Loans and Card Payables After the ECQ: How Much Will I Pay? What Are My Payment Options?

How are you?

We’re nearing the formal end of the extended enhanced community quarantine (ECQ) which is this Friday, unless the government decides to extend it once again. GCQ moving forward? Extend ECQ until May 30? June 15?

It’s been 2 months and for majority of us, we haven’t paid our loans, credit cards and utility bills for those 2 months. And thinking about the time when payments resume again, it can be daunting. There are so many questions and concerns circulating online.

Will the two months be required asap together with the 3rd month that’s coming due?

Can we just forgive, and forget? (LOL)

Will the banks charge me interest for the last 2 months?

How much do I need to pay? Can I pay in installments?

I lost my job / business during the ECQ. What options do I have?

I left an amount in my ADA account but the bank did not deduct it for my loans. Why?

Well the the final official answers, and the detailed guide will presumably come from your lending bank or card issuer, if they are customer-focused enough to educate and guide their customers.

So it is your role as a customer to stay tuned for their announcements and FAQs (which are most likely posted on their websites and on their official Facebook pages. For now, we can offer you some general guidelines that the banks and lenders are required to follow as it is in the law anyway.

Caveat. I am not a lawyer, but I’ve been a banker for the past 13 years now, working on consumer loans, so I think I can still shed some light on the matter.

Bayanihan to Heal As One

The law which aims to address the Covid-19 pandemic, the Bayanihan to Heal as One Act (R.A.11469), is also the law to be followed by banks and lenders in terms of payment grace period / moratorium. Under Section (4). paragraph (aa):

Click here for the full text of the R.A.: Bayanihan-to-Heal-as-One-Act-RA-11469. Or you may also check for the copy of the signed law from the senate website.

Critical points from the quoted section:

• Lenders shall give a minimum 30-day grace period to its borrowers (which has been extended to 60-days already as ECQ was extended)
• Borrowers who will not pay during the grace period should not incur interests, penalties or other charges. The clause “without incurring interests” is tricky though because interest can mean many things from a lender’s perspective:
  • Is this interest on principal? The principal remained the same for the past 60-days because of the grace period and non-payment. In a normal situation, an unpaid loan incurs interest on a daily basis, that is why every loan amortization is split into interest payment and principal payment. But these are not ordinary times.
    • Example, loan balance is P100,000. Amortization is P10,000, where P8,000 is for principal and P2,000 is for interest (P+I)
    • If you pay, loan balance goes down to P92,000.
    • If you do not pay, balance remains at P100,000 and this P100,000 will incur “interest on principal” on a daily basis for the next 30 days. So after 30 days, the amount due may be P8,000 (principal) + P2,000 (interest last month) + P2,000 (additional interest on the P100,000 principal, depending on how they compute interest). Granted that the lender will not collect the next amortization that is actually due this month.
  • Is this interest on interest? After some time that an amount due (principal + interest) is not paid, the interest portion becomes part of the principal (e.g. some call it capitalized), hence the unpaid interest incurs an additional interest, an “interest on interest” (e.g. if there is compounding in investments, there is compounding in loans interest too).
    • In a normal situation, if a person missed one loan payment and his next due date is now approaching, his total amount due on the next due date will be (amortization due this month + amortization due last month + late fee + interest on the unpaid principal last month + interest on the unpaid interest last month).
    • This is how easily a loan amount due balloons if you skip a payment, so don’t! Next month, if you skip again, the late fee will also incur interest, and the interest on interest will incur another interest. So, again, don’t skip payments!
    • Similar example, loan balance is P100,000. Amortization is P10,000, where P8,000 is for principal and P2,000 is for interest (P+I).
    • If you do not pay, balance remains at P100,000 and this P100,000 will incur “interest on principal” on a daily basis for the next 30 days. In this approach, the unpaid P2,000 interest may also earn “interest on interest.” So after 30 days, the amount due may be P8,000 (principal) + P2,000 (interest last month) + P2,000 (additional interest this month on the P100,000 principal, depending on how they compute interest) + P250 (additional interest on the unpaid P2,000 interest).
• As for the fees and charges, most lenders already communicated that they shall waive the late fee for those who will not pay within the grace period. But be sure to double-check this with your own lender

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IRR on Bayanihan

Every law of the land comes with an implementing rules and regulations (IRR) so that the agencies who are tasked to implement the law can clarify what the law means. This is important because sometimes the “letter” of the law is general or vague (to cover for all possible scenarios) so it is important that the IRR clarifies and specifies what the law means and how it applies, consistent with the “spirit” of the law. The IRR in relation to the payments of loans was issued by Dept. of Finance. I think the following sections can answer the questions above on “interest”.

Above sections explicitly mentioned that the borrowers will NOT incur interest on interest. So that’s settled then.

This also means the borrower may incur additional interest on principal balance, depending on the policy of the lender. Which means if you did not pay, though you will not have late fee, you may or may not incur an additional interest for the 30-60 day grace period, based on your principal balance. Again, this depends on the policy of the lender — they are not forced by law to do this, but it is not prohibited by law either. The lender has this right, though the additional interest is not due in lump sum, the borrower may request that it be billed in installments too.

Click here for the IRR from DOF: 20200401-IRR-RA-11469-RRD. You may also view it from the Official Gazette.

FAQs from BSP

Apparently, there are still many questions and points of clarification on the IRR, as such BSP issued their answers to Frequently Asked Questions (FAQs). So we checked BSP’s website for the FAQs on the IRR on the Bayanihan act. Click here for the full text: Bayanihan Act FAQs – BSP. Or visit the document on their website.

