10 savings and loan groups face closure

The future of 10 savings and loan associations is imperiled with the impending adoption of a proposal to abolish the salary deduction scheme with all government employees.

If approved, the revised Section 36 of the General Appropriations Act 2002 would remove the privilege of the private sector businesses like life and non-life insurance, commercial banks,thrift and savings banks, savings and loan associations, and cooperatives to utilize the salary deduction scheme.

That means that government employees can only avail of the scheme if they borrow money or get insurance coverage from government agencies like the Government Services and Insurance System (GSIS) and the Bureau of Internal Revenue (BIR). Or they could approached the notorious five-six money lenders.

The 10 savings and loan association specializes in servicing exclusively the 500,000 or so personnel connected with the Armed Forces of the Philippines (AFP) and the Philippine National Police (PNP).

That was the sentiment of Conrado K. Tolentino, president of the Armed Forces and Police Savings and Loan Association Inc. (AFPSLAI) in reaction to reports that the privilege of private enterprises to continue availing of the salary deduction scheme for government employees would be abolished.

The 10 savings and loan associations and cooperatives have total resources of an estimate P40 billion. These financial institutions employ roughly 3,000 persons.

Likewise, removal of the salary deduction scheme would deprive the AFP and PNP of at least P400 million a month in collection fees.

AFPSLAI alone account for a "membership" of 370,000 which includes active personnel of the AFP, PNP, prisons and jail management, fire department bureaus, their dependents, and retirees.

"That plan would result in the collapse of the industry and it would disenfranchise hundreds of thousands of military and police personnel not to mention the pensioners and their depedents," Tolentino stressed.

Without the salary deductions, military and police personnel would be forced to borrow from the usurious five-six rates since they would not have any immediate source of borrowing.

"Tapping the private financial institutions without the benefit of the salary deduction scheme would be too expensive for the average government employees who is earning minimum wages," AFPSLAI officials said.

Deductions are made every payday, which is on a monthly basis. Military personnel assigned in far-flung areas would not be able to pay their debts or they would not be able to make loans from formal sources.

The informal lending sources like the five-six almost always charge usurious rates which will almost always result in families of military and police personnel getting buries in debts.

"We are urging the legislators and the authors of the revised section to review carefully the proposal. They are affecting serveral financial institutions and the almost millions of government employees," Tolentino said. "The savings and loan associations and the rest of the financial institutions doing salary deductions are a major service to the poor employees. It is a disservice and it will jeopardize the lives of the industry and the public it serves."

Earlier, private life and non-life insurance firms called the attention of the legislators regarding the revised section of next year’s national appropriations.

Insurance firms like industry leader Philippine American Life and General Insurance Co. (Philam Life) and the Payroll Deduction Insurance Association (PDIA) which have been dealing with the Department of Education Sports and Culture (DECS) through the salary deduction scheme wrote to House Speaker Jose de Venecia regarding their plight.

Affected by the revised section are 24 insurance companies and 27 savings and loan associations, thrift and savings banks, and cooperatives. These institutions are extending various types of loans, issuing life insurance policies, non-life insurance policies for fire, accident, etc. to at least 400,000 teachers scattered nationwide.

Last year, the insurance sector accounted for P49.12 billion in premiums while contributing P4 billion in premium tax and the documentary stamp tax (DST).

In fact, the DECS also earns P6.8 million every month in service fees from the salary deduction of teachers for payment of insurance premiums.

The monthly deductions from the teacher’s wage average P180 while deductions for lending institutions charge more than 18 percent of their monthly pay.

In the past five years, insurance companies have extended a total of P230-million claims to public school teachers. The PDIA pointed out that the privilege to undertake salary deductions has been around for 30 years.