Bill to regulate finance companies axed

While he acknowledged the need for government control, Gov. Pedro P. Tenorio vetoed yesterday a bill seeking to regulate finance companies, except banks, that extend consumer loans on the island due to vague provisions of the proposed law.

Offered by Rep. Karl T. Reyes, the measure was the first attempt by the Commonwealth to provide for licensing and regulation of the financial sector which has increased in recent years.

Reyes, who chairs the House Ways and Means Committee, said he would look into the objections of the governor before commenting on the veto, but added that he might ask legislators for an override.

“I support the intent of this bill as there is a great need to regulate financial institutions doing business in the CNMI. However, several legitimate concerns have been raised regarding certain aspects of the bill,” said Tenorio in his veto message to the Legislature.

“These need to be addressed and resolved before this bill can become law,” added the governor as he urged lawmakers to re-draft the measure with the administration’s assistance.

Among the “confusing and inconsistent” provisions which did not sit well with the administration were the following:

• refund of the $300 initial license fee, except any portion expended for administrative and investigative costs, if in case the permit is not issued by the Department of Commerce which has the authority to implement rules and regulations;

• absence of liability for companies that ignore, disregard and flagrantly violate the regulations so long as they correct these violations within 120 days. Tenorio said this might encroach into the courts’ constitutional jurisdictions over civil and criminal cases in the CNMI;

• restrictions against the government to regulate interest and fees charged by the finance companies;

• loans that were made or payable in other jurisdictions are enforceable in the Commonwealth; and

• the cease and desist order within 60 days proposed in the bill is unrealistic if the public interest is to be protected, according to the governor. Under existing laws, there is a minimum six months for its determination.

“As much as I would like to sign this bill into law, the…concerns prevent me from doing so,” Tenorio explained.

The proponent of the bill warned that failure to put in place regulatory scheme on the growing financial sector other than the banking institution would open it to potential loan-sharks who impose high interest rates.

At the same time, Reyes said these companies would also be exposed to high-risk borrowers, who may not pay back their loans in the absence of the laws.