Lending institutions like thrift banks and rural banks may soon abandon the credit market for teachers after finding themselves at the bottom of the food chain.
The Department of Education issued a controversial directive that included the Order of Preference provision in the Automatic Payroll Deduction System (APDS) applicable to the salaries of teachers. The contentious provision pertains to the implementation of the P5,000 net take home pay of DepEd personnel. It imposes a sequential hierarchy while favoring select accredited and participating lenders regardless when the obligation is incurred.
The DepEd order ensures a P5,000 net pay in the teacher’s payslip after due deductions of monthly amortization in the APDS from various accredited lending institutions, including the Government Service Insurance System.
The loans that cannot be deducted because of the net pay threshold will be reflected in the payslip as “Undeducted Obligations,” which can be paid through over-the-counter or manual transactions.
The so-called hierarchy prioritizes payments to the Bureau of Internal Revenue, Philhealth, the GSIS and Home Development Mutual Fund. Next are non-stock savings and loan associations and mutual benefit associations managed for the benefit of government employees, as well as government financial institutions and licensed insurance companies.
At the bottom of the list are thrift banks and rural banks accredited by the Bangko Sentral ng Pilipinas. The DepEd order and its hierarchy imposes a retroactive application of the order of preference to old and new obligations, which increases the risk of default for older obligations.
Entities with “undeducted obligations” existing before 2018, thus, become subordinate to entities that are higher on the order of preference, although the latter’s obligations were incurred much later in time. The DepEd order, in short, disrupted the entire system of payment.
Higher default risk
Timely payment of obligation is effectively no longer guaranteed by the APDS, which dramatically reduces reduces the incentive for lending institutions to make financial credit available to teachers.
Lending institutions would be forced to increase interest rates and charges to compensate for the increased risk of default and the longer period for satisfaction of obligations.
Worse, lending institutions which are placed on the bottom in the order of preference are likely to leave the market entirely, considering that there is no guarantee that they would be paid through the APDS.
Majority of teachers, who do not have extra sources of income, only rely on their salaries and loans to make it through their financial needs every day.
Teachers’ loans, be it from the banks, the GSIS or other lending institutions, are utilized by teachers to meet certain financial needs, such as the education of their children, house construction and improvement, professional development, medical expenses, and emergencies.
Private lending institutions, meanwhile, have provided teachers, especially those in the rural and far-flung areas, with accessible loans at reasonable interest rates.
Along with affordable loans, teachers are properly advised about their monthly amortization schedule and are provided with copies of the contracts.
Teachers appreciate the quick provision of loans from banks. They are confident that banks could not take advantage of them because they are heavily regulated by the Bangko Sentral.
The process of acquiring loans from the banks is also far more efficient than that of GSIS. The loan application in GSIS requires a tedious process—yet it still fails to provide the teachers with the appropriate loan amortization schedules.
Teachers sink further into debt because GSIS most of the time fails to update teachers on the status of their outstanding loans. There are gray areas that should be addressed in order to let teachers be more informed about the status of their loans.
Once teachers are given limited access to loans, they will have no choice but to turn to other lenders who impose usurious rates and unfair lending practices.
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