This article provides general information and is not a substitute for legal advice.

1) The Big Picture

There is no fixed statutory cap on interest in the Philippines. The Usury Law (Act No. 2655) technically remains, but Central Bank Circular No. 905 (1982) suspended interest ceilings.
Courts can still strike down interest and charges that are “unconscionable” or “iniquitous.” Philippine jurisprudence has repeatedly voided or reduced excessive interest, penalties, and liquidated damages.
Online lenders (apps and web-based) are primarily regulated by the Securities and Exchange Commission (SEC) if they are lending companies (RA 9474) or financing companies (RA 8556). Banks and EMIs fall under the Bangko Sentral ng Pilipinas (BSP).
Debt-collection harassment and data misuse are unlawful. The SEC prohibits abusive collection practices; the National Privacy Commission (NPC) enforces the Data Privacy Act for contact scraping and doxxing.

2) What Counts as “Excessive” Interest?

Because there is no fixed cap, “excessive” is assessed case-by-case under the Civil Code and jurisprudence.

Key Civil Code anchors

Art. 1956: Interest must be expressly stipulated in writing; otherwise, it cannot be charged.
Art. 1229 & 2227: Courts may reduce penalty clauses and liquidated damages if iniquitous or unconscionable.
Legal interest: Courts generally use 6% per annum as the legal rate for monetary judgments and for interest when no rate is validly stipulated (this remains the mainstream judicial benchmark).

Benchmarks from case law (simplified guidance)

Monthly rates in the several-percent range (e.g., 3%–7% per month) have been repeatedly deemed excessive, especially when coupled with heavy penalties, “processing fees,” or daily compounding.
Penalty interest (e.g., 3%–5% per month on top of regular interest) is often reduced by courts.
Stacked charges (add-on interest + huge “service” fees + daily late charges) are scrutinized for substance over form.

Practical takeaway: The more the total cost of credit approaches triple digits annually (100%+ effective annual rate), the greater the likelihood a court will find it unconscionable—especially for small, short-term consumer loans.

3) Anatomy of Online Lending Charges

Online lenders may present “low” rates while inflating the effective cost via fees. Always compute the effective annual rate (EAR), not just the sticker rate.

Common pricing structures

Flat/add-on rate: Rate applied to the original principal for the whole term (not the declining balance).
Nominal monthly rate: e.g., “2% per month,” sometimes compounded daily in the fine print.
Fees: “Processing,” “convenience,” “disbursement,” or “service” fees (often deducted upfront).
Penalties: Per-day late charges or added monthly penalty interest.

Quick math tools

From a monthly nominal rate (r) with monthly compounding: [ \text{EAR} = (1+r)^{12} - 1 ] Example: 4%/month ⇒ EAR ≈ (1.04^{12} - 1 \approx 60.1%).
Add-on interest with upfront fee deduction (single-payment or short term):
- Add-on interest = Principal × add-on rate × term (in years).
- But if a fee is deducted upfront, your net proceeds are lower, so the true yield skyrockets.

Red flags: Daily interest; interest on interest; simultaneous per-day late fees plus penalty interest; large “processing” deductions that shrink the proceeds you actually receive.

4) Who Regulates What?

SEC regulates lending companies and financing companies (non-bank lenders and online lending apps).
BSP regulates banks and some non-bank financial institutions (separate complaint channel).
NPC enforces the Data Privacy Act—vital when apps scrape contacts, send mass shaming texts, or over-collect data.
DTI has a consumer protection mandate but lending companies proper fall under SEC supervision.

5) SEC Rules Online Lenders Must Follow

Registration and licensing

A lending/financing company must be SEC-registered and, if operating through an app or site, follow the SEC’s online lending guidelines (e.g., disclosure, complaints handling, terms visibility).

Prohibited collection practices (illustrative list)

Threats, intimidation, profane or obscene language.
Public shaming or contacting persons other than the borrower except for guarantors/co-makers or if expressly authorized by law.
Misrepresentation (posing as law enforcement, threatening arrest for civil debt).
Constantly contacting the borrower at unreasonable hours.

Transparency duties

Clear display of the true cost of credit: rate basis, fees, penalties, and how interest/penalties are computed.
Accessible customer assistance and complaint channels.

Operating without SEC registration or using unapproved online platforms can trigger cease-and-desist orders (CDOs), fines, and criminal liability under the Lending/Financing Company laws.

6) Spotting Unconscionable Terms

Ask these questions:

Is the interest in writing? If not, contractual interest is not collectible (only legal interest may apply).
Are the rates/fees fully disclosed in pesos and percentages? If not, that’s a transparency problem.
Do penalties duplicate each other? Parallel per-day late fees plus high penalty APRs are suspect.
Is there compounding without clear assent? Silent compounding invites reduction.
Is there contact scraping or shaming? This implicates both SEC rules and the Data Privacy Act.
Is the lender even licensed? Unlicensed apps are per se problematic.

7) If You’re Charged Excessive Interest: Your Legal Options

A) Negotiate and document

Write the lender (email + in-app support) disputing unconscionable rates/charges and requesting a computation breakdown.
Offer to pay the principal plus reasonable interest; insist on official receipts.

B) File a Complaint with the SEC (for lending/financing companies)

Prepare:

Sworn complaint detailing the facts, the loan, and the abusive terms/acts (identify the app and entity).
Evidence: screenshots of the app pages, disclosure screens, SMS/Viber messages, call logs, voice recordings (if any), payment proofs, receipts, IDs, and the loan agreement/terms.
Prayer for relief: e.g., order to cease abusive collection, administrative sanctions, referral for prosecution, and directive to correct or refund unlawful charges.

