House moves to control finance companies

The House of Representatives on Friday paved the way anew for regulatory measures on small-time finance companies that provide loans on the islands other than banks and large financial institutions.

HB 12-208, amending current banking laws, will provide for licensing and regulations of these companies by the government, while imposing penalties to protect consumers from unscrupulous business practices.

“As these areas currently have no industry specific regulations, we feel that this is a very important measure,” said a report prepared by the Commerce and Tourism Committee that endorsed the legislation offered by House Floor Leader Oscar M. Babauta.

“The laws that currently provide regulation of finance companies are drawn from many different areas,” it added. HB 12-208 now heads to the Senate for action.

Under the proposal, the commerce secretary will be tasked to implement and monitor compliance of the provisions which include civil penalties of up to $10,000 for any violation.

Finance companies qualified to receive a CNMI license must be owned by a resident or a partnership whose members are residents. If it is a corporation, it should have the proper documentation as required under existing laws.

A license fee of $300 will be charged for any applicant, which can be renewed every year by paying the same amount, according to the bill.
During deliberation of the legislation, the House committee agreed to lower the maximum annual percentage rate for loans from 36 percent to 34 percent.

The panel also decided to delete a provision that would have prohibited consumers to bring class-action suits against finance companies violating the proposed regulations.
The passage of HB 12-208 in the lower house came more than a year after Gov. Pedro P. Tenorio vetoed a similar proposal enacted during the 11th Legislature due to vague and questionable provisions.

While he acknowledged the need for government control, the governor said then the proposed regulatory scheme needed improvement to address concerns on the original bill.

The measure was the first attempt by the Commonwealth to provide for licensing and regulation of the financial sector which has boomed in recent years as the population continues to grow.

Proponents warned that failure to put in place regulatory scheme on the growing sector other than the banking institution would open the industry to potential loan-sharks who impose high interest rates.

At the same time, they maintained these companies would be exposed to high-risk borrowers who may not pay back their loans in the absence of much-needed safeguards.