The Philippines has had its fair share of financial fraud scandals. Only recently, in December 2021, one of the largest banks in the Philippines was hit by a cyber fraud attack by hackers who illegally transferred funds from the accounts of more than 700 of its clients. In 2019, an investment scam tricked around five million people to make “donations” with a promise of “blessings” equivalent to 30% of their donations to be paid out every month for life.
These recent challenges faced by Filipino financial consumers were the motivation behind the recently passed Financial Products and Services Consumer Protection Act (Republic Act No. 11765).
Through this law, aggrieved financial consumers are now provided with what promises to be a faster way to recover their money. Instead of immediately resorting to the filing of a civil case in court and waiting for months to get a decision, they may now file an action with the Bangko Sentral ng Pilipinas (BSP, the central bank) or the Securities and Exchange Commission (SEC). The law has given the BSP and the SEC the authority to adjudicate actions arising from or in connection with financial transactions that are purely civil in nature, and the claim or relief prayed for by the financial consumer is solely for payment or reimbursement of a sum of money not exceeding the amount of P10 million. Recovery of the financial consumers’ money is also made faster by the fact that the decision of the BSP or the SEC has been declared by law to be final and executory, and the BSP or the SEC may order the payment or reimbursement of the money subject of the action.
There are also other remedies that an aggrieved financial consumer may avail himself of prior to adjudication by the BSP or SEC. He may avail himself of the consumer assistance mechanism required by law to be established by the financial service provider. This mechanism must provide free assistance to financial consumers on financial transaction concerns, including the handling of complaints, inquiries, and requests.
Financial consumers who are unsatisfied with the financial service provider’s handling of their complaints, inquiries, and requests may elevate their concerns to the financial regulator (the BSP, the SEC, the Insurance Commission, and the Cooperative Development Authority). In turn, financial regulators are required by law to provide an efficient and effective consumer redress or complaints handling mechanism such as mediation, conciliation, or other modes of alternative dispute resolution to address conflict or dissatisfaction from financial consumers arising from financial products or services.
Moreover, through the passage of this law, financial consumers are now better protected against the imposition of excessive, iniquitous, or unconscionable interest rates. Banks and other financial institutions were generally free to determine the rate of interest they could impose on their borrowers, and it usually takes a court pronouncement for a usurious interest rate to be struck down as unconscionable. Under this law, however, financial regulators are now authorized to determine the reasonableness of interest, charges, or fees which a financial service provider may demand, collect, or receive for any service or product offered to a financial consumer.
This law also imposes additional duties and responsibilities on financial service providers. They are now obliged to, among others, make sure that their clients will not have a hard time meeting their obligations. Under the law, financial service providers should have written procedures for determining whether a particular financial product or service is suitable and affordable for their clients. The amount and the terms of the offered financial product or service should allow the clients to meet their obligations with a low probability of serious hardship, thus preventing over-indebtedness.
This law also obliges financial service providers to adopt a cooling-off policy, under which financial consumers cannot be pressured to immediately make a decision regarding a particular financial product or service, and thus allow the client to consider the costs and risks and to fully evaluate all the terms of the financial product or service. Should the client decide during the cooling-off period that he wants to cancel or return the contract, he must be allowed to do so without penalty.
Finally, prior to the passage of this law, perpetrators of investment fraud, such as the founders of Ponzi schemes, were criminally charged with violation of the Securities Regulation Code. Now, the crime of “investment fraud” has itself been defined and made unlawful. Under this law, investment fraud is defined as any form of deceptive solicitation of investments from the public. This includes Ponzi schemes and such other schemes involving the promise or offer of profits or returns which are sourced from the investments or contributions made by the investors themselves, boiler room operations, and the offering or selling of investment schemes to the public without a license or permit from the SEC. This law provides for criminal and administrative sanctions against persons found responsible for investment fraud.
All these measures were designed to reinforce the people’s confidence in the financial market and foster the stability of the Philippine financial system.
April Jane S. Sillada is an Associate of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW), Davao Branch.