First of 2 Parts

DOHA, Qatar/MANILA, Philippines – The black worn leather wallet contained a pocket-sized family picture and a receipt. One was the reason why Rodel, a 45-year-old electrician left the Philippines to work in Qatar; the other was the reason why he could not return.

Rodel turned over the photo of him, his wife, and their 6 smiling children to reveal 6 different birthdays scrawled on the back. “I have so many things on my mind, I wanted to make sure that I don’t forget any of the kids’ birthdays,” he chuckled, scratching his head.

Then Rodel unfurled a small piece of paper in his wallet. It was a receipt from his recruitment agency certifying that he had paid P39,000. This was the “cost” of securing a job in Qatar where Rodel would earn about P14,000 monthly working as an electrician. He took out a loan for P60,000 to cover the recruitment fees plus a little extra to tide over his family until he got his first salary. (READ: Are zero placement fees for OFWs scam or solution? )

From a separate folder, he pulled out a card about half the size of bond paper. It listed the monthly installments to pay off his loan. The total amount he would have to pay was not listed, but a simple computation showed that Rodel would have to pay an amount totaling P95,565 for a P60,000 loan.

Rodel does not know how he can possibly pay off the loan. He lost his job in Qatar after two months when the construction company that hired him did not win the building project it had bid for.

Now he works for a small company that pays him “when they have money.”

Any hope Rodel had for financial stability by working abroad, upended by a salary coming in unpredictable trickles and a bundle of debt accumulating interest, was dashed. It’s a dire situation but he has no choice but to stay in Qatar. (READ: Unpaid wages leave Filipino workers stranded in Qatar )

“ Paano ako uuwi? May lending ako. Saan ako kukuha ng pambayad? Dito na lang ako, ” explained Rodel. (How will I go home? I took out a loan, where will I get money to pay it off? I will just stay here.)

Rodel’s story unravels a multi-layered duplicitous recruitment process riddled with brokers, lenders and collectors who tuck on fees at every step from application to deployment. The result is bloated recruitment fees paid for through loans slapped with usurious interest rates that make it impossible for workers to pay them off.

Rappler shared the details of Rodel’s loan with two independent banking institutions and the Bangko Sentral ng Pilipinas (BSP) to compute for the loan’s effective interest rate.

BSP computations show that an annual interest rate of an astounding 104.27% was applied.

Impotent government regulations are poorly implemented and rarely monitored effectively, allowing a loophole where lending agencies can dictate interest rates at usurious rates.

When workers cannot pay, collection agencies – which are largely unregulated – use collection tactics that range from harassment, intimidation and public shaming.

It is a debt trap.

Indebted and in distress

The set up for the debt trap follows a distinct and almost predictable pattern.

First, the prospect of a job abroad and potential earnings is dangled in front of the worker. Then the hoops that the worker has to pass through to get that job are laid out: medical exams, recruitment fees, and travel documents.

All this costs money and suddenly, a loan is what stands between them and this opportunity to work abroad – or at least that’s how the recruitment agency will frame it. The recruitment agency will refer the worker to a lending agency where they can be assured of a loan – quick, easy, and hassle free.

Workers are cajoled and sweet talked into getting a loan, without asking too many questions or explaining too many details like interest rates.

“The recruitment process is rarely transparent. It’s very profitable. It’s very easy to exploit people, to sell them dreams,” said Nicholas McGeehan of Human Rights Watch (HRW).

Filipino workers Ryan and Mark shared stories that mirrored Rodel’s. Both followed a similar pattern of entrapment.

The two men went to a local job fair at their Public Employment Service Office (PESO) in Iloilo and then started getting calls from a recruitment agency inviting them to apply as service attendants in Doha earning about QAR 1,100 (*P14,124) per month.

They were ecstatic when they passed the interview. It would be their first time to go abroad. Mark would be able to support his wife and 4 children. Ryan was single, but he wanted to take care of his mother in her old age.

