hosting In view of the foregoing, a CDO was issued by the Commission on 12 dated 19 September 2019, through its counsel, on 23 September 2019. In its one of which is "Pesolending", which is accessible to its clients/borrowers by downloading the application. motion, First Quantum admitted that, as part of its operation, it conducts its operation and offers its services through its several online mobile applications, First Quantum thereafter filed its Motion to Lift Cease and Desist Order as the operator of Pesolending authorized to operate as a lending company in accordance with the law, through the mobile application which it developed when it held that "Pesolending" violates Republic Act No. 9474. First Quantum is of the position that as a grantee of a Certificate of Authority, it is, and used. First Quantum argued that the Commission committed reversible error Certificate of Authority. First Quantum should thus be considered as acting in good faith and has no intention not to disclose its corporate name in its mobile ground for the issuance of the CDO because it cannot be denied that mobile application "Pesolending", which it developed and used, is not a "Pesolending" is owned, operated and managed by a company which has a application. First Quantum further argued that its failure to indicate the name of the For: Motion to Lin Cease and Desist Order In the matter of: Pesolending, Movan Page 4 of 11 e No. 09-19-05 to the public that it is the operator and owner of the "Pesolending" Mobile resulted in the issuance of a Cease and Desist Order, it immediately disclosed failed to indicate its name as the owner and operator of Pesolending which Application.7 In support thereof, First Quantum manifested that upon learning that it issuance of the Cease and Desist Order, which was based on Section 2 of Republic Act No. 9474 is erroneous because Declaration of Policies are merely aids or guides in the interpretation of what the law wants to achieve. It cannot be a basis for its cause of action. First Quantum further argued that the Commission's ruling for the September 2019 praying that the Commission admits the same together with the attached Motion which contained proof of service. On 24 September 2019, First Quantum filed a Manifestation dated 23 hearing on the Motion to Lift CDO dated 19 September 2019 filed by it. Quantum to Appear before the Office of the General Counsel ("OGC") for the On the same day, an Order was issued by the Commission directing First paper within the same period from receipt thereof. Both parties were directed to attach all the necessary documents to substantiate their respective claims. EIPD was directed to file its comment/opposition to First Quantum's position OGC. Both parties appeared through their respective counsels. On 07 October 2019, an Order was issued in relation to the 03 October 2019 hearing directing First Quantum to file its position paper within a period of ten (10) days from the date of hearing and to furnish EIPD with a copy of the same. Likewise, On 03 October 2019, a clarificatory hearing was conducted before the Property of the Philippines. First Quantum also manifested that it is now in October 2019 where it reiterated its allegations in its Motion to Lift dated 19 September 2019. First Quantum further argued that it did not register its to be protected under Section 165 of Republic Act No. 8293 or the Intellectual the process of complying with SEC Memorandum Circular No. 19. mobile application as a trade name because it is not required to be registered On 14 October 2019, First Quantum filed its position paper dated 11 being used by a licensed lending company should be registered with the Desist Order dated 24 October 2019 argued that the online lending application EIPD, in its Comment/Opposition to the Motion to Lift Cease and Annexes "B" and "B-1" of First Quantum's Motion to Lif Cease and Desist Order dated 19 September 2019 For: Motion to Lift Cease and Desist Order In the matter of Pesoiending. Moy. case N0.9-19-0 S Page 5 of 1 for the SEC to properly monitor its operations for regulatory purposes and to ensure that the public is not defrauded. a virtual office of the lending company. Consistent with the policy on full disclosure, and the principle of transparency, licensed lending company said name or style. The foregoing will enable the SEC, as a regulator, to know the operator(s) of such online lending application as it practically constitutes should properly identify itself as the operator of a particular online lending application in order for the public to know the entity they are dealing with and Commission as part of its company name if it intends to operate as a lending company using such lending application as it would be doing business under Rules and Regulations, and other relevant laws, rules and regulations. company in operating an online lending application whose ownership cannot be determined or identified would likely cause significant injury to the public in a way that such lending application(s) could be used to commit violations of the Truth in Lending Act, Data Privacy Act, Unfair Collection Practices EIPD also manifested that the continued practice of a lending DISCUSSION We find the Motion bereft of merit. lending and collection practices, imposed and charged high interest rates, unilaterally implemented onerous and irrational terms and conditions, apparent violation of the right to privacy which subjected their debtors and/or and Desist Order dated 12 September 2019 are the numerous complaints