Challenging Usurious Interest Rates in Lending Apps (Philippine Context)

Last updated: October 2025 (general legal knowledge; no web sources used). This is practical guidance, not legal advice. Consider consulting counsel for your specific facts.

1) Why this matters

Mobile “lending apps” (OLAs) exploded during the pandemic era, offering instant, small-ticket credit—but often at eye-watering rates and with abusive collection. Even though statutory usury ceilings were suspended in the 1980s, Philippine courts and regulators still police unconscionable interest, hidden charges, and harassment. Borrowers have real tools to fight back.

2) Core legal framework

A. Statutes & regulations you will actually use

Civil Code
- Art. 1956: No interest is due unless expressly stipulated in writing.
- Art. 1306: Parties may stipulate terms—but not if contrary to law, morals, good customs, public order or public policy.
- Arts. 19–21: Liability for abuse of rights / acts contrary to morals, good customs, or public policy.
- Arts. 1229, 2227: Courts may reduce iniquitous or unconscionable penalties and liquidated damages.
Act No. 2655 (Usury Law) as modified: monetary ceilings suspended by Central Bank Circular No. 905 (1982). There is no fixed cap, but courts may strike down unconscionable rates.
Truth in Lending Act (R.A. 3765): Requires clear disclosure of the finance charge and effective interest rate (EIR).
Lending Company Regulation Act (R.A. 9474) & Financing Company Act (R.A. 8556): Registration, compliance, corporate governance for lending/financing companies (L/FCs). Online lenders typically fall here and are overseen by the SEC (if they are not banks/EMIs).
Data Privacy Act (R.A. 10173): Limits collection/processing of personal data; “contact scraping” and public shaming can trigger liability.
Financial Consumer Protection Act (R.A. 11765, 2022): Empowers BSP/SEC/IC/CDA to police unfair, deceptive, abusive acts or practices (UDAAP); creates formal complaint and redress mechanisms; allows administrative sanctions and restitution.
Special rules on collections: The SEC prohibits unfair collection practices by L/FCs (e.g., threats, doxxing, public shaming, contacting relatives/employers without basis).
Judicial interest rules (jurisprudence + BSP circulars): Legal interest is 6% per annum (simple) for loans/forbearance and judgments (post-2013). Courts use this to recompute obligations when they void or moderate a contract rate.
Credit reporting (R.A. 9510, CIC law): You can dispute inaccurate data in the national credit registry.

Banks and credit card issuers are under the BSP; lending apps run by non-banks are under the SEC. Both still owe duties under the FCPA and TILA; the NPC enforces data privacy.

3) “Usury is dead”—but not quite: how courts attack abusive rates

Although ceilings are suspended, the Supreme Court has repeatedly voided or reduced exorbitant rates as “iniquitous,” “unconscionable,” or “shocking to conscience.” Benchmarks that have drawn judicial fire include 5–7% per month and higher, compounding, and stacked charges (processing, service, collection) masquerading as non-interest.

What courts typically do:

Strike or reduce the contractual interest to a reasonable level (often to zero or to 6% p.a. legal interest, depending on equities).
Reduce penalty charges under Arts. 1229/2227 (e.g., 10–36% p.a. penalties commonly pared down).
Disallow hidden or duplicative fees (Truth in Lending).
Recompute the balance and order refunds of overpayments; sometimes moral/exemplary damages and attorney’s fees for bad faith/abuse of rights.

Key doctrinal handles you’ll plead:

Unconscionability (substantive + procedural: oppressive rates, take-it-or-leave-it app clickwrap, information asymmetry).
Lack of written stipulation (Art. 1956) or ambiguous rate disclosure (R.A. 3765).
Penalty reduction (Arts. 1229, 2227); abuse of rights (Arts. 19–21).
Public policy against shaming and coercive collection.

4) What counts as “usurious” or “unconscionable” in lending apps?

