SEC En Banc Case No. 07-23-004In the matter of: FESL LENDING INVESTOR CORP. WITH ONLINE LENDING PLATFORMS OPERATING UNDER THE NAME OF START LOAN, PONDO LOAN, AND FIRST CASH

Securities and Exchange Commission Republic of the Philippines Department of Finance

COMMISSION EN BANC

IN THE MATTER OF:

SEC En Banc Case No. 07-23-004 FESL LENDING INVESTOR (FLCD CDO Case No. 29, Series of 2023) CORP. WITH ONLINE LENDING PLATFORMS UNDER THE NAME OF START LOAN, PONDO FIRST CASH LOAN. OPERATING AND For: Violation of the SEC Memorandum Circular No Consumer Protection Act and its Implementing RulesandRegulations, 18, Series of 2019, Financial Products and Services Regulation Act of 2007, and SEC Memorandum Circular No. 19, series of 2019 Promulgated: 21 November 2023 Lending Company

Y

RESOLUTION

For consideration of the Commission En Banc is the "Supplemental Motion to Lift" dated 19 July 2023 (the "Motion to Lift") filed on 25 July 2023 by FESL Lending Investor Corp.1, which owns and operates the online lending platforms Start Loan, Pondo Loan, and First Cash ("FESL"), praying that the Cease and Desist Order issued by the Commission's

"Assailed CDO"} be lifted, the dispositive portion of the of which reads, in part, thus: Financing and Lending Companies Division (FLCD) on 26 June 2023 (the

promoters, representatives, agents AND ANY AND ALL "WHEREFORE, FESL Lending Investor Corp. including its branches, extension, satellite offices, units, and online lending platforms, together with its owners, operators, PERSONS CLAIMING AND ACTING FOR AND, IN THEIR

activity/transaction. DESIST from engaging in, carrying out, any unfair debt collection practices BEHALF, are hereby ORDERED to immediately CEASE AND in connection to any lending

SO ORDERED."

laws of the Philippines with Company Registration No. CS202003612. Its principal office is at the Penthouse 1, One Corporate Center, Meralco Ave. FESL is a domestic corporation organized and existing under the

Second District, Philippines. It owns the following online lending platforms (OLPs): {a) Start Loan; (b} Pondo Loan; and (c) First Cash cor. Julia Vargas Ave. Ortigas Center, San Antonio, City of Pasig, NCR

1 FESL Lending is a lending company registered with the Commission on 30 April 2020, with SEC Registration No. CS202003612 and Certificate of Authority No. 3271.

IN THE MATTER OF FESL LENDING INVESTOR CORP SEC En Banc Case No. 07-23-004 RESOLUTION Page 2 of 8

On 26 June 2023, the FLCD issued the Assailed CDO2 directing FESL

debt collection practices in to immediately cease and desist from engaging in, carrying out, any unfair finding that FESL employed unfair/abusive debt collection and recovery Financial Products and Services Consumer Protection Act (FCPA) and activity/transaction. practices, through its collecting agent, Realm Shifters, in violation of the The Assailed CDO was issued on the basis of a connection toany lending

SEC Memorandum Circular No. 18, series of 2019 (MC No. 18).3

search warrant -WSSECD No. 2023-028-PSG4 (the "Warrant"), which the maintains a customer service department which processes customers' concerns further supports the lifting of the Assailed CDO. FESL's office, company, nor its employees that were the subject of the FLCD used as the basis of the CDO. FESL also averred that the fact that it praying for the lifting of the Assailed CDO on the ground that it was not On 04 July 2023, FESL's President Juliet Torres filed a Letter,

maintaining that no actual proof was submitted which will show that it its Motion to Lift, that: (a) no violation of unfair debt collection practices violated the FCPA and MC No. 18. Specifically, FESL alleged in support of was consummated or proven to have occurred before, during, and after messages found during the implementation of the Warrant do not fall criminal complaint? filed against the employees of FESL Lending was the implementation of the Warrant;s (b) the drafts and templated under the definition and purview of the FCPA and MC No. 18; and (c) the dismissed by the City Prosecutor of Pasig. On 25 July 2023, FESL filed the instant Motion to Lift essentially

ground, among others, that: (a) it was filed beyond the reglementary with the Commission;8 (d) MC No. 18 and Memorandum Circular No. 5 Opposition ("Comment") praying for the denial of the Motion to Lift on the period; (b) FESL was shown to have engaged Realm Shifters which solidarily liable under the FCPA; (c) a large number of complaints were filed against FESL for violation of MC No. 18 and are currently pending employed abusive debt collection and recovery practices, and is this On 13 September 2023, the FLCD submitted its Comment/

