(A Philippine legal article for borrowers, lenders, and practitioners)

1) The core idea: “Usury” today is mostly a question of unconscionability, not a fixed statutory ceiling

In the Philippines, people still say an interest rate is “usurious” when it feels outrageously high. Legally, however, the traditional Usury Law ceiling system has been effectively suspended for most lending, so courts rarely strike interest down by pointing to a single numerical cap.

Instead, Philippine courts commonly analyze extreme interest rates under these doctrines:

Unconscionable interest (so excessive it “shocks the conscience” and offends equity and good morals)
Iniquitous or oppressive stipulations (void or subject to reduction)
Freedom of contract is not absolute (contracts cannot contravene law, morals, good customs, public order, or public policy)
Equitable reduction of interest/penalties/damages, even if parties “agreed”

Practical consequence: You typically challenge an abusive loan not by proving a technical violation of a numeric ceiling, but by proving the interest/penalties/fees are unconscionable or improperly imposed, or that disclosure/consent was defective.

2) Basic legal framework (Philippine context)

A. Civil Code principles governing loans and interest

Key rules you’ll see in disputes:

Interest must be expressly stipulated in writing
- If there is no written stipulation, the lender may still recover the principal, but the “conventional interest” (the rate the parties supposedly agreed to) can be denied.
- This is huge in informal loans: text messages, chat screenshots, handwritten notes, and receipts matter.
Contracts must not violate law/morals/public policy
- Even if written, a term can be reduced/ignored if it is unconscionable or oppressive.
Courts can temper penalties and liquidated damages
- If penalties are iniquitous or unconscionable, courts may reduce them.
- This commonly applies to:
  - “Penalty interest” per month on top of interest
  - “Service fee” or “processing fee” disguised as interest
  - Attorney’s fees fixed as a high percentage regardless of work
  - Compounded charges that balloon the debt

B. The “Usury Law” and why it rarely works as a numeric cap today

Historically, Philippine law imposed maximum interest rates. Over time, regulatory changes effectively lifted/suspended many fixed ceilings (especially for banks and many private lending arrangements), leaving the courts with a broad equitable tool: strike down or reduce unconscionable interest.

Bottom line: “Usury” arguments often succeed today by equity and jurisprudence, not by quoting a single statutory maximum.

C. Truth in Lending Act (Republic Act No. 3765) — the disclosure weapon

For consumer-style personal loans, RA 3765 is one of the most practical tools:

Requires clear disclosure of the true cost of credit (finance charges, effective interest, fees)
If disclosures are defective or misleading, borrowers may gain leverage:
- For defenses
- For counterclaims
- For negotiating reductions/settlements
- For complaining to regulators (when applicable)

This matters especially where the lender advertises low rates but loads the transaction with “processing,” “service,” “collection,” or “membership” fees that effectively jack up the annual cost.

D. Who regulates the lender matters (and affects your strategy)

Personal loan lenders fall into different categories:

Banks / BSP-supervised institutions: regulated by the Bangko Sentral ng Pilipinas (BSP)
Financing companies: generally under SEC supervision (corporate/registration compliance), with consumer protection issues often overlapping with other agencies
Lending companies (non-bank lenders): regulated by SEC under the Lending Company Regulation Act framework
Informal individual lenders (“5-6”, private individuals): usually litigated purely through civil claims/defenses unless other crimes exist (fraud, threats, etc.)
Online lending apps (OLAs): frequently challenged not only on interest/fees but also on collection conduct, privacy/data misuse, and disclosure

3) What courts look at when deciding an interest rate is unconscionable

Because there’s no universal numeric cap used across all cases, courts weigh context. Factors often include:

Monthly interest vs annual reality
- “20% per month” is vastly different from “20% per year.”
- Courts are sensitive to rates that effectively become triple-digit annualized costs.
Borrower’s vulnerability and bargaining power
- Desperation loans, payday-style arrangements, or take-it-or-leave-it contracts can support unconscionability.
Hidden or layered charges
- “Interest” plus “penalty” plus “collection fee” plus “service fee” plus “notarial fee” that together explode the obligation.
Compounding and automatic capitalization
- Clauses that add unpaid interest into principal, then charge interest on interest, can become abusive fast.
Penalty interest and liquidated damages
- Courts often reduce penalties that are punitive rather than compensatory.
Disproportionate attorney’s fees
- Clauses like “25% of the total amount due as attorney’s fees” may be reduced, especially if not reasonably tied to actual legal work and if unconscionable in total effect.
Conduct of the lender
- Bad faith, harassment, deception, or misleading disclosures can push a court toward equitable relief.

4) Common “interest” structures that can be attacked

A. “Interest per month” that is effectively crushing

Many abusive personal loans quote a monthly rate that looks “normal” in small numbers but becomes extreme annually. Courts frequently treat very high monthly rates as suspicious.

B. Double charging: interest + penalty interest + fixed penalties

You’ll see patterns like:

10% monthly interest
plus 10% monthly penalty on arrears
plus 5% collection fee per demand
plus 25% attorney’s fees upon default Stacking these can be attacked as iniquitous, and courts may reduce or strike components.

C. “Service fees,” “processing fees,” “membership fees” that function as disguised interest

If a loan deducts large “fees” upfront, the borrower receives less than the face value but is required to repay the full principal plus interest. This can be framed as:

Finance charge under disclosure laws
A disguised interest mechanism supporting an unconscionability finding

D. Compounding clauses and capitalization of interest

Clauses that automatically add interest to principal on short intervals can be challenged if they yield oppressive results or were not clearly explained.

