Lenders and investors volunteer info on DepEd fiasco

We were deluged with reactions to our column last week about the lending institutions currently doing business with the Department of Education. For the benefit of those who missed last week’s column, here is a brief background:

Teachers, being part of one of the lowest paid sectors among public servants, are often in need of immediate financial assistance for their children’s school needs, in times of sickness, for emergencies and often timed for mere existence. Those who have exhausted their loaning capabilities from government lending institutions would have no place to go but the Small Lending Institutions that do not require collaterals or a heap of papers to sign as what the big lending institutions would require. Of course there are the five-six usurious lenders as a final option.

With the release and implementation of the DepEd’s Automated Payroll Deduction System Guidelines for Private Lending Institutions (PLI’s), there is a virtual moratorium on the payment of past loans of teachers. Because of the new system, all lending investors had to go through re-accreditation, a process which took several months to complete. In the meantime, no billings could be effected, and no new loans could be made.

With all these developments at the DepEd, I cannot take exception to the requirement for re-accreditation. As we all know there are quite a few unscrupulous lenders who will only be too happy to prey on the needy when they are most vulnerable. Unmasking the sharks will separate the grains from the chaff, and the process of re-accreditation, I guess, is a necessary tool for the DepEd. Unfortunately for all the lending institutions, however, this process can be long and tedious, and the DepEd ordered all the private lending institutions to stop their lending operations for almost a year. While the lending investors could not bill the teachers for all their existing loans, they still had to honor their interest payments to all their investors. You can imagine how this tilts the balance. Such being the case, it stands to reason that the DepEd would be more sympathetic to the investors" group by not adding to their burden. However, more blows were forthcoming.

To fully appreciate the scenario, I had to piece together the reactions I got from the various private lending institutions, and in so doing got a more accurate chronology of events leading to this fiasco.

It was sometime in September 2002, during the time of then Secretary of Education Edilberto C. de Jesus, that the Automatic Payroll Deduction System was ordered reviewed and revamped, apparently with the end in view of outrightly abolishing the system. As a result, all the PLIs were required to undergo re-accreditation, and in the process, stop all lending operations for a year. By Feb. 2003, all documents necessary for re-accreditation must be submitted. Note that there is already a lapse of five months here alone. However, due to insistent demand from the teachers themselves, the DepEd lifted the moratorium on new loans, but this was only temporary. All re-accredited PLIs were of course presumed to be back in the graces of the Department, while those firms who failed to get re-accredited had other options – GSIS offered to buy out their existing loans.

It must also be mentioned here that in the course of all these developments, the DepEd specified a ceiling rate of interest and non-interest charges. Again, this is a factor which I believe is in the best interest of the teachers. We simply cannot have unregulated interest rates and hidden charges in these loan applications. However, how can one apply these new rates retroactively when these rates have been contracted and accepted by the lender, the borrower, and the DepEd? Were these rates not examined thoroughly before they were deemed acceptable for automated salary deductions? The most logical thing to do here is apply the new ceiling for interest rates and other acceptable charges to new loans.

By September 2003, a full year since the review of the Automatic Payroll Deduction System, new re-billing guidelines past due accounts were issued by the DepEd, and this included the scrapping of all penalties and additional accrued interests on late payments.

Sometime in May 2004, the DepEd decided to decentralize the payroll deduction system of teachers in selected areas. These areas are mostly provincial divisions that do not have adequate computerized systems, so complying with the initial readiness to adopt this new system will naturally take eons. Meanwhile, all past due accounts which the PLIs re-billed to the DepEd and which do not carry the new interest rates were rejected for payment. Take note: these are past due accounts.

By December 2004, all the private lending institutions were still struggling to get their past due accounts collected because of the decentralization of the payroll deduction system. To this day, the struggle continues as more and more regions are included in the decentralization process.

The reactions I got were mostly from reaccredited PLIs – legitimate lending investors who entered into legitimate contracts with teachers and non-teaching personnel from DepEd but who know face the very real and very bleak possibility of losing their companies and the investments entrusted to them by thousands of hopeful investors. These PLIs were invited by DepEd to service the financing needs of their staff, several small- and medium-sized companies who thought the invite was a good base for a legitimate business undertaking. Having been re-accredited, they now want to know what else they can do to get back on their feet.

Almost two years after, there is still no relief in sight for the private investors who entrusted their pensions, lifetime savings and retirement pays to these legitimate companies in the hope of having better returns on their money. These private lending investors have had to cough up interest payments without the full benefit of billing their accounts. How much longer can they take it?

In no time, we will be seeing these companies keel over like bowling pins. It will be interesting to know which companies will survive, because word has it that the process of elimination will leave only the "anointed" ones to reap the harvest. How true is this? The plot thickens.

Summing up their concerns, these private lending investors would like to bring their message of survival across to the leadership of the DepEd.

1. Pls. honor your contracts and commitments. You can’t change the terms mid-way but you can certainly dictate new terms for everybody to follow once these loans are fully paid. There is no such thing as a retroactive law.

2. Pls. consider the cash flow concerns of these legitimate businesses. If you feel that the DepEd’s employees need their own savior, so do these companies and the thousands of investors they represent.

But since youíre the powers that be in the battlefield, they have no choice but to dance to your music. Right now, very few are left standing, and they can barely dance!

Having known the good Secretary of the DepEd, the Honorable Florencio "Butch" Abad, with his track record of not only being a capable leader and manager but a very fair one as well, it’s very possible that heís has not been fed the complete details of the issue or worst the actual and true scenario. Otherwise he would know from the start that this issue can be a time bomb waiting to explode. A legitimately disgruntled sector like the small-time investors composed of government and private company retirees who are mostly behind the Private Lending Institutions, with their hard-earned lifetime savings about to be gobbled up probably due to some peopleís unscrupulous agenda trooping to Malacanang to seek justice is what the President needs at the moment like another alleged wiretapped conversation.

Mabuhay! Be proud to be a Filipino!

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