SEC CDO Case No. 09-19-054 In the matter of: PERA4U. ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT, Movant.

Securities and Exchange Commission COMMISSION EN BANC Republic of the Philippines Department of Finance

PERA4U. In the matter of:

SEC CDO Case No. 09-19-054

DEPARTMENT, ENFORCEMENT AND INVESTOR PROTECTION Movant.

X

RESOLUTION

and Desist Order' filed by Movant U-Peso.Ph Lending Corp. praying that the against its online lending application Pera4u be lifted. Cease and Desist Order2 issued by the Securities and Exchange Commission For consideration of the Commission En Banc is a Motion to Lift Cease

THE PARTIES

sanctions including suspension or revocation of the lending company's of the Revised Corporation Code of the Philippines (RCC) grants the 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) investigation or verification, if there is a finding that the grounds for the 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 the General Counsel ("OGC"), by any operating department, either motu propio or upon a verified complaint by the public, after conducting a proper the Department tasked to investigate, motu propio or upon complaint or and to, among others, initiate the issuance of a Cease and Desist Order Rules of Procedure of the Securities and Exchange Commission ("SEC"), an 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 referral, violations of the law and the rules and regulations of the Commission ("CDO") by the Commission. Pursuant to Section 4-1, Rule IV of the 2016 Movant Enforcement and Investor Protection Department ("EIPD") is

1 Dated 20 September 2019 2 Dated 12 September 2019

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and irreparable danger or injury to public safety or welfare. Commission among others, the power to issue CDOs ex parte to prevent is fraudulent or can reasonably be expected to cause significant, imminent. imminent fraud or injury to the public and to enjoin an act or practice which

duly registered under the laws of the Republic of the Philippines with SEC Registration No. CS201814908 and authorized by the Commission to engage in lending activities on the basis of the Certificate of Authority No. 2718 issued on 24 July 2018 in its favor.3 Movant U-Peso.Ph Lending Corp., on the other hand, is a corporation

ANTECEDENT FACTS

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 unilaterally implement onerous and unreasonable terms and conditions, make several complaints received by the CGFD against entities/online applications/platforms. Most of these complaints alleged that Online Lending Operators, as defined in the Memorandum, impose high interest rates right to privacy of their debtors and complainants.5 which have not been issued Certificates of Authority to Operate as Lending On 13 August 2019, EIPD received a Memorandum dated 07 August

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

Google Applications, however, do not state the name of the corporations or entities who owns and/or operates them. Moreover, the pieces of evidence phone. By downloading and installing the online lending application, the Operators are being advertised and promoted to entice people to avail of the apply for a loan from the Online Lending Operators, the online lending online lending operator gains access to the applicant's personal information contained in the mobile phone which also includes the contact list, Facebook and information gathered by the EIPD also disclosed that before a person can applications must be downloaded and installed in the applicant's mobile loans they are offering. Most of these websites, Facebook Accounts and/or The lending businesses and related activities of the Online Lending

4 Annex " A" of the Motion for Issuance of Cease and Desist Order dated 11 September 2019 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 U-Peso's Motion to Lift Cease and Desist Order dated 19 September 2019

In the matter of: Pera4u, Movant For: Motion to Lift Cease a FCFnR nc Case No. 09-19-054 Desist Orde

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and full payments from its debtors by sending a text blast to the persons contained in the latter's mobile phones informing the same that the person be filed before the proper barangay and/or the matter will be posted in the accounts, and email addresses of all individuals stored therein. This personal concerned obtained a loan from them but refuses to pay the amount due. Likewise, the Online Lending Operators threatens its debtors that cases will social media if payments of the amount due is not made. information is being utilized by the online lending operators to exact prompt

adversely affected their health and well-being. to have suffered depression, sleepless nights, embarrassment, humiliation, and Due to these abusive collection practices, debtors/complainants alleged

September 2019, enjoining the operators and owners of the subject online In view of the foregoing, a CDO was issued by the Commission on 12

sites from operating, engaging in, carrying out and/or promoting its lending applications, their agents, representatives, promoters, and hosting lending/financing business.

