Are Online Lending Apps Allowed to Contact and Harass Your References in the Philippines?

Introduction

In the rapidly evolving landscape of financial technology in the Philippines, online lending applications have become a popular source of quick credit for many Filipinos. These platforms, often operating through mobile apps, provide loans with minimal documentation and fast approval processes. However, concerns have arisen regarding their debt collection practices, particularly the contacting of personal references provided by borrowers during the application process. A common question is whether these lenders are legally permitted to reach out to references and, more critically, if they can engage in harassment to recover debts.

This article explores the legal boundaries surrounding these practices under Philippine law. It examines the relevant statutes, regulations, and jurisprudence to provide a comprehensive understanding of what online lending apps can and cannot do when interacting with borrowers' references. While contacting references may be allowable under certain conditions, harassment is strictly prohibited, and violations can lead to significant legal consequences for the lenders.

The Legal Framework Governing Online Lending and Debt Collection

Online lending in the Philippines is primarily regulated by the Securities and Exchange Commission (SEC) for non-bank financing and lending companies, pursuant to Republic Act No. 9474, also known as the Lending Company Regulation Act of 2007. The SEC requires these entities to register and comply with fair lending practices. Additionally, the Bangko Sentral ng Pilipinas (BSP) oversees banks and other financial institutions offering online loans under the Manual of Regulations for Banks and Non-Bank Financial Institutions.

Key laws and regulations that directly address debt collection and the handling of personal information include:

1. Data Privacy Act of 2012 (Republic Act No. 10173)

This law protects the privacy of personal data and establishes the National Privacy Commission (NPC) to enforce it. When borrowers apply for loans via online apps, they typically provide personal references (e.g., family members, friends, or colleagues) for verification purposes. Lenders must obtain explicit consent from the borrower to process and use this data, including contacting references.

• Consent Requirement: Consent must be informed, specific, and freely given. Borrowers are often required to agree to terms allowing the lender to contact references for credit assessment or debt recovery. However, this consent does not extend to third parties (the references themselves) without their own consent. References have the right to object to the processing of their data if it infringes on their privacy.

• Proportionality Principle: Data processing must be adequate, relevant, and not excessive. Contacting references is permissible for legitimate purposes like verifying the borrower's information or locating them in case of default, but it cannot devolve into repeated, intrusive, or public shaming tactics.

The NPC has issued advisories and decisions emphasizing that debt collection practices must respect data privacy. For instance, posting debt details on social media or repeatedly calling references at odd hours could violate this act, leading to complaints filed with the NPC.

2. SEC Memorandum Circular No. 18, Series of 2019: Prohibition on Unfair Debt Collection Practices

Issued by the SEC, this circular specifically targets lending and financing companies, including online platforms. It prohibits unfair, deceptive, and abusive debt collection methods to protect consumers.

• Allowed Practices: Lenders may contact references to inquire about the borrower's whereabouts or to remind them of the debt, provided it is done professionally and with the borrower's prior consent. This is seen as a standard practice in credit verification.

• Prohibited Practices: The circular explicitly bans harassment, which includes:

  • Use of threats, violence, or intimidation.
  • Obscene, profane, or abusive language.
  • Public shaming, such as disclosing debt information to unauthorized parties or posting on social media.
  • Repeated contacts that cause annoyance or distress, especially if the reference has requested to stop.
  • Contacting references at unreasonable times (e.g., before 8 AM or after 9 PM) or at their workplace in a manner that embarrasses them.

Online lending apps found violating this can face penalties such as fines, suspension, or revocation of their license.

3. Truth in Lending Act (Republic Act No. 3765)

This act requires lenders to disclose all terms and conditions of the loan, including collection practices, in a clear and understandable manner. Failure to do so can render the loan agreement voidable and expose the lender to civil liabilities. Borrowers must be informed if references will be contacted and under what circumstances.

4. Civil Code Provisions on Obligations and Contracts (Republic Act No. 386)

Under Articles 19, 20, and 21 of the Civil Code, every person must act with justice, give everyone their due, and observe honesty and good faith. Abusive collection practices can be considered acts contrary to morals, good customs, or public policy, allowing affected parties (borrowers or references) to seek damages.

Additionally, Article 26 protects the right to privacy, stating that meddling in private affairs without consent can lead to liability.