For these workers, recruitment fees came out to P40,000. Their recruitment agencies, OTG International Placement Agency and iEXCEL Manpower Corporation, referred them to PJH Lending Corporation , which could offer them a loan quick and easy.

Timing was important because there were more than 100 of them set to leave for Qatar. If Ryan and Mark could not pay for the recruitment agency, they would be left behind.

Their loan was quickly approved and a loan agent took them to a bank where they opened a checking account. They were asked to issue 11 post-dated checks to PJH to pay for the loan. It was a tedious act but the loan agent was quick to help.

“The loan agent was nice. I just signed the checks. He said he would fill out the rest,” said Mark.

Both Ryan and Mark are unclear about what the checks were for, especially since they remit payments via cash to their families. Neither were they aware of how much interest they were charged.

After a few months on the job and being exposed to the cost of living in Qatar, it was clear that their monthly salary of about P14,000 was not going to be enough to pay off their loan obligations, send money back to their families, and still have enough to survive.

Noel Tolentino of labor rights group Migrante International said they are handling about 180 cases of Filipino workers from Iloilo and Butuan who were deployed by either iEXCEL Manpower Corporation or OTG International Placement Agency. Both recruitment agencies referred workers to PJH Lending Corporation (PJH) for a loan.

None of them could keep up with the payments.

Loan agencies have been badgering family members for payment; some being threatened with a court case. The workers do not know what to do.

Rappler made efforts to reach reached PJH representatives in Iloilo, Cebu, and Manila. In a phone conversation, Charles Panganiban, the company’s area sales manager in Manila, refuted claims that interest rates levied on their loans go as high as 104%, despite being told that interest computations were verified by 3 different loan institutions, including the BSP. Panganiban insisted that they only charge 8% per annum.

No formal response was received from PJH as of posting. Rappler also tried to reach out to iEXCEL and OTG in Iloilo. The recruitment agency iEXCEL had closed in Iloilo as of this writing, while OTG offices in Manila have not responded as of posting.

“Recruitment agencies have long been charging excessive placement fees. It means more profit for them. Though there is a law, the government doesn't have the teeth to prosecute the violators. The process is too long and requires personal appearance of the complainant,” said Tolentino.

Vulnerable

The Truth in Lending Act lists minimum information should be disclosed to borrowers. This includes total amount to be financed, finance charges (including incidental charges and fees), and effective interest rate.

Rappler secured copies of the Payment Guides issued by PJH and none of the minimum information is disclosed.

“These cases show that Filipino workers are vulnerable to different forms of abuses by the recruitment agencies, lending agencies, and even the government itself,” Tolentino added.

A labor official in Doha, who asked not to be named, said it is common for workers to find themselves in a debt trap.

“Before they even start working and earning money, they are already in so much debt. It is very stressful for the workers. It affects their work, their psyche – everything.”

The labor official confirmed receiving complaints from workers like Mark and Ryan who say their family members in the Philippines are being harassed by collection agents who threaten to charge them with estafa for issuing bouncing checks.

But unless illegal recruitment is established in the form of collusion between recruitment agencies and lending agencies in coercing workers to take out a loan, existing Philippine regulatory policies have no definitive ceiling on interest rates.

In addition to this, regulations do not clearly assign a particular government agency with oversight to prosecute unscrupulous lending agencies. For complainants, the only recourse is to file a case in court.

Loopholes in the law

In the Philippines, the Migrant Workers and Overseas Filipinos Act has safeguards to prevent workers from going into debt to pay off excessive recruitment fees. Recruitment agencies are prohibited from charging fees that go beyond the allowable one month’s salary and completely exempts seafarers and domestic workers from paying recruitment fees .

Additional provisions prohibit lending money to migrants at an interest rate beyond 8% annually, as well as using post-dated checks to make workers pay back these loans.

But recruitment agencies have circumvented these regulations by partnering with lending agencies, which under current laws, are largely unregulated.

“The modus operandi is that the recruitment agency requires you (to take out a loan) with the lending agency. The supporting documents will be the employment contract as proof that they will be deployed,” said lawyer Cora Toldañes of the Philippine Overseas Employment Agency (POEA) in Manila.

