Mandatory grace period for payment of loans falling due during the Enhanced Community Quarantine

Recent developments

The Department of Finance issued the implementing rules and regulations (IRR) of Section 4(aa) of Republic Act No. 11469, otherwise known as the Bayanihan to Heal as One Act (Bayanihan Act), directing all lenders to grant a 30-day grace period for the payment of all loans, falling due during the period of the Enhanced Community Quarantine (ECQ), i.e., from 17 March 2020 to 12 April 2020, without incurring fees, penalties, interests, and other charges. The IRR took effect upon its publication on 2 April 2020.

Salient Points of the IRR

The IRR mandates covered institutions to grant a grace period of 30 days (subject to extension should the ECQ period is extended) for all loans with principal or interest falling due during the ECQ period without imposing interest on interest, penalties, fees and other charges.

Based on the IRR, "covered institutions" refer to all lenders, whether public or private, including the following:

(1) banks, quasi-banks, non-stock savings and loan associations, credit card issuers, pawnshops and other credit granting financial institutions under the supervision of the Bangko Sentral ng Pilipinas, Securities and Exchange Commission, and Cooperative Development Authority;

(2) Government Service Insurance System;

(3) Social Security System; and

(4) Home Development Mutual Fund or Pag-Ibig Fund.

To illustrate, if a loan has a maturity date of 17 March 2020, a covered institution must allow the borrower to pay the loan until 16 April 2020 without incurring interest on interest, penalties, fees, and other charges.

Further, covered institutions are prohibited from applying charges or interest on interest, fees, charges during the 30-day grace period to future payments/amortizations of individuals, households, micro, small and medium enterprises, and corporate borrowers. In case a borrower has multiple loans, the grace period shall apply to each loan.

Covered institutions are also prohibited from requiring their clients to waive the application of the provisions of the Bayanihan Act, including the mandatory grace period. In addition, no documentary stamp tax must be imposed on credit extensions and credit restructuring, micro-lending, including those obtained from pawnshops and extensions thereof, during the ECQ period.

Failure to comply with the provisions of the IRR after its effectivity date may result in the imposition of a fine ranging from PhP 10,000 to PhP 1,000,000 and/or two-month imprisonment on responsible individuals.

Actions to Consider

All covered institutions must comply with the foregoing in granting the mandatory grace period to its borrowers. Covered institutions must also assess their lending mechanisms, and consider the courses of action which they can take to ensure the mitigation of potential financial losses caused by the mandatory grant of the grace period, subsequent to the ECQ period.

Quisumbing Torres will continue to provide updates on the developments on the implementation of this IRR and the Bayanihan Act.


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