60 % Monthly Interest Loans and Usury-Law Limits in the Philippines: A Comprehensive Legal Brief

1. Introduction

“60 % monthly”—the equivalent of 720 % a year—is an interest rate that shocks the conscience. Many informal lenders and some online lending apps nonetheless quote figures in this range. Borrowers often ask: Isn’t that illegal under the Usury Law? The answer requires tracing a century of legislation, monetary-board circulars, and Supreme Court doctrine.

2. The Usury Law Framework

Milestone	Key Provision	Practical Effect
Act No. 2655 (Usury Law, 1916)	Fixed ceilings (e.g., 12 % p.a. on simple loans; higher for secured/pawnshop deals); criminal penalties for violations.	For six decades, lenders had to stay within posted caps or risk prosecution.
Central Bank Act (RA 265, 1948 → re-codified in RA 7653, 1993)	Gave the Monetary Board power to revise ceilings “in order to promote economic development.”	Allowed dynamic adjustment as inflation rose in the 1970s.
PD 1684 & related decrees (mid-1970s to 1981)	Gradual increases in the statutory ceilings.	Tried to keep formal lending competitive with the pervasive “5-6” sector.
CB Circular 905 (10 Dec 1982)	“Suspended” all ceiling provisions of the Usury Law “until otherwise prescribed.”	From 1983 onward, no fixed statutory maximum—but see § 5 below.
BSP Circular 799 (21 Jun 2013; effective 1 Jul 2013)	Lowered the legal (court-imposed) interest on forbearance/judgments from 12 % to 6 % per annum.	Guides courts when they strike down unlawful or excessive rates.

Take-away: The Usury Law remains on the statute books, but its ceiling provisions are dormant; criminal penalties tied to exceeding a fixed rate have, for practical purposes, no bite after 1982.

3. Current Governing Principles

Freedom to Stipulate vs. Public-Policy Check. The suspension of ceilings means parties may agree on any rate. Yet the Civil Code (Arts. 19, 1359, 1409, 1229) arms the courts with equitable power to strike down “iniquitous or unconscionable” stipulations.
Interest Must Be in Writing. Under Civil Code Art. 1956, no interest can be demanded unless the agreement is expressly set forth in writing.
Legal vs. Conventional Interest. Legal interest (now 6 % p.a. per BSP Circular 799) applies when:
- no rate is stipulated;
- an agreed rate is voided for being unconscionable;
- judgments award damages or forbearance.
Sector-Specific Caps.
- Pawnshops. PD 114 lets the Monetary Board limit pawnshop charges (currently c. 4–5 % per month in practice).
- Microfinance & salary loans. BSP circulars often impose effective-interest disclosure rules; some government programs voluntarily cap at 2–3 % p.m.
- Lending/Financing Companies. RA 9474 and SEC Memorandum Circulars stress transparency but do not impose a hard cap; instead they reserve power to declare rates unfair.

4. Supreme Court Jurisprudence on Excessive Rates

Case	Stipulated Rate	Ruling
Medel v. CA (G.R. 131622, 27 Nov 1998)	5.5 % per month (66 % p.a.)	“Excessive and unconscionable”; reduced to 12 % p.a.
Castro v. Tan (G.R. 168940, 24 Feb 2009)	7 % p.m. (84 % p.a.)	Void; interest erased entirely—only principal recoverable.
Spouses Abalos v. PNB (G.R. 158989, 9 Feb 2005)	24 % p.a. (credit line)	Allowed: rate was “not shocking” given commercial-bank context.
Field Savings Bank v. Ysmael (G.R. 227655, 6 Sep 2017)	3 % p.m.	Trimmed to 12 % p.a.; court emphasized “double-digit per month” levels are generally oppressive.
Nacar v. Gallery Frames (G.R. 189871, 13 Aug 2013)	— (no rate stipulated)	Reset judicial interest to 6 % p.a. after 1 Jul 2013.

Rule of thumb: Anything above ±3 % per month will invite judicial scrutiny; 5 %–7 % p.m. (let alone 60 % p.m.) is almost always struck down as unconscionable.