received by the CGFD and EIPD from the public alleging that Online Lending misrepresented itself as to the non-collection of loan charges and fees, and the complainants to public humiliation and ridicule. Operators, including Pesolending committed unreasonable and abusive It bears emphasis that one of the grounds for the issuance of the Cease of 2019, otherwise known as the Prohibition on Unfair Debt Collection Practices of Financing Companies (FC) and Lending Companies (LC), provides: On this note, Section 1 of SEC Memorandum Circular No. 18, Series "SEC. 1. Unfair Collection Practices. -- FCs, LCs, and TPSPs hired by them may resort to all reasonable and legally permissible means to collect amounts due them under the loan agreement, provided that, in the exercise of their rights and performance of their duties, they must observe good faith and reasonable conduct and refrain from engaging in Page 6 of 11 SEC En Banc Case No. 09-19-054 In the matter of: Pesolending, Movant For: Motion to Lift Cease and Desist Order subject to the penalties provided herein: general application of the foregoing, the following conduct shall constitute unfair collection practices, which shall be unscrupulous and untoward acts. Without limiting the a. The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person; b The use of threats to take any action that cannot legally be taken; C The use of obscenities, insults, or profane language the natural consequence of which is to abuse the borrower and/or which amount to a criminal act or offense under applicable laws; d Disclosure or publication of the names and other Section 2 hereof; personal information of borrowers who. allegedly refused to pay debts, except as may be allowed under e. Communicating or threatening to communicate to except as may be allowed under Section 2 hereof: any person loan information, which is known, or which should be known, to be false, including the failure to communicate that the debt is being disputed, f. The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a borrower; g reasonable or convenient opportunities for contact. Making contact at unreasonable/inconvenient times express consent that the said times are the only or hours, which shall be defined a contact before 6:00 for more than fifteen (15) days, or the borrower has given A.M or after 10:00 P.M., unless the account is past due during, or after the execution of the loan agreement. Such consent which shall be evidenced by written, electronic or recorded means, may be given prior to, h. Notwithstanding the borrower's consent, contacting shall also constitute unfair debt collection practices. (Emphasis supplied) the persons in the borrower's contact list other than those who were named as guarantors or co-makers Section 2 of the same Memorandum Circular, provides: For: Motion to Lift Cease and Desist Orde: Page 7 of 11 In the matter of: Pesolending, Movan SEC En Banc Case No. 09-19-054 purposes of collection, FCs and LCs shall keep strictly confidential that data of the borrower,' "SEC.2. Confidentiality of Information. For XXX XXX XXX. (Emphasis supplied) its position would evidently show that First Quantum disprove or deny the commission of unfair debt collection practices under the above-quoted provisions. that it failed to refute allegations that it has not committed any unfair debt collection practices. First Quantum relied solely on the argument that it is an entity duly registered with, and authorized by the Commission to operate as a lending company, and for which reason, it can validly use its mobile lending application "Pesolending" in providing loan services to the public. Nothing in A careful review of the evidence submitted by First Quantum reveals grant of authority to operate and maintain an unregistered online lending application is misplaced and devoid of legal basis. First Quantum's reliance on its Certificate of Authority as containing a Lending Platforms, provides: otherwise known as the Disclosure Requirements on Advertisements of Financing Companies and Lending Companies and Reporting of Online Section 1 of SEC Memorandum Circular No. 19, Series of 2019, Platforms the following: "SEC. 1. Required Disclosures. -- FCs and LCs shall fully. disclose in their Advertisements and Online Lending A Corporate Name, SEC Registration Number and Certificate Financing/Lending Company (CA) Number in a conspicuous_portion of their_Advertisements and Online Lending Platforms; and of Authority to Operate B. An advisory for their prospective borrowers to study the terms and conditions in the Disclosure Statement beforeproceedingwith the loantransaction. (Emphasis supplied) Memorandum Circular No. 19, Series of 2019, constitutes misrepresentation as it effectively deprived its borrowers important information relating to its First Quantum's refusal and/or failure to comply with SEC For: Motion to Lift Cease and Desist Order Page 8 of 11 In the matter of: Pesolending, Movan SEC En Banc Case No. 09-19-054 Corporate Name, SEC Registration and Certificate of Authority to Operate Numbers in its advertisements and Online Lending Platforms. borrowers were informed of the terms and conditions and the disclosure or privacy statement before proceeding with the loan transaction. Rule 6(b) of the Implementing Rules and Regulations of Republic Act No. 9474, provides: Moreover, nothing in the records of this case show that First Ouantum's "Rule 6. Amount and Charges on Loans XXX XXX XXX the consummation of the transaction, a lending company forth to the extent