Below is a structured legal overview of the current framework.

I. Big Picture: Are Interest Rates Capped?

No general cap
- The old Usury Law (Act No. 2655) used to set maximum allowable interest rates.
- Through Central Bank (CB) Circular No. 905 (1982), all interest ceilings were effectively removed.
- As a result, for most private loans and bank lending, interest rates are determined by agreement of the parties, not by a statutory ceiling.
But there are still limits:
- Contractual limits: Civil Code provisions require interest to be in writing, and prohibit certain forms of compounding unless conditions are met.
- Judicial limits: The Supreme Court may strike down interest as “unconscionable, iniquitous or excessive” and reduce it to the “legal rate.”
- Regulatory limits: The Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC) impose specific caps and rules on certain products (e.g., credit cards, pawnshops, regulated lending companies).
- Consumer protection laws require transparent disclosure; opaque or abusive pricing schemes can be sanctioned even without a numeric cap.

So the more accurate statement is: The Usury Law ceilings are suspended; interest is generally market-driven but subject to judicial review, sector-specific caps, and consumer protection rules.

II. Historical Background: The Usury Law and Its Neutralization

A. The Usury Law (Act No. 2655)

Originally enacted in the American colonial period and later amended, the Usury Law:
- Set maximum interest rates on loans and forbearance of money.
- Authorized the Monetary Board of the Central Bank to fix and adjust interest ceilings.
- Imposed both civil and criminal liabilities for usury (charging more than the allowed maximum).

For many decades, this law provided a clear numerical answer to “How high can interest go?”

B. CB Circular No. 905 (1982): Lifting the Ceilings

In 1982, Central Bank Circular No. 905 declared:

All interest ceilings prescribed by the Usury Law and related regulations were lifted.
Parties were allowed to “agree freely” on interest rates.

Important nuance:

The Usury Law was never formally repealed by Congress.
However, because Circular 905 removed all interest ceilings and the Monetary Board never reinstated them, the law is considered “legally in force but practically inoperative” in terms of numerical caps.
Courts have consistently treated criminal usury provisions as unenforceable, because there are no longer maximum rates against which to measure “usury.”

III. Present Legal Framework: Core Civil Code Rules

Even without usury ceilings, the Civil Code places important constraints.

A. Interest Must Be Expressly Stipulated in Writing

Article 1956 (Civil Code):

No interest shall be due unless it has been expressly stipulated in writing.

Implications:

If a loan contract has no written interest clause, the creditor cannot charge contractual interest.
The creditor may still recover the principal, and may sometimes get legal interest as damages (see below), but not a freely chosen rate.

B. Legal Interest vs. Contractual Interest

Contractual interest
- Agreed upon by the parties (in writing).
- Generally not subject to a statutory maximum, but can be reviewed and struck down as unconscionable or contrary to public policy.
Legal interest (judicial interest)
- Applied by courts when no interest is stipulated, or as interest on amounts adjudged, or as substitute rate when contractual interest is void.
- The Supreme Court has issued landmark rulings (e.g., Eastern Shipping Lines; Nacar v. Gallery Frames) clarifying how legal interest applies:
  - Currently, the prevailing legal rate is 6% per annum (simple interest), both for:
    - Loans/forbearance of money, and
    - Other monetary obligations,
  - with specific rules on when it starts to run (e.g., from demand, filing of complaint, or finality of judgment).

Key distinction: The legal rate is not a ceiling on contractual interest; it is what courts use as a default or substitute rate.

C. Rules on Interest on Interest (Compounding / Anatocism)

Article 1959: Interest due and unpaid shall not earn interest unless:
- Expressly agreed in writing, and
- Only after the interest has become due.
Article 2212: Interest due earns legal interest from the time it is judicially demanded.

Thus, automatic compounding or “interest on interest” clauses may be invalid if they:

Are not clearly expressed in writing, or
Operate in a way that ignores these safeguards.

IV. BSP’s Role After the Usury Law Ceilings Were Lifted

A. BSP’s Charter

The BSP (under RA 7653 as amended by RA 11211) has power to:

Regulate interest rates, including:
- Authorizing maximum interest rates for certain types of loans or certain institutions when warranted by economic conditions.
- Issuing circulars that set caps or rules for specific credit products.

In practice, BSP policy has favored market-determined rates with targeted intervention, rather than broad usury ceilings.

B. General Banking and Credit Market

For most bank loans and credit facilities, there is no general statutory cap.
BSP imposes:
- Disclosure requirements (e.g., loan documents showing the interest rate, manner of computation, fees, and effective cost of credit).
- Prudential regulations (capital adequacy, risk management, etc.).
- Conduct rules for BSP-supervised financial institutions (BSFIs), including fair treatment of customers.

