Mang Lito is receiving pension worth Php 1,500 a month from the Social Security Services (SSS), but he can’t wait till the end of the month, when the amount will be credited to his bank account. “Kailangan na e,” he explains with a shrug. “Kinulang ng pambayad sa Meralco.” He sets off to see Aling Pat.
Aling Pat is a friendly old lady who has a small lending office near the public market. She sees Mang Lito from behind the counter and smiles. Mang Lito has been in and out of her lending office for the past 5 years. “Isang taon po uli?,” Aling Pat asks. Mang Lito nods and hands over his Automated Teller Machine (ATM) card.
He fills up an application form, signs some papers and writes down his card’s PIN number. Aling Pat takes a look at the papers, takes Mang Lito’s ATM card and hands him Php 8,000.
In the next 12 months, she will withdraw the Php 1,500 from Mang Lito’s ATM. Then she will deduct Php 1000 as the payment for his loan, and the balance of Php 500 he can get from her office. “Hindi namin kinukuha lahat, sinisiguro naming may naiiwan sa ATM para sa kanya,” she explains.
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Borrowers flock the “sanglaan ng ATM” or microlending companies in droves, largely because they can get a loan fast and without much hassle. Financial institutions usually have a long list of requirements and rigorous loan processes, and borrowers, such as government employees and pensioners who may be classified as not credit-worthy, have a small chance of getting approved.
The “sanglaan,” on the other hand, only requires an ATM card and a few documents which are quite easy to obtain, such as certificate of employment, identification cards, bank statements, and utility bills. A co-guarantor may be required for first time borrowers. A few calls to lenders’ contact persons in government agencies and other companies to verify the ATM account, and voila! The loan is approved in 24 hours. Or a few minutes, if the client is a regular like Mang Lito.
Mang Lito thinks the monthly payment of Php 1,000 is no big deal. What matters most is the reassuring presence of eight one-thousand peso bills in his pocket.
What he does not realize is that Aling Pat is going to earn 4.1% interest a month, 1% higher than credit card companies whose interest rate is a standard 3%. In a year, Aling Pat will earn a total of Php 4,000 from the loan availed by Mang Lito. This means that the micro lending office will earn an interest of 50% per annum.
Mang Lito, in effect, is going to pay interest that is equivalent to half of the loan he received.
Other “sanglaan ng ATM” entities charge interest as much as 8-10% a month, or a total of 96-120% a year. From the lending company’s point of view, the money they invested will double in 12 months. Unfortunately, the huge profits are at the expense of the borrower.
This does not include penalties in case of default payment. One borrower complained that his loan of Php 10,000 ballooned to Php 29,000 after failure to pay for 4 months. Credit card companies charge a standard penalty rate of 5% per month. But most of these “sanglaan ng ATM” usually do not disclose their penalty rates upon loan application, and the borrower is too focused on the deceptively low monthly payments to remember asking what will happen in case of default. Oftentimes, the borrower finds out about these penalties only after failure to pay.
In Manila, Mayor Alfredo Lim has ordered a crackdown on these money lenders following the quagmire city hall employees have found themselves into after availing of ATM loans. “We must stop this practice. We must not let those loan sharks inside the city hall premises,” Lim says, appalled at the 10% interest rate lenders levy on the borrowers. The mayor is now providing interest-free loans available to all employees of the Manila city hall and has appointed Manila Social Welfare Department Chief Jay dela Fuente to oversee the “pautangan.”
Unfortunately, the continuing rise in commodity prices has made the “sanglaan” an easy solution to many Filipinos hard up for cash. Agham Representative Angelo Palmones reveals that government-issued ATM cards are being pawned off. These ATM cards are provided by the Aquino government thru conditional cash transfer assistance program, also known as the “Pantawid Pamilyang Pilipino Program (4Ps). The program aims to combat poverty and promote social development, but reports reached Palmones that the “dole-outs” are usually late. Program recipients then use the ATM card as collateral. “Loan sharks are doing such good business nationwide,” Palmones says.
If you are cash-strapped and has no choice but to seek refuge in a “ATM sangla,” bear in mind that you have the right to full disclosure prior to loan consummation as provided in R.A. 3765, also known as the “Truth in Lending Act.”
You have the right to demand all information in writing. Find out all amounts to be paid and for how long. Study the corresponding finance charges in pesos and centavos which should be individually itemized. Inquire about the interest rates, the penalty rates, and if there are pre-termination rates, that is, how much interest would be charged should you decide to pay ahead of time.
Being armed with information will protect you from loan sharks and their onerous charges, and will help you avoid problems much bigger than the one that compelled you to pawn your ATM card.