applicable, the following information: (b) In accordance with the Truth in Lending Act and prior to shall furnish each debtor a disclosure statement, setting V. Ix. It T Iv. V. Vi. Viii. I. Collection fee, if any: Notarial fee: Service or processing fee, if any: All other fees in connection with the loan transaction: Description of the collection and lien enforcement The principal amount of loan; Rate of interest of the loan; Amortization schedule; Any penalty charge for late amortization payment; Method of calculating the total amount of obligation in case of default." (Emphasis supplied) procedures: and in the context of its position that its Certificate of Authority carried with it a grant of authority to establish and operate an online lending application. Memorandum Circular No. 19, Series of 2019 and the Lending Company Regulation Act of 20078, its Implementing Rules and Regulations, specifically The foregoing shows that First Quantum deliberately violated both the great prejudice of or damage to the general public.' Such misrepresentation is application without prior approval of the Commission, it also committed serious misrepresentation as to what the corporation can do or is doing to the so grave that it warrants the suspension or revocation of the Certificate of Registration of a corporation. Thus, when First Quantum established and operated Pesolending online Section 3 of the same SEC Memorandum Circular, provides: Sec. 6(i)[2] of Presidential Decree No. 902-A 8 Republic Act No. 9474 For: Motion to Lift Cease and Desist Order SEC En Banc Case No. 09-19-054 In the matter of: Pesotending, Movant Page 9 of 1 limited to the following information: Lending Platforms, within ten (10) days from the effectivity of this Circular. Said report shall include, but shall not be submit to the Corporate Governance and Finance Compliance (SEC Form 1 "SEC. 3. Report to the Commission. -- FCs and LCs shall Department (CGFD) of the Commission an Affidavit of Platforms) containing a report of all their existing Online ExistingOnline Lending 1. Name of Online Lending Platform/s; ) Proof of compliance with Section 2 hereof: 4. Illustrations of the Online Lending Platforms showing 3. Images of the Online Lending Platform/s as they appear displayed." how the required Disclosure and Advisory are to the public: and XXX XXX XXX not yet complied with the provisions of Memorandum Circular No. 19, Series authority to operate and maintain "Pesolending" emanates from its Certificate of Authority and should be sustained, must fail. of 2019. On the basis of the foregoing, First Quantum's argument that its The records of the Commission reveal that to date, First Quantum has needs and sorry state of those who avail of their services. Noteworthy is the fact that the Lending Company Regulation Act of 2007 was companies that are prejudicial to public interest not just as a matter of policy based in the issuance of the CDO on Section 2 of Lending Company Regulation Act of 2007 does not persuade nor convince this Commission. enacted to prevent and mitigate, as far as practicable, practices of lending but as a measure to deter informal lenders and those that take advantage the Finally, First Quantum's position that the Commission erroneously empowered to implement the provisions of, and to impose administrative sanctions for violations of Lending Company Regulation Act of 2007, its special laws, the Commission is authorized to issue Cease and Desist Orders to ensure that acts and/or activities violative of the said laws are immediately Implementing Rules and Regulations, SEC Memorandum Circulars, and other stopped. Being the administrative and regulatory agency authorized and received relating to the abusive means of collecting the amount due from their debtors has issued a number of CDOs to put an end to the unfair debt In fact, the Commission, by reason of the numerous complaints it has SEC En Banc Case No. 09-19-054 In the matter of: Pesolending, Movant For: Motion to Lift Cease and Desist Order Page 10 of I1 collection practices which are expressly prohibited under SEC Memorandum Circular No. 18, Series of 2019. Section 156, paragraph 1 of the Revised Corporation Code, 10 provides: constituting the violation." "SEC. 156. Cease and Desist Orders. - Whenever the has violated, or is about to violate, this Code, a rule. regulation, or order of the Commission, it may direct suchperson to desist from committing the act Commission has reasonable basis to believe that a person XXX XXX XXX (Emphasis supplied) lack of merit. The CEASE AND DESIST ORDER issued against Pesolending Desist Order filed by First Quantum Financing Corp. is hereby DENIED for is hereby MADE PERMANENT. WHEREFORE, premises considered, the Motion to Lift Cease and and published in a national newspaper of general circulation and furnished to and appropriate action. all operating departments and offices of the Commission for their information Let a copy of this Resolution be posted in the Commission's website; collection practice of First Quantum and if necessary impose additional penalties, as applicable. Further, the CGFD is hereby directed to investigate the unfair debt Pasay City, 29 October 2019. SO ORDERED. 1 Republic Act No. 11232 In the matter of: Pesolending, Movant For: Motion to Lift Cease and Desist Order SEC En Banc Case No. 09-19-054 Page 11 of I1 EMIL : AQUINO Hairperson EPHYRO LUIS B. AMATONG Commissioner JAVEY PAUL D. FRANCISCO Commissioner KEIVIN LESTER K. LEE Commissioner KARLO S. BELLO * Commissioner *On Official Business