By a Legal Practitioner Specializing in Philippine Financial Regulation
(This article is for general information only and does not constitute legal advice. Consult a licensed attorney for case-specific guidance.)

I. Introduction

In the Philippines, the lending industry has grown exponentially with the rise of digital finance, but so have predatory and unlicensed operators. The Securities and Exchange Commission (SEC) serves as the primary regulator of lending companies under Republic Act No. 9474 (Lending Company Regulation Act) and its Implementing Rules and Regulations (IRR). A common question among borrowers, investors, and even lenders is: What happens when the SEC revokes a lending company’s Certificate of Authority (CA)? Can it still legally operate? The short answer is no, but the practical reality is more complex due to underground operations, name changes, and regulatory gaps.

This comprehensive article examines the legal framework, consequences of revocation, indicators of illegal lending, borrower rights, and step-by-step reporting mechanisms under Philippine law.

II. Legal Framework Governing Lending Companies

A. SEC’s Regulatory Authority

R.A. 9474 (2007) and its IRR mandate that all corporations, partnerships, or associations engaged primarily in lending money must secure a Certificate of Authority (CA) from the SEC.
Exemptions: Banks, quasi-banks, pawnshops (regulated by BSP), cooperatives (CDA), and financing companies under R.A. 8556 are not under SEC jurisdiction.
Minimum Capital: P1,000,000 for Metro Manila-based entities; lower for provincial ones.

B. Grounds for Revocation of CA

Under SEC Memorandum Circular No. 18, Series of 2019, the SEC may revoke a CA for:

Fraudulent practices (e.g., falsified documents, Ponzi-like schemes).
Excessive interest rates beyond SEC ceilings (see Section IV).
Failure to submit reports (e.g., audited financial statements, GIS).
Engaging in unauthorized activities (e.g., deposit-taking, which is banking).
Insolvency or inability to pay creditors.
Operating without renewed CA (valid for 3 years).

SEC vs. BSP Jurisdiction: The Supreme Court in SEC v. Prosperity.Com, Inc. (G.R. No. 209938, 2016) clarified that lending companies taking deposits fall under BSP, not SEC. Misclassification often leads to revocation.

III. Can a Revoked Lender Continue Operating?

A. Legal Answer: Absolutely Not

R.A. 9474, Sec. 11: Operating without a valid CA is punishable by a fine of P10,000–P500,000 and/or imprisonment of 1–5 years.
SEC Cease and Desist Order (CDO): Issued simultaneously with revocation, prohibiting all lending activities, including collection of existing loans.
Corporate dissolution: The SEC may petition the RTC to dissolve the company under PD 902-A (now under the Financial Rehabilitation and Insolvency Act).

B. Practical Realities: Underground Operations

Despite revocation:

Name changes: Revoked entities re-register under new names (e.g., “XYZ Lending” → “ABC Finance”).
App-based lending: Mobile apps bypass physical offices; servers hosted abroad.
Collection via third parties: Harassment continues through unregulated collectors.
Loan flipping: Existing loans are “sold” to new unlicensed entities.

Case Study: The 2021 “5-6” Digital Lenders Crackdown
The SEC revoked over 300 online lending apps (e.g., “CashJeep,” “PesoBuffet”) for usury and harassment. Many resurfaced under new app names within weeks.

IV. Interest Rate Ceilings and Usury

A. SEC-Approved Rates

Maximum effective rate: 1.5%–2.5% per month (18%–30% per annum), depending on loan size and collateral.
Penalty charges: Capped at 5% per month on unpaid principal.

B. Usurious Rates = Illegal

Rates above SEC ceilings render the entire interest clause void (Civil Code, Art. 1957).
Borrowers may demand refund of excess interest via small claims or RTC.

Landmark Case: Medina v. People (G.R. No. 231915, 2018)
The Supreme Court ruled that online lenders charging 10% per day are engaged in criminal usury under Act No. 2655 (Usury Law, as amended).

V. Red Flags of Illegal Lenders

Indicator	Legal Implication
No SEC CA displayed	Violation of R.A. 9474
Interest > 30% p.a.	Usury (Act 2655)
Harassment/shaming	R.A. 10175 (Cybercrime) + R.A. 3765 (Truth in Lending)
No physical office/address	Hard to serve legal notices
“5-6” scheme (borrow P5, pay P6 in 20 days)	~180% p.a. = usury

VI. Borrower Rights Upon Revocation

Suspension of payments: CDO halts collection; borrowers may withhold until new creditor is verified.
Refund of excess interest: File at SEC or small claims court.
Data privacy: Demand deletion of personal data under R.A. 10173.
Criminal complaint: File for estafa, unjust vexation, or grave coercion if harassed.

VII. How to Report Illegal Lenders: Step-by-Step

Step 1: Verify SEC Status

Visit sec.gov.ph → Enforcement and Investor Protection Department (EIPD) → List of Revoked CAs.
Search company name or SEC Registration No.

Step 2: Gather Evidence

Loan agreement
Payment receipts
Screenshots of harassment (texts, FB posts)
App screenshots (interest computation)

Step 3: File Complaint

Agency	How to File	What They Can Do
SEC-EIPD	Online: sec.gov.ph/complaint Walk-in: SEC Bldg, Pasay City	Issue CDO, revoke CA, file criminal case
BSP Financial Consumer Protection	bsp.gov.ph → Consumer Assistance	If lender takes deposits
PNP Anti-Cybercrime Group (ACG)	acg.pnp.gov.ph → Report Cybercrime	For online harassment
NBI Cybercrime Division	nbi.gov.ph → File online	For large-scale operations
DOJ Prosecutors	File at city/provincial prosecutor	Criminal charges (estafa, usury)

Template Complaint Letter to SEC

[Date]
Enforcement and Investor Protection Department
Securities and Exchange Commission
Subject: Complaint vs. [Lender Name], SEC Reg. No. [if known]

Dear Sir/Madam,

I am [Name], a borrower of [Lender]. They charged [X]% interest and harassed me via [describe]. Attached are [list evidence].

Request: Issue CDO and investigate.

Respectfully,
[Signature]

Step 4: Follow Up

SEC assigns a docket number within 3 days.
Attend clarificatory conferences if summoned.
File Motion to Resolve if no action in 30 days.

VIII. Penalties for Illegal Lending

Violation	Penalty
Operating without CA	P10,000–P500,000 + 1–5 years jail
Usury	2–10 years imprisonment
Harassment (R.A. 10175)	6–12 years + P500,000–P1M fine
Unfair collection (R.A. 3765)	Civil damages + administrative sanctions

IX. Preventive Measures for Borrowers

Check SEC website before borrowing.
Demand Truth in Lending Disclosure (R.A. 3765).
Avoid “no ID, no problem” lenders.
Use SEC-accredited apps only (list updated monthly).

X. Conclusion

A lending company with a revoked SEC license has no legal authority to operate. Any continued lending, collection, or harassment is criminal. Borrowers must verify, document, and report promptly to the SEC, PNP, or NBI. While regulatory gaps allow some entities to resurface, collective reporting and class actions have led to mass revocations (e.g., 2021–2023 digital lending purge).

Final Reminder: The law protects diligent borrowers. Do not pay revoked lenders. File complaints immediately to stop the cycle of illegal lending.

References (Philippine Laws & Jurisprudence)

R.A. 9474 & IRR
SEC MC No. 18, s. 2019
Civil Code, Arts. 1957, 1170
SEC v. Prosperity.Com (G.R. No. 209938)
Medina v. People (G.R. No. 231915)

For updates, visit sec.gov.ph or consult a lawyer.