U-Peso thereafter filed its Motion to Lift Cease and Desist Order dated 19 September 2019, through its counsel, on 23 September 2019. In its motion

is "Pera4u", which is accessible to its clients/borrowers by downloading the application. U-Peso admitted that, as part of its operation, it conducts its operation and offers its services through its several online mobile applications, one of which

it held that "Pera4u" violates Republic Act No. 9474. U-Peso is of the position U-Peso argued that the Commission committed reversible error when

that as a grantee of a Certificate of Authority, it is, as the operator of Pera4u authorized to operate as a lending company in accordance with the lawj through the mobile application which it developed and used.

application "Pera4u", which it developed and used, is not a ground for the issuance of the CDO because it cannot be denied that "Pera4u" is owned, U-Peso further argued that its failure to indicate the name of the mobile

Peso should thus be considered as acting in good faith and has no intention not to disclose its corporate name in its mobile application. operated and managed by a company which has a Certificate of Authority. U-

No. 9474 is erroneous because Declaration of Policies are merely aids or the Cease and Desist Order, which was based on Section 2 of Republic Act U-Peso further argued that the Commission's ruling for the issuance of

SEC En Ba Page 4 of 10 In the matter of: Pera4u, Movant For: Motion to Lift Cea inc Case No. 09-19-054 Desist Orde.

guides in the interpretation of what the law wants to achieve. It cannot be a basis for its cause of action.

On 24 September 2019, U-Peso filed a Manifestation dated 23

the attached Motion which contained proof of service. September 2019 praying that the Commission admits the same together with

Peso to Appear before the Office of the General Counsel ("OGC") for the hearing on the Motion to Lift CDO dated 19 September 2019 filed by it. On the same day, an Order was issued by the Commission directing U.

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 U-Peso 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, EIPD was On 03 October 2019, a clarificatory hearing was conducted before the

directed to file its comment/opposition to U-Peso's position paper within the same period from receipt thereof. Both parties were directed to attach all the necessary documents to substantiate their respective claims.

2019 where it reiterated its allegations in its Motion to Lift dated 19 September 2019. U-Peso further argued that it did not register its mobile application as a trade name because it is not required to be registered to be On 14 October 2019, U-Peso filed its position paper dated 11 October

protected under Section 165 of Republic Act No. 8293 or the Intellectual Property of the Philippines. U-Peso also manifested that it is now in the process of complying with SEC Memorandum Circular No. 19.

Desist Order dated 24 October 2019 argued that the online lending application being used by a licensed lending company should be registered with the EIPD, in its Comment/Opposition to the Motion to Lift Cease and

Commission as part of its company name if it intends to operate as a lending

the operator(s) of such online lending application as it practically constitutes a virtual office of the lending company. Consistent with the policy on full company using such lending application as it would be doing business under said name or style. The foregoing will enable the SEC, as a regulator, to know

should properly identify itself as the operator of a particular online lending disclosure, and the principle of transparency, licensed lending company application in order for the public to know the entity they are dealing with and

ensure that the public is not defrauded. for the SEC to properly monitor its operations for regulatory purposes and to

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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 Rules and Regulations, and other relevant laws, rules and regulations. EIPD also manifested that the continued practice of a lending

DISCUSSION

We find the Motion devoid of any merit

received by the CGFD and EIPD from the public alleging that Online Lending collection practices, imposed and charged high interest rates, unilaterally implemented onerous and irrational terms and conditions, misrepresented itself as to the non-collection of loan charges and fees, and the apparent violation of the right to privacy which subjected their debtors and/or complainants to public humiliation and ridicule. and Desist Order dated 12 September 2019 are the numerous complaints Operators, including Pera4u committed unreasonable and abusive lending ane It bears emphasis that one of the grounds for the issuance of the Cease