V. Sector-Specific Caps and Regulatory Limits

Although there is no universal usury cap, certain products are subject to specific limits set by BSP or other regulators.

A. Credit Card Finance Charges

BSP has issued Monetary Board resolutions and circulars prescribing:
- A maximum finance charge (interest rate) on credit card receivables (expressed per month, with an annual equivalent).
- A cap on late payment fees.
These caps are periodically reviewed and may be adjusted in light of economic conditions (e.g., inflation, policy rate changes).

Key points:

Card issuers cannot exceed the prescribed maximum on:
- Finance charges (e.g., revolving interest), and
- Certain fees (e.g., late charges).
They must clearly disclose:
- The nominal interest rate,
- The manner of computation,
- All fees and charges (membership, cash advance, installment-related fees, etc.).

B. Pawnshops

Pawnshops are regulated under:

The Pawnshop Regulation Act (PD 114) and
BSP pawnshop regulations and circulars.

Typical regulatory features:

Maximum allowable monthly interest rates on pawn loans.
Limits on additional charges, such as:
- Service charges,
- Documentary or storage fees, etc.
Standardized pawn tickets with:
- Clear disclosure of nominal rate,
- Maturity dates,
- Redemption and renewal conditions.

Any interest or fees beyond what BSP regulations permit may be considered illegal or void, and the pawnshop may be subject to sanctions.

C. Lending and Financing Companies; Online Lenders (SEC-Regulated)

Lending and financing companies are primarily regulated by the SEC under:

RA 9474 – Lending Company Regulation Act
RA 8556 – Financing Company Act
Implementing rules and numerous SEC Memorandum Circulars, including those on online lending and abusive collection practices.

Features of this regime:

No fixed general statutory interest cap applicable to all lenders.
However:
- SEC may impose rules on fees and charges.
- Companies must disclose interest and other charges clearly in their contracts and, for online lenders, in their apps/websites.
- Abusive practices (e.g., “name-and-shame,” harassment, unauthorized access to contacts) are prohibited and penalized.
- Excessive and unconscionable rates may be struck down in court, and the lender may face administrative sanctions.

D. Microfinance, Salary Loans, and Government Credit Programs

Various public and quasi-public institutions—such as SSS, GSIS, Pag-IBIG, government banks, and microfinance programs—often adopt internal caps on interest:

Example: salary loans, housing loans, small-business microfinance schemes.
These caps are policy-based (not “usury law” caps) and apply only within the specific program.

They often feature:

Below-market interest rates,
Limited or regulated penalties and fees,
Built-in insurance premiums, service charges, or guarantee fees, transparently disclosed.

VI. Judicial Control: Unconscionable Interest in Supreme Court Jurisprudence

Even without numerical ceilings, the Supreme Court has repeatedly intervened when interest is too high.

A. The Doctrine of Unconscionable Interest

The Court has declared that:

Interest rates that are “excessive, iniquitous, unconscionable and exorbitant” are contrary to morals and public policy and therefore void.
When this happens:
- The stipulation on interest is annulled, and
- The court may substitute the legal interest rate (currently 6% p.a.), often from the time of default or demand.

Examples from case law (illustrative patterns):

Interest rates like 5% per month (60% per year) plus additional penalties per month have been struck down.
Rates of 6% to 7% per month have often been reduced.
Even 3% per month has sometimes been held unconscionable depending on the context (e.g., borrower’s vulnerability, short-term loan, additional penalties and charges).

The Court does not define a precise numerical cutoff; it uses:

The totality of circumstances:
- Relationship of the parties,
- Purpose of the loan,
- Borrower’s bargaining power,
- Whether there are stacked fees and penalty charges on top of the nominal rate,
- Prevailing market rates at the time.

B. Penalty Charges and Article 1229

Article 1229 (Civil Code) allows courts to reduce penalty clauses if they are “iniquitous or unconscionable.”
Thus, even if the base interest rate is moderate, overly harsh penalty interest (e.g., high default interest, penalty fees) can be reduced.

C. Default Interest and Compounded Burdens

Courts scrutinize arrangements where:

A loan carries:
- High regular interest,
- High default interest, and
- Additional penalty or collection charges.
The combined effect may be deemed oppressive, leading the court to:
- Void the excessive parts, and
- Replace them with the legal rate.

D. Practical Takeaway from Jurisprudence

There is no fixed statutory “maximum percentage”, but:
- The higher the rate (especially above “normal” market benchmarks),
- The more likely courts will:
  - Treat it as unconscionable if challenged, and
  - Reduce it to the legal rate (6% per annum) or another reasonable rate.

VII. Consumer Protection and Disclosure

A. Truth in Lending Act (RA 3765)

This law requires that:

Lenders must disclose the true cost of borrowing, including:
- Nominal interest rate,
- Finance charges,
- Other fees and charges.
The aim is to enable borrowers to compare credit terms and make informed decisions.

