The COVID pandemic has led to an unprecedented expansion of digital financial systems. At the height of the pandemic, quarantine measures were the strictest. The average Filipino couldn’t help but rely on delivery services that were booked online and more often than not also paid for online.
The advent of the nascent digital financial landscape, however, has become fertile ground for unscrupulous individuals. It is worth noting online investment scams, such as the so-called Repa Paluwagan scam and many others. Phishing scams have also become commonplace, especially with recurring text messages that Filipinos are currently being harassed and which led one of the largest telecommunications companies to block mobile text messages containing links to websites. The increased exposure of the average Filipino to the digital financial landscape has increased their vulnerability to such fraudulent schemes.
It was in this context that Congress ultimately enacted Republic Act No. 11765 (RA 11765) or the Financial Products and Services Consumer Protection Act, to protect the average consumer of financial products and services from these unscrupulous practices and offering victims a practical solution means seeking redress.
The law aims to strengthen the confidence of consumers of financial products and services in the financial system by strengthening the regulatory powers of financial regulators. Under RA 11765, these financial regulators include the Banko Sentral ng Pilipinas (“BSP”), the Securities and Exchange Commission (“SEC”), the Insurance Commission (“IC”) and the Cooperative Development Authority (“CDA”). “). Financial products or services covered by law and falling within the respective jurisdictions of these financial regulators include, but are not limited to: savings, deposit, credit, insurance, provident and health maintenance products (“HMO”), securities, investments, payments, remittances and other similar products and services, including financial products and services accessed and delivered through digital channels.
In accordance with the purpose of the law, financial regulators are notably vested with the following powers:
Financial regulators are authorized to conduct oversight and review of their respective supervised financial service providers to verify whether such providers are RA 11765 compliant.
Financial regulators have the power to require their respective supervised financial providers to submit reports or documents. Regulators can also obtain relevant financial data from government agencies. Under the draft BSP Implementing Rules, market monitoring may include analysis of complaint statistics, identification of market conduct risks, industry consultations, social listening or media monitoring for relevant news and consumer sentiment.
Financial regulators have a host of enforcement powers under the law, such as 1) the power to restrict a financial provider’s collection of excessive or unreasonable interest, fees or charges; 2) disqualification and/or suspension of corporate officers; 3) imposition of fines and penalties; 4) issuing a cease and desist order without the need for a prior hearing to prevent acts that constitute fraud or violation of law; 5) order the suspension of the operations of any supervised financial provider; and 6) issue restitution orders for profits gained or losses avoided by violating the law.
Sometimes it becomes unavoidable that disputes arise regarding financial products or services offered by financial providers. In fact, then-BSP Governor Benjamin Diokno revealed during Senate deliberations on the law that BSP had received 42,456 complaints from 2020 to 2021 alone. From 2019 to 2021, the amounts involved in the claims reached two billion pesos (Php2,000,000,000.00). In addition, the IC itself had received 2,992 complaints against insurance and pension companies, and the SEC had received hundreds of investment scam complaints.
Therefore, providers of financial products/services are required to establish a one-stop consumer support mechanism to assist their financial consumers in the event of financial transaction-related issues, including complaints, inquiries and requests. Suppliers must be transparent with consumers about the actions they take in response to such a complaint, investigation or request. In the event that the financial consumer is not satisfied with the assistance of the provider, he may raise his complaint, inquiry or request with the financial regulator having jurisdiction over the provider of financial products/services.
In particular, the law expressly granted the BSP and the SEC jurisdictional powers over financial transactions of a purely civil nature when the claim or relief sought by the financial consumer does not exceed ten million pesos (Php10,000,000.00) . For the IC and CDA, RA 11765 asserted their authority to adjudicate all actions under existing laws.
Decisions of financial regulators are final and binding. Thus, instead of going to court, financial consumers have this alternative and quick way to redress their grievances against providers of financial products and services. Incidentally, it will also decongest the already cluttered filings of the Philippine courts.
RA 11765 also imposed obligations on financial service providers themselves. These providers are mandated to ensure that their financial products or services are properly targeted to the needs, understanding and capacity of their customers. They must actively ensure that a financial product or service is suitable and affordable for their particular client.
They are also mandated to provide financial consumers with a cooling-off period for its financial products and services as needed and in accordance with the rules and regulations issued by their respective regulators. This period will give the financial consumer time to assess the costs and risks of a financial product or service for themselves. During this period, the financial consumer is entitled to return or cancel the financial contract without penalty. This is especially important for long-term financial transactions.
RA 11765 also grants borrowers the right to prepay a loan or other credit transaction, without prejudice to charges for such prepayment. However, these fees must be disclosed to the financial consumer in the interests of transparency.
Finally, the law declares unlawful a provision of any financial product or service in which a financial consumer waives or is deprived of a legal right to sue the financial service provider, to receive information, to have their complaints processed and resolved, or to have their non-public data protected.
Indeed, under the law, financial consumers are adequately protected by the respective financial regulators. They are also provided with a quick remedy which promises to provide definite remedies. RA 11765 has become one of many consumer protection laws in the Philippines, such as RA 3765 or the Truth in Lending Act and RA 7394 or the Consumer Act, which implement the Constitution’s policy to provide protection Filipino consumers.