BSP warns against using ATM as collateral from loan sharks

(The Philippine Star) , Aug 5, 2018

MANILA, Philippines — The Bangko Sentral ng Pilipinas has reminded the public not to use their ATM (automated teller machine) cards as collateral for quick and easy loans from informal lenders or loan sharks.

In a public advisory, the BSP urged the public to stop “Sangla ATM” schemes wherein borrowers use ATM cards to secure a loan.

BSP also advised the public not to entrust the cards as well as the personal identification number to creditors.

“This exposes you to abusive lending practices by informal lenders who usually charge excessive interest rates,” the BSP said.

It added creditors could withdraw more from the ATM account than the agreed loan amortization and could commit other abuses since there is no formal loan contract.

“They are not authorized by any government agency, so there is limited mechanism for you to file complaints or request for restoration of losses,” the central bank added.

According to the BSP, the scheme could expose the borrowers to identity theft as well as unauthorized withdrawal from their ATM accounts after entrusting their PIN to the creditors.

The use of a borrower’s ATM card as loan collateral is not a guarantee of future cash flows or repayment and that there is high probability of loan default especially when a borrower deliberately reports loss or theft of the ATM card, the BSP said.

“The BSP advises financial institutions to practice credit underwriting and prudent assessment of a borrower’s credit-worthiness to mitigate credit risks,” the BSP added.

The central bank’s 2014 Consumer Finance Survey showed 39.9 percent of Filipinos use their ATM cards as loan collateral wherein borrowers surrender their cards and share their PIN and other account information with informal lenders or loan sharks.

Latest data showed the BSP resolved at least eight of the 10 banking-related complaints last year as it continued to strengthen consumer protection.

In its 2017 year-end report on financial inclusion initiatives, the BSP’s financial consumer protection department (FCPD) resolved 83 percent of the 9,556 new financial consumer complaints, inquiries and requests.

On top of the list of complaints included credit cards with a share of 32 percent followed by e-banking with 18 percent, and lending (14 percent).

On the other hand, deposit-related concerns or unauthorized withdrawals cornered 13 percent of the total number of complaints while other issues accounted for 18 percent.

The regulator said 4,528 complaints were referred to BSP supervised financial institutions for proper action.

On the average, banks responded within 5.72 banking days from the receipt of referral and within 11.8 banking days for subsequent referrals.