Non-compliance can lead to:

Civil liability,
Administrative penalties,
Potential use of non-disclosure as a defense or mitigating factor in litigation.

B. Consumer Act and Related Regulations

Under the Consumer Act (RA 7394) and related regulations:

Unfair or deceptive acts or practices are prohibited.
Misrepresentation of interest rates (e.g., hiding charges that significantly increase effective interest) can be sanctioned.

C. Abusive Collection Practices

Regulators (BSP, SEC, and sometimes the National Privacy Commission) target:

Harassment and threats,
Public shaming or improper disclosure of debt to third parties,
Unauthorized use of personal data (e.g., scraping contacts from a debtor’s phone).

While these rules do not directly cap interest, they significantly shape:

What lenders can practically demand and how, and
The regulatory risk of aggressive pricing and collection strategies.

VIII. Criminal Liability and the “5–6” Issue

With interest ceilings lifted, classic “criminal usury” is largely a dead letter, because:

There is no benchmark interest rate to define “usurious” under the old Usury Law.

However, so-called “5–6” lenders (informal moneylenders) may still face liability for:

Operating as a lending company without registration (under RA 9474),
Violations of local ordinances (e.g., business permit requirements),
Tax evasion,
Estafa, threats, or other crimes depending on their collection methods.

Thus, the lack of usury ceilings does not mean informal lenders are above the law; it simply means high interest alone is no longer automatically a criminal offense under the Usury Law.

IX. Practical Implications

A. For Borrowers

Read the fine print carefully.
- Check:
  - Nominal interest rate,
  - Frequency of compounding,
  - Default interest,
  - Penalties, fees, and “service charges.”
Compute the effective annual rate.
- Monthly rates and multiple fees can mask a very high annual cost.
Know that unconscionable interest can be challenged.
- Courts have repeatedly reduced excessive rates.
- You may raise:
  - Lack of written stipulation (for contractual interest),
  - Unconscionability under Civil Code principles,
  - Violations of Truth in Lending and consumer laws.
Regulatory recourse.
- Complaints may be lodged with:
  - BSP – for banks, pawnshops, and other BSP-supervised institutions;
  - SEC – for lending and financing companies, especially online apps;
  - DTI – for consumer protection issues;
  - National Privacy Commission – for misuse of personal data.

B. For Lenders and Credit Providers

Ensure written, clear stipulation of interest.
- Ambiguities are construed against the lender.
Keep rates within reasonable bounds.
- Even if market-driven, consider:
  - Prevailing market rates,
  - Jurisprudence on unconscionability,
  - Sector-specific caps and guidelines.
Be careful with compounding and penalties.
- Respect Civil Code limits on interest-on-interest.
- Avoid stacking penalties that make the effective rate oppressive.
Comply with disclosure laws and regulatory circulars.
- Violations can lead not only to administrative sanctions but also weaken the lender’s position in court if disputes arise.

X. Common Misconceptions

“The Usury Law was repealed, so any rate is valid.”
- The Usury Law was not formally repealed, but its rate ceilings were suspended.
- Courts still police interest rates under general civil law principles and can void unconscionable rates.
“If I signed, I’m stuck with the interest rate, no matter how high.”
- Not always. Courts can strike down excessive, iniquitous, or unconscionable interest even if freely signed.
“The legal rate (e.g., 6% per year) is the maximum interest allowed.”
- No. The legal rate is mainly:
  - A default rate when no contractual interest is valid/stipulated, or
  - A judicial interest rate.
- Parties can agree to higher rates, subject to judicial review.
“High interest is automatically a crime.”
- With ceilings lifted, high interest alone does not constitute criminal usury, but other laws (registration, tax, harassment, estafa, etc.) may still apply.

XI. Conclusion

In the Philippines today:

There is no single, universal cap on interest rates in the way the old Usury Law used to provide.
Interest is generally market-determined, but:
- Must be clearly stipulated in writing,
- Remains subject to court review and possible reduction if unconscionable,
- Is regulated and sometimes capped for specific sectors (credit cards, pawnshops, certain regulated lenders),
- Must comply with disclosure and consumer protection laws.

For both borrowers and lenders, the real issue is no longer simply “What’s the maximum legal rate?” but rather:

Is the interest properly disclosed and agreed in writing?
Is it reasonable and consistent with jurisprudence and regulations?
Are the lender’s practices compliant with BSP/SEC/consumer rules?

Because regulations and jurisprudence continue to evolve, anyone dealing with significant or disputed interest obligations should consider consulting a Philippine lawyer or directly checking the latest BSP and SEC circulars, as well as the most recent Supreme Court decisions.