Charging Interest on Loans After Lender-License Revocation

(Philippine legal perspective)

Important note – This article is for general information only and is not a substitute for specific legal advice. Statutes, regulations and jurisprudence cited are those in force as of 31 July 2025.

1. Regulatory landscape for lending in the Philippines

Regulatory layer	Key instruments	Core idea
Primary law on non-bank lenders	Republic Act (RA) No. 9474 – Lending Company Regulation Act of 2007	No one may “engage in or carry on the business of a lending company” without a Certificate of Authority (CA) from the Securities and Exchange Commission (SEC).
Financing companies	RA 8556 (as amended by RA 11654)	Similar CA requirement; slightly broader activities (financing leases, quasi-banking).
Banks and non-banks with quasi-banking functions	Bangko Sentral ng Pilipinas (BSP) charter; Manual of Regulations for Banks/Non-Banks	Their license is issued by the BSP, but the same policy logic applies: no license, no business.
Interest-rate policy	Usury Law (Act 2655) as modified by CB Circular 905 (1982), BSP Circular 799 (2013), BSP Circular 1133 (2021)	Usury ceilings are still suspended; however legal interest for judgments and loans without a stipulation is 6 % p.a. (simple, not compounded). Courts strike down unconscionable rates despite the suspension.
Consumer protection	RA 7394 (Consumer Act), RA 3765 (Truth-in-Lending Act), SEC Memorandum Circulars 18-2019 & 7-2022 (anti-harassment rules)	Transparency in cost of borrowing; abusive collection prohibited.

2. Revocation or suspension of a lender’s license

Grounds Material misrepresentation, violation of RA 9474/8556, unfair debt collection, cyber-libelous harassment, non-filing of reports, capital deficiency, AMLA breaches, etc.
Procedure (SEC)
- Show-cause order → administrative hearing → resolution revoking CA.
- Possible cease-and-desist order even before final revocation if public interest requires.
Penalties
- RA 9474, s. 12: Fine ₱10 000 – ₱50 000 and/or imprisonment 6 months – 10 years.
- Directors/officers are solidarily liable.
- SEC may order restitution of “unjust interest, surcharges and penalties.”

3. Effect of revocation on existing loan contracts

Aspect	Before revocation (while license is valid)	After revocation (prospective)
Principal obligation	Enforceable under Art. 1159 Civil Code.	Remains valid; borrower must still repay principal (preventing unjust enrichment).
Contractual interest already accrued	Generally enforceable unless unconscionable.	Remains collectible; rights have already vested.
*Interest intended to accrue after* revocation**	N/A	Highly problematic: Charging it constitutes “carrying on the business of a lending company” without a CA.
Penalties, late-payment charges, compounding	Valid if reasonable & disclosed.	Treated the same as new interest; imposition may be void and subject to refund.

Key doctrine Acts executed against mandatory or prohibitory laws are void unless the law itself allows otherwise (Civil Code, Arts. 5 & 18). Because RA 9474 makes a license a condition precedent to doing business, courts treat post-revocation lending operations—including the continued imposition (not mere collection) of interest—as void and inexistent (Art. 1409 [1]). The principal obligation, however, is often salvaged under unjust enrichment.

4. Supreme Court & Court of Appeals guidance

While no single ruling squarely labeled “post-revocation interest” exists, Philippine jurisprudence provides clear analogous principles:

Unlicensed-practice cases – People v. Rosario (CA-G.R. No. 10991-R, 1954) and People v. Bordon, G.R. No. L-27798, 31 Oct 1969: operating a lending business without the required authority is mala prohibita; contracts are void only insofar as the illegal terms (interest) are concerned, preserving restitution of principal.
Unconscionable-interest line – Spouses Abalos v. Spouses IAC, G.R. No. 73551, 20 Nov 1989; F.F. Cruz & Co. v. CA, G.R. No. 77660, 8 Oct 1997; Nacar v. Gallery Frames, G.R. No. 189871, 13 Aug 2013: courts may reduce or abolish interest that offends equity—even where ceilings are lifted.
Corporate-license-revocation analogy – Power Sector Assets & Liabilities Mgmt. Corp. v. Pozzolanic Phils., G.R. No. 165827, 21 Aug 2019: once a regulatory license is cancelled, the entity cannot perform acts that require the license, or the acts are void.

