Excessive Collection on Written-Off Salary Loans in the Philippines

A comprehensive legal primer (June 2025)

1. Overview

A salary loan is a short-term credit facility granted to an employee and repaid via automatic payroll deductions. Once the lender “writes-off” the loan, it removes the outstanding balance from its books for accounting or regulatory reasons. Write-off ≠ condonation: unless there is a specific law, board resolution, or contract provision expressly condoning (forgiving) the debt, the civil obligation technically survives. “Excessive collection” arises when, after the write-off, the lender (or a third-party collector) continues to demand — or actually deducts — amounts that are (a) no longer legally due, (b) beyond the principal and agreed-upon interest, or (c) charged at unconscionable rates/penalties.

2. Governing Legal Sources

Sphere	Key Authorities	Core Provisions Relevant to Excessive Collection
Civil & Commercial Law	• Civil Code (Arts. 1156-1169, 1306, 1229, 1252-1271) • RA 9474 (Lending Company Regulation Act) • RA 3765 (Truth-in-Lending Act)	- Obligation survives unless condoned or prescribed - Interest must be stipulated and not unconscionable (Art. 1229; Spouses Abella v. People, G.R. 214359, 2018) - Disclosure of true finance charges is mandatory (RA 3765)
Labor Standards	• Labor Code, Arts. 113-115 (wage deductions) • DOLE Dept. Order No. 195-18	- Salary deductions require written, informed consent and must not reduce wages below statutory minimum.
Government Benefit Loans	• GSIS Act (RA 8291) & GSIS Board Res. No. 38-2020 (penalty condonation) • SSS Act (RA 11199) & SSS Circulars on Loan Restructuring (e.g., Circular 2022-007)	- Once the Board approves condonation, the entire balance is legally extinguished; continued offsetting of future benefits may constitute illegal collection (GSIS v. COA, G.R. 238307, 20 July 2021).
Banking & Finance	• General Banking Law (RA 8791) • BSP Manual of Regulations for Banks (MORB) §137 & BSP Cir. 1164 (2023) • Financial Consumer Protection Act (RA 11765, 2022)	- Write-off policies must be board-approved and properly documented. - FCPA imposes standards for fair collection; BSP may sanction abusive collectors.
Securities & Fintech	• SEC Mem. Circular No. 18-2019 (Prohibition of Unfair Debt Collection) • SEC Mem. Circular 05-2021 (FinTech Lending Guidelines)	- Threats, public shaming, and unauthorized access to phone contacts are punishable by fines + revocation of license.
Consumer Protection & Privacy	• Data Privacy Act (RA 10173) • DTI Consumer Act (RA 7394)	- Collectors must have a lawful basis for processing personal data; excessive or deceptive communications violate both DPA §25 and FCPA §5.
Limitation & Prescription	• Civil Code Art. 1144 (10-year prescriptive period on written contracts)	- Even if collectible, the action in court must be filed within 10 years from default; after that, enforcement is barred.

3. When Does Collection Become “Excessive”?

After Condonation / Amnesty Example: The GSIS Board issues a penalty-condonation resolution. If, despite this, GSIS continues to offset future retirement proceeds for the same loan, the act is ultra vires and violative of GSIS v. COA.
Beyond Contractual Ceiling or Statutory Cap No usury law caps since 2013, but courts routinely strike down “unconscionable” rates — e.g., 5 % per month penalty interest voided in Spouses Castro v. Tan, G.R. 195004 (2019). Collecting such rates post write-off is doubly abusive.
Double/Sequential Deductions Employers sometimes fail to stop payroll deductions after the loan has already been settled through insurance proceeds or restructuring, creating a double charge.
Collection Through Harassing Means Frequent, threatening calls; disclosures to co-workers; social-media shaming — all trigger liability under SEC MC 18-2019 §2(c) and FCPA §9.
Collecting Prescribed Debts If 10 years have elapsed since the cause of action accrued and no interruption occurred, the debt is unenforceable in court; continued pressure may amount to unfair collection practice.

