In the Philippines, credit card debt collection is a common concern for consumers facing financial difficulties. A frequent question arises: Are collection agencies allowed to add their own fees to the outstanding credit card balance? This article comprehensively explains the legality of such fees under Philippine law, drawing from the Civil Code, the Bangko Sentral ng Pilipinas (BSP) regulations, Republic Act No. 3765 (Truth in Lending Act), Republic Act No. 7394 (Consumer Act of the Philippines), and relevant jurisprudence. It covers the contractual basis, statutory limits, prohibited practices, and remedies for consumers.

1. The Nature of Credit Card Debt and Collection

Credit card agreements in the Philippines are governed by a contract of adhesion between the cardholder and the issuing bank (a universal or commercial bank regulated by the BSP). The cardholder agrees to pay the principal debt (purchases, cash advances) plus interest, penalty charges, and other fees stipulated in the Terms and Conditions.

Upon default (typically after 90–180 days of non-payment), the bank may:

Accelerate the entire balance;
Engage an in-house collection department; or
Outsource to a third-party collection agency (CA).

The CA acts as the bank’s agent. Any fee the CA charges is not a separate debt but an addition to the cardholder’s obligation—if the contract and law permit it.

2. Contractual Basis for Collection Fees

Philippine law upholds freedom of contract (Article 1306, Civil Code), but with limitations for public policy and adhesion contracts.

A. Express Stipulation Required

The credit card Terms and Conditions must explicitly state that collection costs (including third-party agency fees) may be charged to the cardholder. Sample clauses often read:

“In case of default, the Cardholder shall be liable for all costs of collection, including attorney’s fees equivalent to 25% of the amount due, and actual collection agency fees.”

Without this clause, the bank cannot unilaterally impose CA fees (Article 1159, Civil Code: obligations arise from law, contracts, quasi-delicts, etc.).

B. Reasonableness and Conscionability

Even if stipulated, fees must be reasonable and not unconscionable (Article 1308, Civil Code; Article 81, Consumer Act). BSP Circular No. 1098 (2019) caps penalty charges at 3% per month on the unpaid amount, but collection fees are treated separately.

Courts have struck down excessive collection fees:

25% attorney’s fees on a P10,000 debt = P2,500 → often upheld if stipulated.
50% collection agency fee → may be reduced for unconscionability (see Medina v. CA, G.R. No. 110323, 1996, reducing attorney’s fees from 25% to 10%).

3. BSP Regulations on Collection Practices

The BSP, as regulator of banks, issued Circular No. 454 (2014) and Circular No. 1133 (2022) on unfair collection practices.

A. Prohibited Acts (Section 3, Circular 454)

Collection agencies cannot:

Use threats of violence, obscenity, or public shaming;
Contact cardholders at unreasonable hours (before 6 AM or after 10 PM);
Disclose debt to third parties without consent (violates Data Privacy Act, RA 10173);
Add fees not stipulated in the contract.

B. Disclosure Requirements (Truth in Lending Act, RA 3765)

Banks must disclose in writing:

Finance charges;
Penalty rates;
Other charges, including potential collection costs.

Failure to disclose renders the additional charge unenforceable (Section 4, RA 3765).

4. Are Collection Agency Fees Themselves “Interest”?

No. The Usury Law (as amended by CB Circular 905-82) removed interest rate ceilings, but collection fees are not interest—they are accessory obligations for enforcement of the principal debt.

However, if the CA fee is disguised as additional interest, it may violate:

BSP Circular 799 (2013): effective interest rate computation must include all fees.
Article 1957, Civil Code: stipulations on interest must be in writing.

5. How Collection Fees Are Computed

Component	Legal Basis	Typical Rate
Attorney’s Fees	Contract + Article 2208, Civil Code	10%–25% of total amount due
Collection Agency Fee	Contract	15%–35% of amount collected (industry standard, but must be stipulated)
Notarial Fees	Contract	Actual cost
Sheriff’s Fees (if judicial)	Rules of Court	Per Rules

The total collection cost is usually capped at 35% of the amount collected by industry practice, but no statutory cap exists—only the reasonableness test.

6. Judicial vs. Extrajudicial Collection

A. Extrajudicial (Agency Collection)

No court intervention.
CA fees are contractual.
Cardholder can demand itemization (Consumer Act, Article 50).

B. Judicial (Filing of Collection Case)

Attorney’s fees must be proven (Rule 141, Rules of Court).
10% is presumptively reasonable if stipulated; higher requires evidence.
CA fees not recoverable unless the agency is a co-plaintiff (rare).

7. Common Illegal Practices by Collection Agencies

Despite regulations, abuses occur:

Practice	Violation
Adding 20% CA fee without contractual basis	Article 1159, Civil Code
Charging P5,000 “processing fee” per call	Unconscionable (Article 81, Consumer Act)
Threatening imprisonment for debt	Article III, Section 20, 1987 Constitution (no imprisonment for debt)
Reporting to CIC without due process	RA 9510 (Credit Information Corporation Act)

8. Consumer Remedies

A. Demand Letter for Itemization

Under Article 50, Consumer Act, request within 10 days a breakdown of charges.

B. File Complaint with BSP

BSP Consumer Protection Department (consumer@bsp.gov.ph).
Penalty: P500,000–P1,000,000 per violation (BSP Circular 1133).

C. Small Claims or Regular Court

Small Claims (up to P1,000,000): no lawyer needed.
Seek declaration of nullity of excessive fees + moral damages.

D. Data Privacy Complaint (NPC)

If debt details were disclosed to unauthorized persons.

9. Landmark Cases

Case	Ruling
Sps. Florendo v. Metrobank (G.R. No. 193685, 2015)	Collection fees must be expressly stipulated; otherwise, bank bears the cost.
BPI v. Sps. Cruz (G.R. No. 206705, 2016)	25% attorney’s fees upheld only if reasonable and stipulated.
Castelo v. CA (G.R. No. 96372, 1994)	Penalty interest and collection fees cannot both be exorbitant—total must be conscionable.

10. Practical Checklist for Cardholders

Review Terms and Conditions upon card activation.
Never sign blank acknowledgment of debt with added fees.
Request itemization in writing before paying any collection fee.
Negotiate waiver of CA fees during settlement—banks often agree to 50–70% reduction.
Keep records of payments and communications.

11. Conclusion

Collection agency fees on credit card debts are legal in the Philippines—if:

Expressly stipulated in the credit card agreement;
Reasonable and conscionable;
Properly disclosed under the Truth in Lending Act; and
Collected without unfair practices (BSP Circular 454).

Absent any of these, the fee is unenforceable, and the consumer may seek redress from the BSP, courts, or the National Privacy Commission. Cardholders are advised to read contracts carefully, demand transparency, and assert rights under the Consumer Act and Civil Code.

Note: This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for case-specific guidance.