She added, “There is a connection between the lending and the (recruitment) agency because without the documents that will be provided by the recruitment agencies, (the) loan will not be approved.”

Testimonies from workers also state that an employee of the recruitment agency usually “escort” them to the lending agency and in the pretext of offering assistance, see them through the entire process.

However, despite these reports of coercion and duplicity by the lending agency, as a government agency, the POEA’s oversight is limited to recruitment agencies only. The POEA can go after lending agencies only if a worker files a complaint with the POEA and if there is cause to show that the recruitment agency was involved in illegal recruitment activities .

Even if a case is filed, Toldañes said it is often dropped in exchange for lending agencies writing off their loans – a more convenient and practical option for workers who are usually waiting to leave to work abroad again and who do not have the time to pursue a legal case.

By law, the regulation of lending agencies falls under the Securities and Exchange Commission’s (SEC) monitoring division of the corporate governance and finance department, but their oversight is limited to compliance with reportorial requirements.

“We have oversight because they (lending agencies) are registered here so we oversee the compliance with the reportorial requirements of the SEC but as to the business operations like that – harassment, how they conduct normal business operations, it’s the court that will say (what’s unlawful). They’ll stop illegal activity,” said lawyer Geraldine Pama of the SEC’s corporate governance and finance department.

'Definitely not the SEC'

And who is monitoring and regulating charging of usurious interest rates on loans?

“Definitely it’s not SEC,” said Leonora Tandoc, assistant director of the SEC’s monitoring division of the Corporate Governance and Finance Department.

“The SEC generally has no jurisdiction to limit the interest rates to a particular ceiling. Only the courts can say that the interest rates are unconscionable so practically the borrowers have to file a case in court to have the interest rates declared unconscionable or excessive,” said Pama.

In 1982, the BSP suspended usury laws, which determine interest rates. The rationale was that the fierce competition in a free market would drive down interest rates, thereby benefiting borrowers. However, the loans issued to OFWs interviewed for this story, and as verified by the complaints received by Migrante International, show that interest rates go over 100%.

The SEC has received complaints from workers about excessive interest rates but the most they can do is set a mediation between the lending agency and the worker. But even this is limited in scope.

“If possible, we can set a mediation but you have to understand that mediation should have the consent of both parties. So if one of the parties, and most of the time it's the company – the company refuses to have the mediation – so we cannot really compel the companies to undergo the mediation with the borrowers. That's why if worse comes to worst, we suggest the borrower file a case in court,” Pama explained.

According to Pama and Tandoc, the SEC has already elevated these concerns to the BSP and asked the monetary board for a review of interest rates.

In an email interview, the BSP confirmed that the usury law was suspended in 1982 and thus, “interest can now be charged as lender and borrower may agree upon.”

The BSP, when looking at the experiences of other countries, found that limits on interest rates “resulted in reduced access to credit, increased financial exclusion, and lesser lending transparency.” It also noted that in some jurisdictions where interest rates were capped, “creditors found ways to circumvent rules on interest rate ceilings by increasing loan fees and other non-interest charges.”

But in the absence of an expressed contract or stipulation of interest rate, based on BSP Circular No. 799 issued in 2013, the legal rate of interest is set at 6% annually. Like the SEC, the BSP also said that interest rates were a matter for courts to decide.

The BSP added that when interest rates are excessive and unreasonable, they are illegal and the court is allowed to temper rates when necessary. Neither is it impossible to do so.

Though done on a case to case basis, there have been instances where the Courts have managed to reduce the interest rates agreed upon by parties for being “iniquitous, unconscionable, and/or exorbitant.”

Unfortunately, for workers like Rodel, this does not mean that the higher interest rates would not be allowed by the courts in cases of dispute – it would just have to be justified by the lender. – with reports from Russel Patina/Rappler.com

*1 QAR = P14.13

READ: Part 2: The hanging fate of OFWs buried in debt

Reporting for this story was supported by a grant from the Pulitzer Center on Crisis Reporting.