FINANCING

COMPANY
ACT
R.A. 5980
Approved: August 4, 1969
 PURPOSE
WHAT:
Regulation of the activities of financing companies

WHY:
For sound, stable and efficient operation
For them to be in a better position to extend
effective service in a fair manner
To curtail and prevent acts or practices
prejudicial to the public interests
WHAT ARE
FINANCING
COMPANIES
?
 DEFINITION OF TERMS:
FINANCING COMPANY
WHO: Corporations or partnerships
WHAT: Organized for the purpose of
extending credit facilities to:
Consumers
Industrial, commercial or agricultural
enterprises
EXCEPTION: Corporations or partnerships
regulated by the Central Bank, the
Insurance Commissioner and the
Cooperatives Administration Office
DEFINITION OF TERMS:
FINANCING COMPANY
HOW are they extending credit:
Discount or factor commercial papers on
accounts receivable
Buy and sell evidences of indebtedness
such as contracts, leases or chattel
mortgages
Lease movable property
such as motor vehicles, heavy equipment
and industrial machinery, business and
office machine and equipment or
appliances
DEFINITION OF TERMS:
FACTORING/ DISCOUNTING
It is deducting an amount from the
contracted value of a debt so that the value
in money can be received now by an entity
from a financing company instead of waiting
for the due date of the payment.
Example:
A owes B Php 100 to be paid next year.
B wants to receive the money now.
Financing Company discounts the Php 100 by
10% and will advance B Php 90 and will
receive Php 100 from A next year.
DEFINITION OF TERMS:
CREDIT
1. Any loan, mortgage, deed of trust,
advance, or discount
2. Any conditional sales contract, any
contract to sell, or sale or contract of sale
of property or service
1. for present or future delivery
2. part or all the price is payable subsequent to
the making of such sale or contract
3. Any rental-purchase contract
DEFINITION OF TERMS:
CREDIT
4. Any option, demand, lien, pledge, or other
claim against, or for the delivery of
property or money
5. Any purchase, or other acquisition of or any
credit upon the security of any obligation
or claim arising out of the foregoing
6. Any transaction or series of transactions
having a similar purpose or effect
DEFINITION OF TERMS:
PURCHASE DISCOUNT
The difference between:
the value of the receivable
purchased or credit assigned
the net amount paid by the
finance company for such purchase
or assignment
Exclusive of fees, service charges,
interests and other charges incident to
the extension of credit.
DEFINITION OF TERMS:
EVIDENCE OF INDEBTEDNESS
Accounts and Receivables
An asset designation applicable to all
debts, unsettled transactions or other
monetary obligations owed to a
company by its debtors or customers.
Receivables are recorded as an asset
by the company because it expects to
receive payment for the outstanding
amounts
DEFINITION OF TERMS:
EVIDENCE OF INDEBTEDNESS
Assignment of Credit
A document transferring all or part
of the proceeds of a credit to a third
party.
Instalment Papers
Written agreement to pay for goods
purchased, in payments of principal
and interest at regularly scheduled
intervals
LIMITATIONS
ASSIGNMENT OF CREDIT, OR
THE BUYING OF INDEBTEDNESS

The purchase discount, exclusive of

interest and other charges, is limited
to
14% of the value of the evidence of
indebtedness purchased based on a
period of 12 months or less
PLUS an additional 1.17% of said value
for each additional month or fraction in
excess of 12 months
LIMITATIONS
ASSIGNMENT OF CREDIT, OR
THE BUYING OF INDEBTEDNESS
Example:
For Php100 value based on a period of 12 months
or less, Financing Company should pay a minimum
amount of Php 86.
Although for every month in excess of 12 months,
the Financing company can deduct Php 1.17 from
the minimum amount to be paid.
For a period of 13 months, the Financing

Company should pay a minimum amount of Php

84.83
For a period of 14 months, the Financing

Company should pay a minimum amount of Php

83.66.
LIMITATIONS
ASSIGNMENT OF CREDIT, OR
THE BUYING OF INDEBTEDNESS
Pertaining To Appliances,
Furniture And Office Equipment
The purchase discount, exclusive of interest
charges, is limited to
18% of the value at maturity of the credit assigned
or receivable purchased based on a period of 12
months or less
PLUS an additional 1.5% of said value for each
additional month or fraction in excess of 12 months
LIMITATIONS
FACTORING OF INDEBTEDNESS
Discounting rate that can be charged,
exclusive of interest and other
charges, shall not exceed
2% of the value of the credit assigned or
receivable purchased for every 30 days
REQUIREMENTS FOR
REGISTRATION BY THE SEC
CANNOT:
1. Hold itself out as doing business as a "financing
company" or "finance and investment company"
2. Have any other title or name tending to give the
public the impression that it is engaged in the
operations and activities of a financing company

UNLESS authorized under this Act.

REQUIREMENTS FOR
REGISTRATION BY THE SEC
HOW TO BE AUTHORIZED:
Compliance with:
The provisions of the Corporation Law and the New Civil Code
(partnership)
All the requirements of existing laws concerning the business
involved
All the requirements of this Act

Readiness to assume the protection of the interest of the

general public as seen in the:
Financing companys organization, direction and administration
Integrity and responsibility of the organizers and administrators

A paid-up capital of at least PHP500,000

CITIZENSHIP REQUIREMENT
Form of Organization
At least 60% of the capital is owned by
Filipino citizens
Board of Directors of Corporations
2/3 of all members of the Board of
Directors shall be Filipino citizens
Managing Partners of Partnerships
ALL the managing partners must be
Filipino citizens
UNDER JURISDICTION OF THE
SEC
Enforcement of this Act by the SEC

Prescription of reasonable limitations on fees,

service and other charges, in consultation with
financing companies

Revocation or Suspension of Registration

By entering an order together with its findings if
upon investigation into the affairs of said
financing company or complaint by any person, it
shall appear that:
It is insolvent

It has violated any provision of this Act.

PENALTIES
PHP 5,000.00 PHP 10,000.00 or imprisonment for not
more than 6 months or both:
Persons, associations, partnerships, or corporations, including
the managing officer thereof, that shall:
Engage in the business of a financing company without
authority
Hold themselves out to be a financing company without
authority
through advertisement in whatever form
in its stationary, commercial paper, or other document, or

through other representations

Makeuse of a trade or firm name give the public the
impression that it is engaged in the business of a financing
company without authority
containing the words "financing company" or "finance company" or
"finance and investment company" or any other designation
Violate the provisions of this Act.
PENALTIES
PHP 5,000.00 PHP 10,000.00 or
imprisonment for not more than 6
months or
Any officer, employee, or agent of a
financing company who shall:
Knowingly and willingly make any statement in
any application, report, or document required
to be filed THAT is false or misleading
Overvalue or aid in overvaluing any security
for the purpose of influencing the action of the
company on any loan, or discounting line.
PENALTIES
PHP 5,000.00 PHP 10,000.00 or
imprisonment for not more than
6 months or
Any officer, employee, or examiner of the
Securities and Exchange Commission
directly charged with the
implementation of this Act who shall
commit, connive, aid, or assist in the
commission of acts enumerated under
subsections 1 and 2.