Good intentions vs unintended outcomes

February 03, 2019

The road to perdition is indeed paved with good intentions.

Even for seemingly benign or even decidedly beneficent motives, well-meaning persons or entities must reckon with the unavoidable unintended consequences.

And these consequences often entail collateral damage or accidental victims.

Still, having tried to do something good is a whole lot better than sitting idly by and doing nothing.

The key is to minimize damage, losses, and waste.

Needless to say, this requires a tough balancing act.

In this particular case it is a precarious fiscal high-wire act.

When the Department of Education issued Order No. 5 defining the order of preference of the automatic deductions from the teachers’ payroll, PedXing never suspected that it was something other than for the teachers’ benefit.

Quite disturbingly, the supposed benefits of  DepEd Order No. 5, coupled with Section 48 of the General Appropriations Act of 2018, apparently were far outweighed by the cost to their intended beneficiaries.

The twin regulations set up a ranking 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 2018 GAA also provides that in no case shall the deductions diminish the employee’s monthly net take home pay to less than P5,000.

Quite curiously, this order of preference applies to both old and new debts, meaning retroactively, which effectively nullifies the earlier formula followed in collection—the First In, First Served System which in the past ensured that older obligations were satisfied ASAP.

And this is where the problem begins.

Fresh loans from creditors higher up in the rank of preference are settled first before old loans from thrift and rural banks, which are at the tail-end of the list, resulting in an increase in the risk of default and, as a result, constricts the amount of financial credit available to teachers.

Previously, when the FI-FS system was operational, there was an efficient mode of granting and paying loans, such that rural and thrift banks were guaranteed prompt payment and, consequently, DepEd employees were less prone to incur interest and other financial charges.

The application of the order of preference and the FI- FS system have always been treated as inferior 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 displaced and transferred to the Un-Deducted Obligations of the payslip while still retaining their order of priority.

Thus, when the next payslip comes, 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.

However, given the conditions set in the GAA 2018 and the DepEd Orders, at play is 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 credit system and the existing agreements between teachers and lending institutions are tampered with.

In particular, the DepEd Orders’ implementation of the order of preference would virtually render 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 unwarranted meddling heightened the risk of default and, as a result, stanched the amount of credit available to teachers. This is because PLIs must undergo more rigid applications and must adjust business models to comply with additional rules while keeping steady or cutting their exposure to risk.

More than this, due to the clear and considerable risk that they would not be paid at all for the loans that they grant, PLIs would no longer have the motive to lend to DepEd employees, to their injury and prejudice.

The implementation of the DepEd Orders and the effective gettisoning of PLIs, especially rural and thrift banks, from the APDS would cancel years of improvement in the industry in terms of access to credit. This fear is not without basis. DepEd employees would be denied at least P107 billion in capital currently available to them from rural and thrift banks.

Consequently, teachers would have less access to regulated credit and would have to resort to loan sharks and their leg breakers.

Indeed, the times do not demand that the patient be killed in order to cure his disease.  Given that there was a misreading of the cards, the situation can still be fixed, and the first step is to review the order of preference.

Behold God’s glory and seek His mercy.

Pause and pray, people.