z Pursuant to Section 6(d)(4) of RA No. 11765 "Financial Products and Servi Section 1, Paragraph D (IV)'of SEC's Implementing Rules and regulations of the Financial Products and Services Consumer Protection Act of 2022 (SEC - FCPA IRR) 3 Prohibition on Unfair Debt Collecti at Unit 2, 5th Floor, Betheland Buiiding, 10 Mercedes Avenue, San Miguel, Pasig City by PNP-Anti-Cybercrime Group, Easterr District Anti-Cybercrime Team, L Intelligence Group, SEC-EIPD, and the National Privacy Commission. Pa ed on 10 May 2023 by the Regional Trial Court of Pasig City, Branch 159; implemented cft the Motion to Lift gital Forensic Unit, Eastern Police District, Special Weapons and Tactics (SWAT). PNP Jy of Financing Companies (FC), and Lending Companies {LC). Gonsum r Protection Act" (FCPA) and Rule 6 cn16:May 2023, at about 10:30 am

(Cybercrime Prevention Act of 2012) with NPS Docket No. XV-14-INQ-23E-00668 Misuse of Devices and Violati Paragraph 9 of the Motion to Lift PNP Anti Cybercrime Group, et al. v. Margarita Bermillo, Joyce Anne Sanchez, et al.; For violation of Section 4(A)(5}(I)(II) or Cf Section 5lAlnr Aicir nd Abetting the Commission of Cybercrime under RA"io175

IN THE MATTER OF FESL LENDING INVESTOR CORP SEC En Banc Case No.07-23-004 RESOLUTION Page 3 of 8

series of 2023 (SEC Rules and Regulations of the Financial Products and Services Consumer Act of 2022) do not require that the unfair debt collection practices be committed in the place of business of the company for it to be held liable; and (e) the dismissal of the criminal case filed against FESL's employees is not a bar to the prosecution of the administrative case against FESL.

sent and whose purported victims have never been presented; and (c) the burden of proof of the alleged unfair debt collection practice remains arguments. Additionally, FESL averred in its Position Paper that: (a) it was respective Position Papers essentially reiterating their previous templated messages found during the search do not appear to have been With the FLCD. not apprised of any complaints filed with the Commission; (b) the On 27 September 20239 and 04 October 2023, the parties filed their

been engaged by FESL Lending as TPSP were caught "in flagrante delicto" during the implementation of the Warrant; and this rendered FESL reiterating its prayer for the denial of the Motion to Lift on the ground that the managerial employees of Realm Shifters who admitted to have Lending solidarily liable.10 On 09 October 2023, the FLCD filed a Supplemental Position Paper

We find the Motion to Lift to be bereft of merit and basis.

supervisory authority over financing companies (FCs) and lending preventing and addressing practices/transactions that are prejudicial to the Lending Company Regulation Act, to exercise regulatory and companies (LCs) with the objective, among others, of effectively public interest pursuant, to wit: The Commission is mandated under Section 2 of R.A. No. 9474 or

standards under which they may be established and do business." (Emphasis supplied) of the State to regulate the establishment of lending Companies and to place their operation on a sound, efficient them as an additional source of credit, to prevent and mitigate, as far as practicable practices prejudicial to public interest; and to lay down the minimum requirements and "SEC 2. Declaration of Policy. - It is hereby declared the policy and stable condition to derive the optimum advantages from

that FESL Lending (a) employed abusive collection and debt recovery The Assailed CDO was issued on the basis of the finding by the FLCD

2 A Supplemental Position Paper dated 05 Octoher 2023 was submitted by FLCD via electronic mail. 1 Supplemental Position Paper dated 09 June 2023. See page 2

IN THE MATTER OF FESL LENDING INVESTOR CORP SEC En Banc Case No. 07-23-004 RESOLUTION Page 4 of 8

{B) and (H), Rule 8 of the SEC FCPA-IIR, and (b) engaged the services of Realm Shifters which equally employed abusive collection and debt practices in violation of Sec. 1 (B) and (H) of MC 18 in relation to Sec. 4.4

violation under Sec. 13 of the FCPA. In support thereof, the FCLD in flagrante delicto to be employing abusive collection and debt recovery practices as seen in the messages on their respective monitors/screens. essentially took into consideration the implementation of the Warrant where the managers/employees of Realm Shifters were actually caught recovery practices, thus resulting in its being solidarily liable for such

Sec. 1 (B) and (H) of MC 18 provides:

and reasonable conduct and refrain from engaging in shall constitute unfair collection practices, which shall be subject to the penalties provided herein: 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 unscrupulous and untoward acts. Without limiting the general application of the foregoing, the following conducts "SEC. 1. Unfair Collection Practices. - FCs, and TPSPs hired by them may resort to all reasonable and legally permissible

XXXXXX XXX

b. The use of threats to take any action that cannot legally be taken;