Red flags courts and regulators dislike

Monthly rates above typical market ranges (e.g., ≥ 5% per month), especially with compounding and separate “service/processing/transfer” fees deducted upfront, which inflate the effective interest rate.
Short tenors (7–30 days) paired with “renewals” that roll fees again (debt treadmill).
Opaque pricing (no EIR/APR, tiny-font disclosures, moving due dates).
Excessive penalties (e.g., 1–3% per day late fee, plus collection fees).
Auto-debit traps and unilateral changes to terms within the app.
Debt shaming: messages to contact lists, employer, group chats; posting photos. This can trigger SEC/NPC and civil/criminal exposure (e.g., unjust vexation, grave threats, libel, cybercrime, identity/data privacy breaches).

5) Challenging the loan: playbook

Step 1 — Evidence kit

Collect:

App screenshots (onboarding, rate table, repayment screen, reminders).
Loan agreement / terms (PDF/email/in-app).
Receipts/GCash/bank statements (show net proceeds vs. charges; dates).
Communications (texts, in-app chat, emails, voicemail) showing threats/shaming.
Proof of harm (lost wages, anxiety treatment, disciplinary memos if employer was contacted).
Credit report (CIC) if reporting errors occurred.

Step 2 — Compute the real cost

Derive net proceeds (cash received after deductions).
Calculate effective interest = (Total charges ÷ net proceeds) annualized.
Separate interest vs. penalty vs. fees; many “fees” are functionally interest under TILA.
Identify compounding (interest on interest) and rolling renewals.

Step 3 — Demand & regulatory complaints (often free and fast)

SEC (for lending/financing companies): unfair collection, hidden charges, non-registration, misrepresentations.
NPC: privacy violations (contact scraping, shaming, over-collection of data, lack of consent, failure to implement security measures).
BSP (if it’s a bank/EMI) or DTI (if it’s a marketplace issue ancillary to a sale).
CIC: dispute inaccurate reporting.
NBI/PNP for threats, extortion, or identity-related crimes.

A lawyer’s demand letter can (a) put them on notice, (b) toll prescription for certain claims, and (c) set up bad-faith damages.

Step 4 — Court options

Small Claims (no lawyers required): money claims up to ₱1,000,000; use to recover overpayments or stop collection of void charges via set-off theory. (No injunctions here.)
Regular civil action (RTC): for declaration of nullity or reformation, injunction/TRO against harassment or illegal auto-debits, damages, attorney’s fees.
Ask the court to:
- Nullify/Reduce interest and penalties as unconscionable;
- Apply 6% p.a. legal interest on the recomputed principal (if warranted);
- Order restitution of overpayments;
- Award moral/exemplary damages for abuse of rights/harassment;
- Expunge inaccurate credit reporting and order data deletion/correction.

6) Litigation angles that work

Procedural unconscionability: Click-wrap adhesion; borrower lacked bargaining power; buried terms; no meaningful disclosure of EIR/APR.
Substantive unconscionability: Rates/penalties grossly disproportionate; compounding; fees that eviscerate net proceeds; “renewals” that perpetuate a debt cycle.
Art. 1956 (no written stipulation): If the app never presented a clear, written rate accepted by the borrower, interest is not due.
Truth in Lending: Misstated or undisclosed finance charges; request statutory damages and contract reformation.
Abuse of rights / privacy: Threats, shaming, non-consensual data use, and disclosure to third parties show bad faith, justifying damages and penalty reduction to zero.

7) Defenses lenders raise (and how to address them)

“Freedom of contract.” Yes—but not when the term is unconscionable or contrary to law/public policy.
“You clicked ‘I agree’.” Adhesion contracts are enforceable only to the extent reasonable; hidden or oppressive terms can be invalidated.
“Rates are market-based and allowed since usury is suspended.” Suspension ≠ license to impose predatory terms; the SC consistently moderates excessive rates/penalties.
“Fees aren’t interest.” Under TILA, any charge incident to the extension of credit counts toward the finance charge/EIR.