Where/how:

File with the SEC Enforcement and Investor Protection Department (EIPD) or the nearest SEC Extension Office.
If the lender appears to be a bank, route to the BSP Consumer Assistance instead (SEC will typically refer you).

Outcomes: SEC may issue a Show-Cause Order, conduct hearings, and, where warranted, issue CDOs, impose fines, and refer for criminal prosecution or to the NPC.

C) File a Data Privacy Complaint with the NPC

Use when the lender:

Harvested contacts not necessary for the loan,
Sent shaming messages to third parties, or
Retained personal data beyond necessity without safeguards.

D) Court action to reduce or void unconscionable charges

Causes of action: annulment/reformation of unconscionable stipulations, damages for abusive collection, and accounting.
Provisional relief: ask the court to enjoin harassment and preserve your credit/payment records.
Small Claims: If your claim is within the current small claims jurisdictional amount (as of 2023, ₱1,000,000 exclusive of interest and costs), you may opt for the summary, lawyer-optional small claims route. Always check the latest threshold and forms.

E) Criminal/other referrals (as facts warrant)

Unlicensed lending may involve criminal violations of the Lending/Financing Company laws.
Harassment or threats may be referred to law enforcement.
Cyber harassment can implicate the Cybercrime Prevention Act depending on conduct.

8) Building a Persuasive Case File (Checklist)

✅ Government ID and your contact details.
✅ Lender identity (registered corporate name—not just the app name) and addresses/emails.
✅ Loan agreement, disclosure screens, and version of the app used (if available).
✅ All computations given by the lender and your own effective rate calculation.
✅ Screenshots/recordings of abusive collection messages and call logs (with dates/times).
✅ Proof of payments (receipts, bank/ewallet statements).
✅ List of third parties contacted by the lender (names, dates, messages received).
✅ Written demand/complaint you sent and any replies.

9) Defenses and Arguments That Often Work

Unconscionability: Show how the effective annual cost (with fees/penalties) explodes beyond reasonable bounds.
Lack of written stipulation: Interest or compounding not put in writing is not collectible.
Penalty reduction: Penalty interest/fees are punitive, not compensatory, and must be reduced to fairness.
Transparency failure: Opaque or misleading pricing should be construed against the lender (contra proferentem).
Data privacy breach: Over-collection, unnecessary contact scraping, and public shaming are independent violations.
Unlicensed activity: Operating without registration or via an unapproved app taints the contract and triggers sanctions.

10) Model Templates (Quick-Use)

A) Borrower’s Demand (send to lender)

Subject: Dispute of Unconscionable Interest and Penalties – [Your Name / App Ref No.] I question the validity of the interest and penalty charges applied to my loan. Several charges were undisclosed or are unconscionable under the Civil Code and applicable jurisprudence. Please provide within five (5) days a complete breakdown (interest basis, compounding, fees, penalties) and recalculate using reasonable rates. I am willing to settle the principal plus reasonable interest upon receipt of a corrected statement. Harassing communications to me or third parties must cease immediately. Kindly confirm compliance and provide your designated complaint officer’s details.

B) SEC Complaint (outline)

Parties and nature of the respondent’s business (lending/financing company; app name).
Facts (timeline of borrowing, disclosures, charges, collection conduct).
Violations (unconscionable interest/penalties; unfair collection practices; operating without proper approvals if applicable).
Evidence (attach and label).
Relief sought (CDO, administrative fines, compliance orders, referral to NPC/BSP/DOJ, restitution/adjustment).
Verification and Certification against forum shopping (notarized).

C) NPC Complaint (outline)

Personal data involved (contacts, photos, IDs) and how collected/used.
Specific harms (shaming texts, reputational damage).
Relief sought (compliance orders, sanctions, data erasure, breach notification).

11) Practical Tips When You’re Under Pressure

Don’t ignore messages; reply once in writing, then consolidate communications through one channel.
Record calls and keep screenshots (where lawful).
Pay what is undeniably due (principal and fair interest) to show good faith, while disputing predatory components.
Do not hand over contacts or additional data beyond what is necessary. Revoke unnecessary app permissions.
Coordinate filings: If you file with SEC for conduct and NPC for privacy, cross-reference each case.
Mind venue and service: For court actions, follow venue rules (place of plaintiff or where defendant resides/does business, as allowed) and proper service of summons.

12) FAQ

Is any interest legal since usury is “lifted”? No. Ceilings were suspended, but courts police unconscionability and will reduce or void oppressive rates and penalties.

Can a lender contact my family or workplace? Generally no, except in limited scenarios (e.g., co-makers/guarantors). Mass messaging of your contacts is a typical SEC/NPC violation.

They deducted big “processing fees” upfront—legal? Fees must be disclosed and reasonable. Courts and regulators look at the total effective cost; disguised interest via fees is vulnerable.

The app name and the company name are different—who do I sue? Sue/complain against the registered corporate entity operating the app. Identify it through the app’s disclosures and records.

Can I use Small Claims? Yes, if your claim falls within the current threshold (as of 2023, ₱1,000,000 exclusive of interest and costs). Always check the latest rule before filing.

13) Bottom Line

The absence of a statutory cap does not give lenders a blank check.
Document everything, compute the effective rate, and invoke unconscionability where warranted.
Use the SEC for lender misconduct, the NPC for privacy abuses, and the courts to correct the contract and recover damages when needed.

Need a quick review of your documents?

If you share your loan agreement and screenshots of the charges/collection messages (with sensitive data redacted), I can walk through the effective rate, flag unconscionable terms, and help you tailor the SEC/NPC complaint language.