5. Why 60 % p.m. Is “Usurious” in Practice

Public-policy ceiling via jurisprudence. Although Circular 905 eliminated statutory caps, courts have evolved a de facto ceiling: rates that shock conscience—far below 720 % p.a.—are void.
Reduction or nullity of interest clause. Once void, courts either:
- substitute the legal 6 % p.a. rate; or
- excise the clause entirely, leaving the lender with no interest recovery—only the principal (see Castro).
No criminal liability (post-1982). Borrower relief is civil, not penal: the debtor need not pay the forbidden interest and may seek damages for harassment.
Regulatory sanctions. SEC has shut down dozens of online lenders for advertising daily-rate loans that convert to >500 % p.a., citing unfair-trade provisions of the Consumer Act and RA 9474.

6. Remedies & Compliance Path

Borrower Options	Lender Obligations
Judicial Action. Sue to annul or reform the loan; plead unconscionability; invoke Medel, Nacar, Castro precedents.	Clear Disclosures. Truth in Lending Act (RA 3765) requires an effective interest rate (EIR) computation; failure nullifies the interest clause.
Regulatory Complaints. – BSP (for banks); – SEC (for lending/financing companies); – DTI (for pawnshops, marketplace platforms).	Registration & Licensing. Lending Companies must secure a CA certificate from SEC; online apps require additional approval.
Harassment cases. Report abusive collection to PNP Cybercrime or NBI; Data Privacy Act covers “doxxing” practices by rogue apps.	Fair-debt standards. Debt-collection rules (SEC MC 18-2019) forbid threats, obscene language, or unauthorized contact of third persons.

7. Special Sectors & “5-6” Lending

“5-6” (lend ₱5, repay ₱6 after 30 days) is roughly 20 % p.m.—already quadruple the conventional bank rate and regularly slashed by courts.
Pawnshops charge service fees plus nominal interest; the Monetary Board caps “advance interest” structures to keep EIR below ±4 % p.m.
Salary-deduction lenders often set 2 %–3 % p.m. on the face but load service charges that push EIR higher; transparency rules target this practice.

8. Comparative Snapshot

Product	Typical Nominal Rate	Court View
Credit-card balance	±2 % p.m. (24 % p.a.)	Generally acceptable
Microfinance group loan	2.5 % p.m. plus 1 % fee	Acceptable if fully disclosed
Pawnshop pledge	3 – 4 % p.m.	Acceptable; sector regulated
“5-6” traditional	20 % p.m.	Frequently reduced
60 % p.m. loan-shark / rogue app	60 % p.m. (720 % p.a.)	Void for unconscionability

9. Legislative & Policy Directions

Pending bills in both Houses (e.g., HB 3464, SB 1366) propose re-imposing statutory caps or setting algorithmic limits for digital lenders (often “EIR ≤ 36 % p.a.” mirroring some ASEAN peers). BSP and SEC favor a disclosure-plus-fair-dealing model rather than hard caps, but public-consultation drafts (2024–2025) suggest a compromise “anti-predatory lending” cap around 1 % per day inclusive of fees.

10. Practical Take-aways

For Borrowers	For Lenders	For Counsel
Never accept oral interest promises; insist on written terms and compute effective (not just nominal) rate.	Avoid “per-day” quotations that balloon past 3 % p.m.; courts will likely void them.	Draft a severability clause—but know courts may still erase the entire interest provision if rate is shocking.
Use amortization tables to see true cost; red-flag any loans >3 % p.m.	Register with SEC/BSP; adopt Truth-in-Lending EIR disclosures.	Prepare to defend risk-premium by evidence; burden shifts to lender once debtor pleads unconscionability.
If harassed by collectors, keep screenshots & file complaints; you may also get moral/ exemplary damages.	Train collectors on SEC MC 18-2019 to avoid shutdowns and criminal cases.	When interest is void, ask court to award 6 % p.a. legal interest from filing until payment (per Nacar).

11. Conclusion

While the statutory Usury Law ceilings have slept since 1982, the Philippine legal order has never tolerated 60 % monthly charges. Through the Civil Code’s equity clauses and a growing body of Supreme Court rulings, courts routinely strike down rates that “shock the conscience,” substituting either the 6 % legal interest or none at all. For now, the “cap” is jurisprudential rather than textual—but in practice it is every bit as effective against 60 % monthly loan-shark rates.