XXXXXXXXX

than those who were named as guarantors or co-makers shall also constitute unfair debt collection practice;" contacting the persons in the borrower's contact list other h. Notwithstanding the borrower's consent,

Sec. 13 of the FPSCPA on the other hand, provides:

agents in marketing and transacting with financial consumers for its financial products or services. The financial financial service provider shall be responsible for the acts or omissions of its directors, trustees, officers, employees, or third-party service providers for their acts or omissions in "Section 13. Liability of a Financial Service Provider on the Acts or Omission of its Authorized Representatives.- The service provider shall be solidarily liable with accredited

IN THE MATTER OF FESL LENDING INVESTOR CORP SEC En Banc Ca5e No. 07-23-004 RESOLUTION Page 5 of 8

limited to, debt collection, with financial consumers for its financial products and services.' marketing `and transacting, which may include, but not

competitive, stable and efficient basis, and in preventing acts or practices which have become notoriously pervasive, including and especially those made pursuant to a valid exercise of the regulatory and supervisory power of the Commission over lending and financing companies, to carry out its mandate, among others, of placing their operations on a sound, prejudicial to the public interest.12 who engage the services of third-party service providers who are known to be equally employing unfair collection practices to avoid liability for client harassment.ii The issuance and implementation of MC 18 was was issued to effectively address and put a stop to the abusive, unethical and unfair collection practices of lending and/or financing companies In implementing the Lending Company Regulation Act, MC No. 18

credit.14 This notwithstanding, it should be emphasized that MC 18 is in place to ensure that the collection of loans by lending and/or financing companies is made within the bounds of law, and does not violate the privacy, dignity, and well-being of borrowers. the rule established both in law and jurisprudence13 that a loan obligation enforcing, even by implication, a contractual obligation against its borrowers for debts lawfully made. MC 18 recognizes and implements should be paid. This is consistent with the State's policy which recognizes the critical role of lending and financing companies in providing medium and long-term credit for investments, and as an additional source of There is nothing in MC 18 which prevents LCs or FCs from

recovery practices, in violation of the FCPA and MC No. 18, to wit: of, and threatened its borrowers.15s These screenshots confirm, among others, that FESL's OLP First Cash was the entity complained of as employing and/or causing the employment of abusive collection and debt numerous complaints, and the screenshots of the messages captured in the mobile phones which the complainants provided, shows that agents/employees of First Cash harassed, insulted, violated the privacy In the instant case, the evidence presented by FLCD consisting of

rests on the debtor." (Bognot vs RRI Lending Corporation.G.R. No. 180144, September 24, 2014) Is "Jurisprudence tells us that one who pleads payment has the burden of proving i; the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. Indeed, once the existence of an indebtedness is duly Is Comment/Opposition. See. Annex "A" to "A-6" 12 See Section 2 of Republic Act No. 8556, otherwise known as the "Financing established by evidence, the burden of showing with legal certainty that the obligation has been discharged by payment 11 See First and Second WHEREAS Clauses of the MC No. 18 b Act No.9474.othe erwise known as the "Lending Company Regulation Act of 2007 Company Act of 1998" and Section 2 of Republic

IN THE MATTER OF FESL LENDING INVESTOR CORP. SEC En Banc Case No.07-23-004 RESOLUTION Page 6 of 8

FIRST CASH FESL LENDING INVES TOR COR First cash

oonabieAmon

23K reviewt 1.2M Ro1ed far 3+ @ 3 Od w nloat 1OK PHP 10,000 PHP 8,000 - 10,000 120 Da

respondent is guilty of the act or omission complained of, even if the which trounced/negated the fact of violation by FESL Lending of FCPA evidence which jurisprudence considers sufficient to support the conclusion/finding made by the FLCD.16 The requirement of substantial evidence is satisfied where there is reasonable ground to believe that the is not considered evidence,18 no controverting evidence was presented and MC 18 established by the FLCD. evidence might not be overwhelming.17 allegations/denials of FESL Lending, which under existing jurisprudence These complaints and their attachments constitute substantial Except for the bare

and so hold that FESL Lending is solidarily liable with Realm Shifters under Sec. 13 of the FCPA and Rule. 13 of MC No. 5 which provides, thus: team leaders and managers of Realm Shifters in their Joint Counter- party collection agent.19 This, together with the evidence submitted by collection and debt recovery practices, constitutes substantial evidence of violation of the FCPA and MC. 18. On this basis, we agree with the FLCD, Affidavit that their company was engaged by FESL Lending as its third- the FLCD showing that Realm Shifters was actually employing abusive Relative thereto, We are cognizant of the admission made by the

