Republic of the Philippines President Rodrigo Duterte declared that the entire Metro Manila will be placed under “community quarantine” starting at midnight of 15 March 2020. This initial precautionary measure by the government was further qualified by an Enhanced Community Quarantine (“ECQ”) over the entire island of Luzon. The quarantine restricts the movement of individuals and specifies the industries which are allowed to operate, otherwise, businesses and enterprises are directed to close down or provide a work-from-home arrangement for its operations.

Last 23 March 2020, the Congress of the Philippines enacted Republic Act No. 11469 known and cited as the Bayanihan to Heal as One Act. One of the measures put in place by the legislators to promote the Government policy to undertake a program for recovery and rehabilitation and the provision of safety nets to all affected sectors, is the directive given to  all banks, quasi-banks, financing companies, lending companies, and other financial institutions, public and private, including the Government Service Insurance System, Social Security System and Pag-ibig Fund, to implement a minimum of 30-day grace period for the payment of all loans, including but not limited to salary, personal, housing, and motor vehicle loans, as well as credit card payments, falling due within the period of the ECQ without incurring interests, penalties, fees, or other charges.[1] Persons with multiple loans shall likewise be given the minimum 30-day grace period for every loan.

Significant provisions of the law and its implementing rules[2]

The directive to implement a mandatory grace period covers all lenders, including but not limited to 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 (“BSP”), Securities and Exchange Commission (“SEC”), and Cooperative Development Authority, public or private, including the Government Service Insurance System, Social Security System and Pag-ibig Fund.[3]

The above-mentioned institutions shall implement a 30-day grace period for all loans with principal and/or interest falling due within the ECQ Period without incurring interest on interest, penalties, fees and other charges.[4] Loans shall mean loans extended by the covered institutions to individuals, households, MSMEs, corporate borrowers, and other counterparties.[5] The mandatory 30-day grace period shall also apply to multiple loans of individuals and entities, with principal and/or interest falling due within the ECQ Period.[6]

The initial 30-day grace period shall automatically be extended if the ECQ period is extended by the President pursuant to the emergency powers given to him by the Bayanihan to Heal as One Act.[7]

Further, all covered institutions are also directed to not charge or apply interest on interest, fees and other charges during the 30-day grace period to future payments or amortizations of the individuals, households, micro, small and medium enterprises (“MSMEs”), and corporate borrowers.[8]

With respect to the accrued interest, the law provides that accrued interest for the 30-day grace period may be paid by the borrower on staggered basis over the remaining life of the loan. The borrower shall also not be precluded from paying the accrued interest in full on the new date following the application of the 30-day grace period or extended grace period, as the case may be. [9]

This grant of a mandatory 30-day grace period may not be waived by clients of the covered institutions. However, the grant shall not preclude the borrowers from paying their obligations as they fall due during the period of the ECQ, should they so desire.[10]

The non-compliance with the mandatory 30-day grace period shall subject the institution to appropriate penalties as provided by the Bayanihan to Heal as One Act, as well as existing laws, rules and regulations.[11]

Conclusion

The prompt enactment of the law and its implementing rules and regulations illustrate the policy of the government to promote and protect the collective interest of all Filipinos in these challenging times. The grant of the mandatory 30-day grace period serves as a safety net to all loan borrowers and a safeguard to ease the disruption caused by the COVID-19 pandemic.

If you have any questions or require any additional information, please contact Felix Sy and Margarita Masangkay of Insights Philippines Legal Advisors (a member of ZICO Law).

This alert is for general information only and is not a substitute for legal advice.

[1] An Act Declaring the Existence of a National Emergency Arising from the Coronavirus Disease 2019 (COVID-19) Situation and a National Policy in Connection therewith, and Authorising the President of the Republic of the Philippines for a Limited Period and Subject to Restrictions, to Exercise Powers Necessary and Proper to Carry Out the Declared National Policy and For Other Purposes [Bayanihan to Heal As One Act], Republic Act No. 11469, §4aa (2020).

[2] Implementing Rules and Regulations of Section4(aa) of Republic Act No.11460, Otherwise Known as the “Bayanihan to Heal As One Act” (2020).

[3] Id. §2.01(a)

[4] Id., §3.01.

[5] Id., §4.01.

[6] Rules and Regulations Implementing Bayanihan to Heal As One Act, §4.02.

[7] Id., §3.01.

[8] Id., §3.02.

[9] Id., §5.02.

[10] Rules and Regulations Implementing Bayanihan to Heal As One Act, §3.03.

[11] Id., §6.01.