G.R. No. L-26971, April 11, 1972
The Central Bank of the Philippines, petitioner, vs. Hon. Judge Gaudencio Cloribel and Banco Filipino, Savings and Mortgage Bank, respondents.
FACTS
Banco Filipino, a savings and mortgage bank, commenced operations in July 1964. It initially paid interest on savings deposits at the maximum rates set by Central Bank Circular No. 149, compounded quarterly. Later in 1964, it altered its practice by compounding and paying interest on savings deposits monthly and by paying interest on time deposits in advance. The Central Bank subsequently issued Circular No. 185 (1964) and Circular No. 222 (1966), which not only set maximum annual interest rates for savings and time deposits, compounded quarterly, but also explicitly prohibited the payment of interest on time deposits in advance and barred banks from advertising effective rates resulting from compounding. The Central Bank, through Monetary Board Resolution No. 1566, directed Banco Filipino to comply strictly with these circulars.
Banco Filipino challenged these regulations, and the respondent judge issued a writ of preliminary injunction enjoining the Central Bank from enforcing the circulars and resolution insofar as they restricted the payment of monthly interest on savings deposits and advance interest on time deposits. The Central Bank filed this action for certiorari and prohibition, asserting its authority to issue such regulations.
ISSUE
Whether the Central Bank, under its statutory power to fix maximum interest rates, also possesses the ancillary authority to regulate the manner of paying interest, specifically to prohibit monthly compounding on savings deposits and advance interest payments on time deposits.
RULING
The dissenting opinion of Justice Teehankee argues that the Central Bank overstepped its authority. The power granted under Section 109 of the Central Bank Act is explicitly to “fix the maximum rates of interest which banks may pay on deposits.” This power is distinct and separate from the authority to regulate the manner of payment. The law does not grant the Monetary Board the power to prescribe how interest should be paid, only the maximum rate that can be paid. The challenged circulars, by dictating quarterly compounding and prohibiting advance payments, effectively impose a method of payment, which is beyond the statutory grant.
The dissent further contends that the Central Bank’s fear of evasion—that monthly payments or advance payments could effectively yield a higher return—is addressed by the Usury Law itself. The Usury Law already prohibits the payment of compound interest unless by agreement and forbids requiring interest to be paid in advance for more than one year. Therefore, the general laws sufficiently cover these concerns, and the Central Bank’s specific prohibitions constitute an unwarranted extension of its rate-fixing power into the realm of regulating payment terms, which is not supported by its charter. The injunction against the Central Bank’s enforcement was thus proper.