"A financial service provider shall be responsible for the acts or omissions of its directors, trustees, officers, employees, or agents in marketing financial products or services and in

te "The quantum_of proof in administrative proceedings necessary.for a finding of guilt is subst evidence as a reasopable mind may accept as adequate to support a conclusion. The burden to establish the charges rests upon the complainant. The case should be dismissed for lack of merit if the complainant fails to show in a satisfactory manner the facts upon which his accusations are based." (NBI vs Najera. G.R. No. 23752. June 30, 2020) 1s "t is axiomatic that under the Rules on Evidence a party who alleges a fact has the burden of proving it. A mere allegation is Ramos vs Obispo. G.R. No. 193804. February 27, 2013) 19 Supplemental Position Paper dated 05 October 2023. Annex "B" (Joint Counter Affidavit. Par. 21) 17 Diaz'v. Ombudsman, G.R. No. 203217 not evidence, and he who alleges has the burden of proving his allegation with the requisite quantum of evidence." (Spouses antialevidence or such relevant

IN THE MATTER OF FESL LENDING INVESTOR CORP SEC En Banc Case No. RESOLUTION .07-23-004 Page 7 of 8

transacting with a financial consumer. The financial service provider shall be solidarily liable with its authorized

marketing of products or services and/or in transacting with financial consumers, which may include, but is not third-party service providers for acts or omissions in the

limited to, debt collection."2o (Emphasis supplied)

"Outsourcing of Collection. -- FCs and LCs may outsource the collection practices and compliance with this Circular remain conduct of collection to a TPSP which shall be regarded as With the FCs and LCs."21 agent of the FCs and LCs. The ultimate responsibility for

its IRR, and MC No. 18, all of which are completely different pieces of complaint filed with the City Prosecutor of Pasig was dismissed in the Resolution dated 3 July 2023.22 The case that was filed with the City Prosecutor of Pasig was a criminal complaint for violation of the totally irrelevant and has nothing to do with the matter/issue presented in the instant case which involves the violation by FESL Lending of FCPA the Assailed CDO should be lifted on the alleged ground that the criminal Cybercrime Prevention Act of 2012. Any determination made therein is legislation. Finally, We do not agree with the contention of FESL Lending that

should not necessarily be binding on the other. Thus, as arule, cases are independent from criminal actions for the same act or the procedure observed, and the sanctions imposed, as well as in the objective of the two proceedings, the findings and conclusions in one exoneration in the administrative case is not a bar to a criminal prosecution for the same or similar acts which were the subject of the administrative complaint or vice versa.24 omission.23 Given the differences in the quantum of evidence required, It is a fundamental principle in our jurisdiction that administrative

determination in the criminal complaint is without prejudice to the administrative action where FESL may be held liable, to wit: Resolution25 of the City Prosecutor of Pasig City when it ruled that the The foregoing principle was in fact recognized and applied in the

Corp. are registered lending companies with the SEC, at best, "Since U-Peso.Ph Lending Corp. and FESL Lending Investor

22 Supplemental Motion to Lift. Par. 10 2 Jaca v. People, G.R. Nos. 166967, 166974 & 167167,[January 28, 2013], 702 PHIL 210-262 25 See Annex "A" of the Motion to Lift. 21 Section 3, MC. No. 18 23 People v. Toledano, G.R. No. 110220, [May 18, 2000], 387 PHIL 957-965 20 Section. 1, FCPA

IN THE MATTER OF FESL LENDING INVESTOR CORP SEC En Banc Case No. 07-23-004 RESOLUTION Page 8 of 8

they could be held liable for administrative sanctions for illegal and harassing debt collection practices under Section 12(2)(d), in relation to Section 9(f) of the Lending Company Regulation Act."(emphasis supplied)

lift the Assailed CDO. On the contrary, after a thorough and scrupulous On account thereof, this Commission finds no compelling reason to

Assailed CDO should be made permanent to ensure that the consuming 18. review of the evidence on record,this Commission is convinced that the public is protected in a manner that is envisioned under the FCPA and MC

Lift filed by Respondent FESL Lending Investor Corp. is hereby DENIED for lack of merit.The CEASE AND DESIST ORDER dated 26 June 2023 is hereby made PERMANENT. WHEREFORE, premises considered, the Supplemental Motion to

Commission, the Bangko Sentral ng Pilipinas, the Department of Trade Information and Communications Technology, for their information and website and furnished to all operating departments and offices of the and Industry, the National Privacy Commission, and the Department of appropriate action. Let a copy of this Resolution be posted on the Commission's

SO ORDERED.

Makati City, Philippines.

NM

EMILIO B.AQUINO

Chai derson

*JAVEY PAUL D.FRANCISCO KELWN ER K.LEE

Commissioner Commissioner

KARLQ S.BELLO Commissioner *MCJILL BRYANT T. FERNANDEZ Commissioner

*On Official Business