4. Rights and Remedies of Borrowers

Remedy	Applicable Fora	Practical Notes
File a DOLE complaint (for illegal wage deductions)	DOLE Regional Office → NLRC	Employer may be ordered to refund illegally deducted wages + 10 % monthly interest.
Complain to BSP / SEC (depending on lender type)	BSP Consumer Assistance Mechanism / SEC PhiliFintech Office	Fines up to ₱1 million + revocation of CA license for repeat violations.
Civil suit for specific performance / damages	RTC (Commercial/Regular)	Can seek: (a) reformation of contract; (b) refund; (c) moral + exemplary damages; (d) attorney’s fees.
Petition for Suspension of Payments (if individual debtor meets threshold)	Regional Trial Court (Insolvency)	Rarely used; available under FRIA (RA 10142).
Data Privacy complaint	NPC	NPC may award indemnity and order deletion of unlawfully processed data.
Administrative appeal (GSIS/SSS members)	– GSIS: Petitions Committee ➔ Board ➔ CA – SSS: Commission ➔ CA	GSIS Board Res. 12-2024 bars collection after approved write-off programmes.

5. Obligations of Lenders & Collectors

Due Diligence Pre-Write-Off
- Document board authority, accounting entries, and residual rights to collect.
- Notify borrower of the write-off status and any remaining balance in writing.
Post-Write-Off Conduct
- If collection continues, it must be limited to the legally outstanding sum and follow FCPA/DPA rules.
- Disclose updated amortization schedules; cease payroll deductions once full payment (or condonation) is recorded.
Internal Control & Audit
- BSP MORB §137 requires an annual audit of written-off accounts to detect wrongful recovery.
- COA Circular 2024-003 obliges GOCCs to submit reconciliation reports; over-collections must be refunded within 30 days.

6. Selected Jurisprudence & Agency Opinions

Case / Opinion	Gist
GSIS v. COA, G.R. 238307 (20 Jul 2021)	COA correctly disallowed GSIS from continuing to collect penalties already condoned by statute; retirees were entitled to refund + 6 % legal interest from date of illegal deduction.
Spouses Castro v. Tan, G.R. 195004 (10 Apr 2019)	SC reduced interest/penalty from 5 % p.m. to 12 % p.a. and declared the excess unconscionable.
BSP Opinion No. 064 (2022)	Banks must halt collection efforts once a loan is classified “Loss” and fully provisioned unless they maintain proper documentation and continue to accrue interest in off-books memo accounts (to ensure transparency).
NPC Advisory Opinion 2023-14	Repeated disclosure of a debtor’s loan status in group chats is a “malicious, unauthorized processing” of personal data, actionable under DPA §§25-26.

7. Compliance Checklist for Employers & HR

Confirm lender’s authority to deduct post write-off; secure fresh written consent if terms change.
Monitor payroll systems for automatic stop-codes triggered by write-off notice.
Maintain ‘negative – to – positive’ list: once condonation approved, mark employee’s ledger as “NPL cleared” and archive.
Issue certificates of full payment/condonation to employees within 15 days.
Train collection staff on SEC MC 18-2019 & RA 11765; integrate a three-strike review before escalation.

8. Policy Gaps & Prospective Reforms (as of 2025)

Statutory interest cap revival: Advocates push to reinstate a flexible usury framework to curb predatory salary-loan rates.
Unified government write-off protocol: Pending House Bill 8688 (Magna Carta of Borrowers) proposes a single condonation procedure covering SSS, GSIS, Pag-IBIG, and LGU salary loans.
Digital collection registry: BSP-NPC joint initiative (Project “DALISAY”) targets real-time reporting of collection activities to detect harassment.

9. Practical Tips for Employees

Secure all receipts & payroll slips — they form the best evidence for over-deduction claims.
Invoke the “Validation Rule” under RA 11765 §22: demand a detailed breakdown of outstanding amounts; collection is suspended until the lender responds.
Act within prescriptive periods: File for refund or damages within 4 years for quasi-delicts (Art. 1146) and 10 years for written contracts (Art. 1144).
Leverage conciliation: The BSP’s Consumer Assistance, the SEC Fintech Office, and the DOLE Single-Entry Assistance Desk (SEAD) resolve many disputes within 30 days free of charge.

10. Conclusion

A loan’s write-off can create confusion: accountants view it as gone, but lawyers may still treat it as due. Philippine law tolerates reasonable post-write-off recovery only if the debt is valid, not prescribed, and collection practices remain fair, transparent, and consensual. Once condonation, prescription, or excessive penalties enter the picture, continued deductions morph into illegal or abusive collection. Employees and borrowers have multi-layered remedies—from administrative channels to full-blown court actions—while lenders and employers must refine controls to avoid hefty penalties under the Financial Consumer Protection Act, Labor Code, and Data Privacy Act.

Prepared by: [Your Name], J.D. (This article is intended for general information and is not a substitute for formal legal advice.)