"I have no doubt that the DepEd issued the order with the benefit of teachers in mind."
When the Department of Education issued Order No. 5 defining the order of preference of the automatic deductions from the teachers’ payroll, we never doubted that it was for teachers’ benefit.
Unfortunately, DepEd Order No. 5, coupled with Section 48 of the General Appropriations Act of 2018, has appeared to cause more damage than good for their intended beneficiaries.
The twin regulations set up a hierarchy of preference in the Automatic Payroll Deduction System in the payment of individual employee contributions or obligations. The order is as follows: BIR, PhilHealth, GSIS and Home Development Mortgage Fund, non-stock savings and loan associations and mutual benefit associations, provident funds, GFIs, insurance companies and thrift banks and rural banks.
The GAA 2018 also provides that in no case shall the deductions reduce the employee’s monthly net take home pay to an amount lower than P5,000.
This order of preference applies to both old and new debts, meaning retroactively, which negates the earlier principle followed in collection—the First In, First Served System which in the past ensured that older obligations were satisfied as soon as possible.
And this is where the problem arises. New loans from lenders higher up in the rank of preference are paid first before old loans from thrift and rural banks, which are at the bottom of the list, resulting an increase in the risk of default and, as a result, restricts the amount of financial credit available to teachers.
In past, when the First In, First Served system was in place, there was an orderly manner of granting and paying loans, such that rural and thrift banks were guaranteed timely payment and, consequently, DepEd employees were less likely to incur interest and finance charges.
The application of the order of preference and the First In, First Served system have always been subordinate to the NTHP threshold, ensuring that a certain amount is received by every DepEd employee every month. If the deductions have reached this NTHP threshold, the outstanding loan amortizations that did not make the cut get dislodged and transferred to the Un-Deducted Obligations portion of the payslip while still retaining their order of priority. Hence, when the next payslip comes, satisfaction of the Un-Deducted Obligations from the previous payslip gets deducted from the payroll first before the other obligations (or amortizations) which have a later effective date.
But with the conditions found in the GAA 2018 and the DepEd Orders, there now exist an unreasonably interference with PLIs’ ability to grant financial credit to teachers and impair DepEd employees’ access to reasonably regulated financial credit.
Though ensuring that teachers have an NTHP of P5,000.00, the DepEd Orders implement the order of preference provided in the GAA 2018 in such a way that the financial credit system and the existing agreements between teachers and lending institutions are interfered with. Specifically, the DepEd Orders’ implementation of the order of preference will effectively cause rural and thrift banks to be always overtaken by lenders which are higher in the order of preference even if they extended loans ahead of them.
The unreasonable interference increased the risk of default and, as a result, restricted the amount of financial credit available to teachers. This is because PLIs must undergo more rigorous applications and must adjust business models to conform to additional rules while maintaining or reducing their exposure to risk.
Worse, due to the real and substantial risk that they will not be paid at all for the loans that they grant, PLIs will no longer have any incentive to lend to DepEd employees, to their damage and prejudice.
The implementation of the DepEd Orders and the effective easing out of PLIs, especially rural and thrift banks, from the APDS will erase years of improvement in the industry in terms of access to credit. This fear is not unfounded. DepEd employees will be deprived of at least P107 billion in capital currently available to them from rural and thrift banks. As a result, teachers will have less access to regulated credit and will have to resort to approaching informal, unregulated lenders, which can charge whatever interest rates and fees that they wish.
As stated above, I have no doubt the teachers’ interest was foremost in the DepEd’s agenda when it issued Department Order No. 5. Maybe there were some miscalculations. They can still be remedied. And the first step is to review the order of preference.”‹