5. Other Relevant Laws

• Anti-Cybercrime Prevention Act of 2012 (Republic Act No. 10175): If harassment occurs online (e.g., via messaging apps or social media), it may constitute cyber libel or other offenses if it involves false accusations or threats.
• Consumer Act of the Philippines (Republic Act No. 7394): Prohibits deceptive trade practices, including aggressive collection tactics that mislead or harm consumers.
• Revised Penal Code: Extreme harassment could escalate to criminal offenses like grave threats (Article 282) or unjust vexation (Article 287).

Jurisprudence from the Supreme Court reinforces these protections. In cases involving debt collection, courts have ruled that while creditors have the right to collect, they must do so without infringing on personal rights. For example, in GSIS v. De Leon (G.R. No. 185555, 2011), the Court emphasized fair practices in debt recovery.

What Constitutes Contacting References Versus Harassment?

Distinguishing between permissible contact and harassment is crucial:

• Permissible Contact:

  • Initial verification during loan application to confirm the borrower's details.
  • Polite inquiries about the borrower's location in case of default.
  • Limited frequency (e.g., one or two calls) unless necessary.
  • Professional tone, without disclosing sensitive debt amounts unless authorized.

• Harassment Indicators:

  • Repeated calls or messages despite requests to stop.
  • Threatening language, such as implying legal action against the reference or harm to their reputation.
  • Contacting references' employers, family, or friends to pressure them indirectly.
  • Using automated systems for incessant robocalls or spam texts.
  • Public disclosure of the debt, such as tagging references in social media posts about the borrower's delinquency.

The NPC and SEC have handled numerous complaints where online lenders were sanctioned for such behaviors. For instance, some apps have been accused of "name-and-shame" tactics, where they threaten to inform references or post details online, which is illegal.

Rights of Borrowers and References

• Borrowers' Rights:

  • To be informed about how their data and references' information will be used.
  • To withdraw consent for data processing, though this may affect loan approval.
  • To file complaints if collection practices violate laws.

• References' Rights:

  • As third parties, they are not obligated to pay the debt and can demand that lenders cease contact.
  • Right to privacy and protection from unwarranted intrusion.
  • Ability to report violations independently, even if the borrower does not.

Both parties can exercise rights under the Data Privacy Act, including the right to access, correct, or erase their data held by the lender.

Remedies and Enforcement Mechanisms

If an online lending app engages in unauthorized contact or harassment:

1. File a Complaint with the NPC: For data privacy violations. The NPC can investigate and impose fines up to PHP 5 million or recommend criminal charges.

2. Report to the SEC: For registered lending companies. The SEC can conduct hearings and impose administrative sanctions.

3. Approach the BSP: If the lender is a bank or quasi-bank.

4. Civil Action: Sue for damages under the Civil Code for moral, exemplary, or actual damages caused by harassment.

5. Criminal Complaints: File with the Department of Justice or police for threats, libel, or unjust vexation.

6. Consumer Protection Agencies: The Department of Trade and Industry (DTI) can assist under the Consumer Act.

In recent years, the government has cracked down on unregistered or abusive online lenders, with the SEC revoking licenses of several platforms. Borrowers and references are encouraged to verify the lender's registration via the SEC website before applying.

Challenges and Emerging Issues

Despite robust regulations, enforcement remains challenging due to the digital nature of these apps, some of which operate offshore or through unregistered entities. The rise of "loan sharks" disguised as apps has prompted inter-agency task forces involving the SEC, NPC, and Philippine National Police to monitor and shut down illegal operations.

Moreover, the COVID-19 pandemic exacerbated debt issues, leading to increased complaints about aggressive collections. In response, temporary moratoriums on debt payments were implemented, but permanent reforms focus on enhancing transparency and consumer education.

Conclusion

In summary, online lending apps in the Philippines are allowed to contact borrowers' references for legitimate purposes like verification and debt recovery, provided they obtain consent and adhere to professional standards. However, harassment in any form is unequivocally prohibited under multiple laws, including the Data Privacy Act and SEC regulations. Borrowers and references are empowered with rights and remedies to combat abuses, ensuring that the convenience of online lending does not come at the cost of personal dignity and privacy.

To avoid issues, borrowers should carefully review loan terms, choose registered lenders, and promptly address defaults through negotiation rather than evasion. For references, asserting their rights early can prevent escalation. Ultimately, a balanced approach protects all parties while fostering a responsible fintech ecosystem in the Philippines.