Mandatory Grace Period For Loans With Principal or Interest Falling Due Within Enhanced Quarantine (ECQ) Period

Republic Act No, 11469, the “Bayanihan to Heal as One Act”.

Law and jurisprudence

In order to effectively address the COVID-19 crisis, the Congress authorized the President to exercise certain powers through Republic Act No. 11469, the “Bayanihan to Heal as One Act”. Among these powers is to “direct all banks, quasi-banks, financing companies, lending companies, and other financial institutions, public and private, including the Government Insurance System, Social Security System and Pag-ibig Fund, to implement a minimum of thirty (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 all enhanced Community Quarantine without interests, penalties, fees, or other charges, persons with multiple loans shall likewise be given the minimum thirty (30)-day grace period for every loan” [Sec. 4(aa)].

Covered Institutions

Under the implementing rules issued by the Department of Finance, “covered Institutions” shall mean 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 Pilipinnas  (BSP), Securities and Exchange Commission (SEC), and Cooperative Development Authority, public or private,  including the Government Service Insurance System GSIS, the Social Security System (SSS) and the Pag-ibig Fund.

A FAQ document (BSP FAQ) published by the BSP further amplifies that “Covered Institutions” include  trust departments/corporations. It laso clarifies that the covered financial institutions are those established in the Philippines. Thus the IRR does not apply to loans extended by banks abroad to Filipino residents .

Mandatory Grace Period

All Covered Institutions are required to implement  a 30-day grace period for all loans with principal and/or interest falling due within the Enhanced Community Quarantine  Period (ECQ Period) without incurring interest on interest, penalties, fees and other charges. In the event that the President extends the ECQ Period, the initial 30-day grace period shall likewise automatically be extended.

This 30-day grace period must be automatically applied by a Covered Institution without any action or need of application on the part of the borrower. This period shall commence from the payment due date falling due within the ECQ Period.

Scope of Application

The mandatory grace period applies to all loans with principal and/or interest, falling due within the ECQ Period. Be it emphasized that the determining factor is the due date of the subject principal and/or interest, which must fall within the ECQ period.

If the borrower has several loans, the grace period shall separately apply to the individual loans.

Per BSP FAQ the grace period applies to loan accounts covered by post-dated checks, auto debit or auto deduct arrangements with lending financial institutions (FIs). It states:

In this case, FIs are advised to coordinate with their clients if they wish to proceed with the arrangement despite the mandatory 30-day grace period granted by law. FIs shall also coordinate with their clients if they wish to reverse checks cleared or payments debited/deducted prior to the enactment of the Bayanihan Act and its IRR, during the mandatory 30-day grace period. The reversal shall be done without corresponding fees and charges.

Effects of the Mandatory Grace Period

The application of the mandatory grace period has the following effects:

1. The due date falling within the ECQ Period is extended by 30 days;
2. The borrower shall not incur interest on the due amount (principal, interest, fees and other charges) covered by the grace period; and
3. The borrower may elect to pay the interest falling due within the 30-day grace period:
a. In full (lump sum) on the new due date following the application of the grace period or extended grace period; or
b. On staggered basis over the remaining life of the loan

Prohibition on waivers

Covered Institutions are prohibited from requiring their clients to waive the the application of the mandatory grace period. The prohibition applies even to a waiver executed prior to the issuance of the IRR. Thus, any waiver, whether executed by the borrower  prior or subsequent to the issuance of the IRR, is void. Nonetheless, the borrowers are free to elect to pay their due and outstanding obligations during the ECQ Period.

References:

  1. R.A. No. 11469 (Bayanihan to Heal as One Act)
  2. Implementing Rules and Regulations of Section 4(aa) of Republic Act No. 11469
  3. Frequently Asked Questions (FAQ) on the Implementing Rules and Regulations (IRR) of Section 4(aa) of RA 11469 or the  “Bayanihan to Heal As One Act”