Here are the important points:

• Lenders cannot force any Juan to waive his/her rights for a grace period. Even if you signed a waiver before that you are ok not to be part of the grace period, such waiver will not be honored. This does not stop any borrower though from paying the loans despite the grace period
• You are covered by the grace period whether you are current (updated) or past due (delinquent) before the ECQ and when the grace period took effect
• All payment types are covered whether auto-debit arrangement (ADA), post-dated checks (PDC), over-the-counter (OTC). If Juan wishes to continue with the payments (because he’s blessed enough to have money and emergency funds even during ECQ), then s/he should coordinate with the lender
• The maturity date (last due date) will move by 30-days (or for some maybe even 60 days if 2 payment dues were skipped). This is for loans with fixed amortizations and maturity.
• The non-payment during the grace period will result in interest. While interest on interest is not allowed by law as clarified in the IRR, interest on principal may be charged by the lender. Here’s an example from the FAQ (note that grace period in this example is 30-days only):

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What To Do?

Coordinate with the lender. Read their emails, FAQs, read their website, their Facebook page, contact them for guidelines on how you can repay moving forward.

If you have extra money, if you’ve been receiving your salary despite the ECQ, I suggest you pay regularly, even if there is a grace period. You are part of the lucky and blessed few who still has income despite the 2 months (and counting) disruption in businesses and economy. Coordinate with the lender and pay the amount due using the money you really set aside for the loan repayment. It’s part of your monthly budget anyway (I suppose). Pay it now instead of risking spending the money on non-essentials. Likewise, the balances may build up and when they come due, believe me they will, (especially for credit cards where there is no regular amortization and the balances may accumulate due to minimal payments), you may not be able to pay the much bigger amount due that has accumulated over the months.

Speaking of credit cards, the FAQ especially mentioned it:

Note that interest here for revolvers (non-full payer) refers to the finance charge which is usually 3.5% per month. Times like this really highlights the importance of paying your credit cards in full and avoiding paying just the minimum due amount as much as possible because any unexpected financial shock (e.g. emergency, extraneous event like covid-19, sudden loss of income) can suddenly make your amount due balloon to unmanageable levels.

Also, note that the FAQ only addressed the interest portion. The premise here for credit cards is that if you did not pay your balance last month, this may be billed together with your balance this month. So it’s like paying two-months worth of balances after ECQ, unlike for loans with monthly amortizations and where due date just moved one month until the end of loan. Make sure you clear this with your credit card issuer.

What else can we do? Right now lenders (at least for banks) are already beefing up their collections and preparing repayment programs for those who will need it. Of course they want to minimize the loans that will go delinquent and uncollectable after the ECQ is lifted and when we return to the “new normal”. Nonetheless, they also want to be fair to the customers who are diligent in paying, to the depositors who provide money for lending, and to the shareholders. At the end of the day banking remains a fiduciary duty and a business.

It’s a given that customers and borrowers are affected by the ECQ in varying degrees, some lost their jobs and income completely, some partially, some are blessed to still have regular income. As such lenders are also preparing for many options for borrowers. Some are as follows. Note that the banks will still evaluate the borrowers whether they will qualify for any of below. These are just examples, and may not necessarily be offered by your lender, or they’ll offer a variation of below, and/or they may deem that some or none are applicable to you as a borrower.

• Extend the grace period after ECQ. Borrowers may be allowed not to pay their loans for additional months after the ECQ (e.g. for the next 3 or 6 months, etc). Note that there is no free lunch, and the lender may charge interest for the months that you opt not to pay, and collect it from you once the extended grace period is over.
• Lower the monthly amortization or amount due. Possible to pay only the interest for now then principal + interest after a few months.
• Restructure or refinance the loan. Change the terms of the loan altogether. For the BSP example above, remaining loan tenor is 4 years, amortization is P10,500. This can be restructured such that the loan will be extended from 4 years to payable in 6 years, amortization is lowered from P10,500 to P5,000 to make it more manageable.
• Especially for high credit card payables, convert the total amount due into installments (e.g. balance conversion, straight to installment, etc). This may be favorable to the borrower especially if the interest per month is way below the 3.5% finance charge that s/he will incur every month s/he is not able to pay the total amount due.
• Repossess collateral and foreclose the loan. This may be the last resort for lenders on their delinquent auto loan or home loan or any other loan secured by a collateral. Believe me when I say most banks only view this as a last resort as the experience is unpleasant for both borrower and lender. But in cases where the probability of loan repayment is already very low (e.g. borrower is unemployed, or very delinquent even before ECQ, what more after ECQ), then the lender may have to execute its right to the collateral to protect the bank and the depositors’ money. Some borrowers also voluntarily surrender their car or house just to settle the loan.

Again, the lender will have to assess whether the borrower will qualify with any of their repayment programs, taking into consideration the probability that the borrower will be able to finish paying the loan, the source of income (if there is and will be in the future), and the economic conditions expected moving forward.

If you have been a good payor during the sunny days and the good times (never delinquent, never a headache for lenders), then the lenders may be more considerate in accommodating you during these pandemic rainy days which affected the whole world. But, if you’re a delinquent customer and is already having a hard time paying your loans even when the times were good, if you were pasaway, the lenders might not be as considerate especially during these tough times when they only have limited resources to be accommodating and many customers are asking for it. Even if you are covered by the law in terms of grace period, the law does not compel the lenders on the repayment programs they will give their borrowers after the ECQ.

This is just like Santa’s list. At the day of reckoning, have you been naughty or nice? So key here is to always be a customer in good credit standing. Always.

Hope the above were able to shed some light. Get in touch with your lender as soon as possible. I hope we get out of this pandemic and out of this ECQ before Santa Claus comes to town! Stay safe!

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