8) Practical templates (short forms you can adapt)

A. Issues list for your demand letter

Lack of clear written stipulation of interest (Art. 1956).
Hidden finance charges / no EIR disclosed (R.A. 3765).
Unconscionable rate/penalties; request reduction to 6% p.a. legal interest and reasonable penalty only.
Unfair collection (threats/shaming/third-party contacts); demand cease-and-desist and data deletion.
Accounting and restitution of overpayments; correction of CIC records.

B. Prayer in a civil complaint

Declare void or reduce interest and penalties as unconscionable;
Recompute obligation (apply 6% p.a. legal interest, if due);
Order restitution / refund of overpayments;
Permanent injunction against harassment / unlawful processing of data;
Damages (moral, exemplary), attorney’s fees;
Rectify or delete inaccurate credit reporting.

9) Special topics

A. Rollovers/“renewals”

If each renewal re-imposes all fees and pushes principal forward, argue substance over form: it’s one continuous forbearance with duplicative finance charges—classic unconscionability.

B. Auto-debits & e-wallet locks

Seek injunctive relief if auto-debits drain wages without a valid, specific standing authorization. Broad “we can debit anything” clauses are vulnerable.

C. Contact scraping & shaming

Often violates data minimization, purpose limitation, and consent requirements under the DPA; plus unfair collection rules. Preserve screenshots and witness statements.

D. Credit reporting disputes (CIC)

Ask the lender for investigation and correction; if denied or ignored, file a CIC dispute with proof of recomputation (or pending case). Data controllers must keep records accurate and up-to-date.

10) Checklist: building a winning file

Loan terms & written interest stipulation captured
EIR/APR and all fees itemized
Net proceeds vs. face amount computed
Compounding and rollover mechanics identified
Collections evidence (calls, texts, screenshots) archived
Privacy breaches documented (who, when, how)
Demand letter sent; regulatory complaints filed (SEC/NPC/others)
Recomputation worksheet (apply 6% p.a. if contract rate is void)
Damages theory (emotional distress, reputational harm, lost wages)
Credit report checked; dispute prepared

11) Quick recomputation guide (rule-of-thumb)

Start with principal actually received (net of upfront deductions).
Disallow unconscionable interest/fees; if court voids the rate, apply 6% p.a. simple from date of default or demand (fact-sensitive).
Reduce penalties to a reasonable level (often ≤ 12% p.a. equivalent), or to zero if abusive collection is proven.
Credit all payments to principal first (if interest is void) or as the court directs.
Arrive at residual balance (or overpayment). Seek refund for any overage.

(Judicial timing rules on when 6% starts—filing, demand, or judgment—depend on claim type; tailor to your facts.)

12) FAQs

Is there a legal cap on lending-app interest? No fixed cap since 1982. But unconscionable rates/penalties can be voided or reduced; hidden fees can be struck; and abusive collection is sanctionable.

They messaged my boss and family. Is that illegal? Very likely unfair collection and privacy violations. Preserve evidence and file SEC/NPC complaints; include damages in any civil case.

I paid more than I borrowed. Can I get a refund? Yes, if a court or regulator recomputes and finds overpayment, you can seek restitution, plus damages for bad faith.

Can I stop them from auto-debiting my e-wallet? Ask your e-wallet/bank to revoke the mandate; if they persist, seek injunctive relief in court and include FCPA and DPA angles.

Do I need a lawyer? For Small Claims (≤ ₱1,000,000) you can appear without a lawyer. Complex injunction/damages cases are best handled by counsel.

13) Bottom line

Usury ceilings may be suspended, but unconscionability isn’t.
Write-it-down rule (Art. 1956) and Truth in Lending are powerful levers.
Unfair collection and privacy breaches open doors to sanctions and damages.
With a good evidentiary record and a clean recomputation, borrowers can unwind predatory app loans, obtain refunds, and clear their credit trail.

If you want, I can draft a tailored demand letter or a Small Claims complaint template using your actual numbers and screenshots.