In House Bill 4124, former senator and now Rep. Ernesto Herrera (Lakas, Bohol) recommends the following pawnshop interest rates per annum:
• six percent when the amount lent is less than P2,000;
• seven percent when the amount is more than P2,000 but not more than P5,000;
• nine percent when the amount is more than P5,000
In addition to interest charges, pawnshops may impose a maximum service charge of P5 but not to exceed one percent of the principal loan, the bill proposes.
Herrera’s bill seeks to amend Presidential Decree 114, or the Pawnshop Regulation Act, so that it shall be unlawful to divide a pawn into two or more fractions in order to collect higher interest than what is authorized.
The bill also prohibits a pawnshop from collecting interest on loans in advance for a period of more than one month, and from requiring the pawner to pay additional charges as insurance premium for safekeeping.
Herrera proposes to impose stiffer penalties for violations. Fines shall be increased from P100-P1,000 to P5,000-P10,000. The jail term shall also be lengthened from 30 days to one year to six to 18 months.
The Bohol solon said he acknowledges that pawnshops address the needs of small borrowers who do not have access to the credit facilities of banks and other financial institutions.
With the lifting of the interest rate ceiling on loans, however, Herrera said the rates imposed by pawnshops have become too burdensome for small borrowers to shoulder.