New law regulates finance companies

Finance companies granting consumer loans other than banks are now subject to regulatory measures to be implemented by the CNMI government in an effort to reduce risks to both the island residents and business owners.

Gov. Pedro P. Tenorio yesterday signed into law the bill providing for licensing and regulations of these small-time companies, while imposing penalties to protect consumers from unscrupulous business practices.

“This measure is necessary for there is a need for legislation to regulate financial institutions doing business in the Commonwealth,” he said in signing Public Law 12-36.

But the local chief executive stressed the commerce department, the banking commission and other sectors in the community are still concerned with the proposed interest rate of 34 percent per annum which they find high.

Mainly sponsored by House Floor Leader Oscar M. Babauta, the new law permits the government to oversee the operations of these companies since they were not covered previously under existing banking laws.

It calls for the commerce secretary 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., according to the new law.

A license fee of $300 will be charged for any applicant, which can be renewed every year by paying the same amount, it added.

PL 12-36 came more than a year after Mr. 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 measure.

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.