5) Litigation and procedural routes for borrowers

Route 1: Defend against a collection case (most common)

If the lender sues, the borrower can raise:

No written stipulation for interest → conventional interest disallowed
Interest and penalties unconscionable → reduce or nullify excessive parts
Improper computation / lack of accounting
Unclear or defective disclosures (especially for consumer-style transactions)
Payments not credited
Fraud, mistake, or misrepresentation (when supported by facts)

Relief often sought:

Judicial reduction of interest to a reasonable rate
Reduction of penalties/attorney’s fees
Correct accounting
In some cases, damages/counterclaims if collection conduct was abusive

Route 2: Borrower-initiated action (declaratory / reformation / annulment of stipulations)

Borrowers sometimes file to:

Seek declaration that interest/penalties are void or reducible
Compel proper accounting
Enjoin abusive collection tactics (in appropriate cases)

This is more demanding (you must prove your case affirmatively), but it can be useful when harassment is intense or when the lender’s paperwork is egregious.

Route 3: Small Claims (if the lender files there)

Small claims is designed for speed and simplified procedure. Borrowers must be prepared to present:

The written contract (or absence of one)
Proof of payments
Computations showing ballooning charges
Screenshots/messages showing the true terms or misleading representations

Even in small claims, courts can consider fairness and the validity of interest stipulations; however, the process is streamlined and remedies can be practically constrained by the forum’s nature.

6) Evidence checklist: what you should gather immediately

If you want to challenge interest effectively, documentation wins cases.

Core documents:

Promissory note / loan agreement
Disclosure statement(s) and schedules of fees
Receipts, bank transfers, e-wallet screenshots
Demand letters and statements of account
Text messages, chat logs, app screenshots showing:
- Advertised rate
- Actual deductions
- Threats/harassment (if any)
- “Recomputations” or changing terms
Proof of identity of lender and their business details (especially for OLAs or lending companies)

Computation tools:

A clear timeline: date borrowed, amount received net, payment dates/amounts, asserted balances
Separate columns for:
- principal
- contractual interest
- penalty interest
- fixed penalties/fees
- attorney’s fees This helps a judge see the “ballooning” effect.

7) Substantive defenses and arguments that often work

A. No written stipulation = no conventional interest

If the lender cannot show a written agreement on interest, challenge any claimed rate.

B. Unconscionable interest and penalties

Argue the rate/stacking is excessive, oppressive, and contrary to equity and public policy. Emphasize:

Monthly rate magnitude
Layering of charges
Compounding
Disproportion between principal received and amount demanded
Borrower’s circumstances and lack of real choice (if true)

C. Disguised finance charges

Attack “fees” that function like interest and were not properly disclosed/explained.

D. Attorney’s fees are not automatic windfalls

Even if a contract says “25% attorney’s fees,” courts often treat attorney’s fees as:

requiring basis and reasonableness
subject to equitable reduction
not a penalty designed to punish

E. Demand for accounting

If the lender’s computation is unclear, inconsistent, or unsupported, compel itemization.

8) Remedies courts commonly grant (what “winning” looks like)

In many Philippine loan cases, the borrower does not walk away “free.” Typical outcomes include:

Principal is payable (unless there’s a separate ground like void contract, fraud, etc.)
Interest is reduced to a reasonable level (sometimes set by the court)
Penalties are reduced or removed
Attorney’s fees reduced or denied
Recomputed balance based on the court’s findings
Damages/counterclaims in egregious cases (especially if harassment, bad faith, or deceptive practices are proven)

9) Special issues with online lending and aggressive collection

Even when the dispute begins as “interest is too high,” OLAs often introduce extra legal angles:

Consent and disclosure: Did the borrower truly agree to the full pricing?
Data privacy and harassment: If collection tactics involve threats, public shaming, contacting your phonebook, or doxxing—those may create separate legal exposures for the collector/lender.
Identity and documentation: Some OLAs have sloppy paperwork; challenging authenticity and computation is often effective.

10) Practical negotiation strategy (before and during litigation)

A realistic approach for many borrowers:

Ask for full accounting in writing
Offer to pay principal + reasonable interest (and show your computation)
Dispute penalties/fees as unconscionable or undisclosed
Document all communications
Avoid signing new agreements that “confirm” oppressive balances unless the terms are actually improved (because “novation” or reaffirmation can complicate defenses)

11) Cautions and common mistakes

Admitting inflated balances in writing without qualification can hurt you.
Ignoring court summons can lead to default judgments.
Relying on “there is a legal cap of X%” without context is risky; modern disputes turn on unconscionability, disclosure, and reasonableness.
Paying without receipts makes it easy for lenders to deny credits.
Letting fees obscure net proceeds: always compute based on amount actually received and how charges ballooned from there.

12) A borrower-friendly way to frame the case (sample argument structure)

When challenging a personal loan’s charges, a clear narrative helps:

What I received (net proceeds)
What I paid (with dates and proof)
What the lender demands now (and how it was computed)
Why the charges are abusive:
- extreme monthly rate
- stacked penalties
- disguised fees
- compounding
- lack of clear written stipulation / defective disclosure
What relief is fair:
- pay principal
- apply reasonable interest only
- remove or reduce penalties and attorney’s fees
- require correct accounting

13) Conclusion

“Usurious interest” in the Philippines is best understood today as a court-supervised fairness problem: even with written agreements, courts can reduce or strike interest, penalties, and add-on charges that are unconscionable, iniquitous, oppressive, or poorly disclosed. The borrower’s strongest tools are documentation, computations, and clear legal framing—especially around written stipulations, disclosure of finance charges, and the compounding/stacking of penalties.

If you tell me the exact terms (interest per month, penalties, fees, amount received net, and what’s being demanded now), I can help you build a concrete “challenge memo” with a recomputation model and the best argument set for your situation.