Practices of Financing Companies (FC) and Lending Companies (LC), provides: of 2019, otherwise known as the Prohibition on Unfair Debt Collection On this note, Section 1 of SEC Memorandum Circular No. 18, Series

loan agreement, provided that, in the exercise of their rights and performance of their duties, they must observe good shall constitute unfair collection practices, which shall be subject to the penalties provided herein: "SEC. 1. Unfair Collection Practices. - FCs, LCs, and TPSPs hired by them may resort to all reasonable and legally faith and reasonable conduct and refrain from engaging in permissible means to collect amounts due them under the unscrupulous and untoward acts. Without limiting the general application of the foregoing, the following conduct

a The use or threat of use of violence or other criminal

property of any person; means to harm the _physical person, reputation, or

Y The use. of threats to take anv action that cannot

legally be taken;

The use of obscenities, insults, or profane language the natural consequence of which is to abuse the

For: Motion to Lift Cease and Desist Order In the matter of: Pera4u, Movant SEC En Banc Case No. 09-19-054 Page 6 of 10

borrower and/or which amount to a criminal act or offense under applicable laws;

d. Disclosure or publication of the names and other personal information_of borrowers who allegedly refused to pay debts, except as may be allowed under Section 2 hereof;

e except as may be allowed under Section 2 hereof; Communicating or threatening to communicate to any person loan information, which is known, or failure to communicate that the debt is being disputed, which should be known, .to be false, including the

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;

8. Making contact at unreasonable/inconvenient times reasonable or convenient opportunities for contact. or hours, which shall be defined a contact before 6:00 express consent that the said times are the only A.M or after 10:00 P.M., unless the account is past due for more than fifteen (15) days, or the borrower has given

Such consent which shall be evidenced by written, electronic or recorded means, may be given prior to, during, or after the execution of the loan agreement.

h Notwithstanding the borrower's consent, contacting

(Emphasis supplied) the persons in the borrower's contact list other than shall also constitute unfair debt collection practices.' those who were named as guarantors or co-makers

Section 2 of the same Memorandum Circular, provides:

"SEC. 2. Confidentiality of Information. -- For purposes of collection, FCs and LCs shall keep strictly confidential that data of the borrower,'

XXX XXX XXX.

(Emphasis supplied)

practices. U-Peso relied solely on the argument that it is an entity duly failed to refute allegations that it has not committed any unfair debt collection registered with, and authorized by the Commission to operate as a lending A careful review of the evidence submitted by U-Peso reveals that it

company, and for which reason, it can validly use its mobile lending

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application "Pera4u" in providing loan services to the public. Nothing in its of unfair debt collection practices under the above-quoted provisions. position would evidently show that U-Peso disprove or deny the commission

of authority to operate and maintain an unregistered online lending application is misplaced and devoid of legal basis. U-Peso's reliance on its Certificate of Authority as containing a grant

Financing Companies and Lending Companies and Reporting of Online Lending Platforms, provides: otherwise known as the Disclosure Requirements on Advertisements of 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 of Authority to. Operate

Online Lending Platforms; and Financing/Lending Company (CA) Number in a conspicuous portion of their Advertisements and

B. An advisory for their prospective borrowers to study (Emphasis supplied) the terms and conditions in the Disclosure Statement before _.proceeding with the.loan transaction.'