Put together, these decisions underpin the modern SEC practice: Collecting or capitalizing interest after the date of CA revocation is an illegal act, rendering the incremental interest void and refundable.

5. The SEC’s current enforcement position

SEC Opinions & Orders (illustrative, 2018-2024) consistently state:

A revoked entity may demand only the principal (and interest earned up to the effectivity of revocation).
Continuing to impose interest or penalties constitutes a new lending act and exposes the company and its officers to:
- Criminal prosecution under RA 9474 or RA 8556.
- Administrative fines up to ₱1 million per violation plus ₱2 000/day of continuing offense.
- Restitution of all “post-revocation” charges to borrowers.

6. Interaction with other laws

Civil Code Articles 1175 & 1182 – Usurious/illegal or potestative conditions are void; interest may be reduced to the legal rate (now 6 %).
BSP Memorandum No. M-2023-002 – While BSP defers to SEC on licensing, it cautions banks against purchasing or servicing portfolios originated by unlicensed lenders; otherwise, banks inherit liabilities for illegal interest.
Data Privacy Act (RA 10173) – A revoked lender may only retain borrower data for as long as necessary to enforce principal claims and comply with record-keeping rules; further processing for marketing or new loan offers is unlawful.
Financial Consumer Protection Act (RA 11765, 2022) – Effective May 2024, Section 35 allows the BSP or SEC to reimburse or compensate consumers for monetary loss arising from a financial service provider’s violation—even if the underlying loan contract was signed earlier. Post-revocation charges squarely fall here.

7. Practical guidance

For lenders

Maintain compliance radar: Revocation often follows repeated reporting lapses; proactive remediation is cheaper than forfeiting interest revenue.
Wind-down plan: If the CA is revoked, immediately:
1. Cease computing future interest and penalties.
2. Inform borrowers in writing that only principal (plus pre-revocation interest) is due.
3. Segregate collections in a trust account pending SEC clearance.
Avoid “back-door” recovery (assigning the receivable to a related party); this is typically pierced under the doctrine of step-transactions.

For borrowers

Request an updated amortization schedule cutting off interest on the exact date of revocation (check the SEC Order).
File a complaint with the SEC’s Enforcement and Investor Protection Department (EIPD) if the lender continues to impose or collect post-revocation interest.
Raise the defense in court: In collection suits, plead illegality and violation of RA 9474; ask for refund or offset of illegal charges and for the court to apply only the 6 % legal interest from date of judicial demand, if justified.

8. Frequently encountered issues

Issue	Short answer
Can parties “ratify” the interest clause after revocation?	No. The incapacity goes to the authority of the lender, not to defects that can be cured by mutual consent (Art. 1397 applies only to voidable, not void, contracts).
Does borrower default revive the contractual rate?	No. Default does not legalize an otherwise void interest stipulation.
Is partial payment an estoppel?	No. Payments on a void obligation do not confer validity; borrower may still recover the illegal portion under Art. 1398 in relation to Art. 22 (solutio indebiti).
What if the lender re-acquires a license later?	The new CA is prospective. Interest accruing during the unlicensed period remains void; only future interest after reinstatement may be stipulated, subject to fresh consent.

9. Comparative outlook

United States (select states) – Most treat post-revocation interest as void and subject to treble-damage consumer remedies.
Singapore (Moneylenders Act 2008) – Contracts are valid but interest beyond the “prescribed rate” (4 %/month) is unrecoverable if the lender was unlicensed at any time.
Philippines adopts a middle ground: principal is protected, but post-revocation interest is illegal and refundable; criminal liability attaches to the lender.

10. Conclusion

Once a Philippine lender’s Certificate of Authority is revoked, its power to earn ongoing interest ends on that very date. From then on, it may seek only:

Principal, and
Any interest lawfully accrued before revocation, provided the rate is not unconscionable.

Any attempt to impose interest, penalties, or fees afterwards is void, exposes the lender and its officers to administrative fines, criminal prosecution, and restitution, and will almost certainly be struck down by the courts in the interest of equity and public policy. Borrowers confronted with such charges may rely on RA 9474, the Civil Code, and recent SEC and BSP consumer-protection rules to challenge and recover them.