Circular No. 19, Series of 2019 constitutes misrepresentation as it effectively deprived its borrowers important information relating to its Corporate Name, SEC Registration and Certificate of Authority to Operate Numbers in its advertisements and Online Lending Platforms. U-Peso's refusal and/or failure to comply with SEC Memorandum

borrowers were informed of the terms and conditions and the disclosure or Moreover, nothing in the records of this case show that U-Peso's

the Implementing Rules and Regulations of Republic Act No. 9474, provides: privacy statement before proceeding with the loan transaction. Rule 6(b) of

"Rule 6. Amount and Charges on Loans

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(b) In accordance with the Truth in Lending Act and prior to the consummation of the transaction, a lending company

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forth to the extent applicable, the following information: shall furnish each debtor a disclosure statement, setting

V viii. All other fees in connection with the loan transaction; ' I. Iv ix. V Vi Service or processing fee, if any: Description of the collection and lien enforcement Notarial fee: Rate of interest of the loan; Collection fee, if any: The principal amount of 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 2007,7 its Implementing Rules and Regulations, specifically The foregoing shows that U-Peso deliberately violated both the SEC

misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public.8 Such misrepresentation is so grave that it warrants the suspension or revocation of the Certificate of Registration of a corporation. without prior approval of the Commission, it also committed serious Thus, when U-Peso established and operated Pera4u online application

Section 3 of the same SEC Memorandum Circular, provides:

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 Department (CGFD) of the Commission an Affidavit of Compliance _(SEC Form 1 - Existing Online Lending Platforms) containing a report of all their existing Online "SEC. 3. Report to the Commission. -- FCs and LCs shall

1. Name of Online Lending Platform/s; 2 Proof of compliance with Section 2 hereof: 3 Images of the Online Lending Platform/s as they appear

to the public; and

% Sec. 6(i)[2] of Presidential Decree No. 902-A 7 Republic Act No. 9474

For: Motion to Lift Cease and D SEC En Banc Case No. 09-19-054 Page 9 of 10 In the matter of: Pera4u, Movar sist(rc

4. Illustrations of the Online Lending Platforms showing how the required Disclosure and Advisory displayed." are

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2019. On the basis of the foregoing, U-Peso's argument that its authority to complied with the provisions of Memorandum Circular No. 19, Series of operate and maintain "Pera4u" emanates from its Certificate of Authority and should be sustained, must fail. The records of the Commission reveal that to date, U-Peso has not yet

prevent and mitigate, as far as practicable, practices of lending companies that state of those who avail of their services. are prejudicial to public interest not just as a matter of policy but as a measure to deter informal lenders and those that take advantage the needs and sorry of 2007 does not persuade nor convince this Commission. Noteworthy is the fact that the Lending Company Regulation Act of 2007, was enacted to the issuance of the CDO on Section 2 of Lending Company Regulation Act Finally, U-Peso's position that the Commission erroneously based in

to ensure that acts and/or activities violative of the said laws are immediately sanctions for violations of Lending Company Regulation Act of 2007, its Implementing Rules and Regulations, SEC Memorandum Circulars, and other special laws, the Commission is authorized to issue Cease and Desist Orders Stopped. empowered to implement the provisions of, and to impose administrative 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 Circular No. 18, Series of 2019. collection practices which are expressly prohibited under SEC Memorandum In fact, the Commission, by reason of the numerous complaints it has

Section 156, paragraph 1 of the Revised Corporation Code, " provides:

constituting the violation." regulation, or order of the Commission, it may direct such. .person to desist "SEC. 156. Cease and Desist Orders. -- Whenever the Commission has reasonable basis to believe that a person has violated, or_is about to violate. this Code, a rule. .from. committing..the.act

Republic Act No. 11232

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(Emphasis supplied)

Desist Order filed by U-Peso.Ph Lending Corp. is hereby DENIED for lack MADE PERMANENT of merit. The CEASE AND DESIST ORDER issued against Pera4u is hereby WHEREFORE, premises considered, the Motion to Lift Cease and

and appropriate action. and published in a national newspaper of general circulation and furnished to 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 U-Peso 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

EMIL OB. AQUINO

Chairperson

EPHYRO LUIS B. AMATONG Commissioner JAVEY PAUL D. FRANCISCO Commissioner

KEL XN Commissioner LESTER K.LEE KARLO S. BELLO* Commissioner

*On Official Business