Executive summary

In the Philippines, there is no general statutory usury ceiling because the Usury Law’s interest caps were suspended decades ago. Still, excessive or “unconscionable” interest can be void or judicially reduced under the Civil Code and Supreme Court doctrine. Online lenders are also bound by special sector rules (SEC registration and conduct requirements, data-privacy rules, the Financial Consumer Protection Act), and — for certain consumer micro-loans — regulatory rate caps and fee limits issued by the Securities and Exchange Commission (SEC). Abusive collection practices (e.g., “doxxing,” public shaming) are prohibited and sanctionable.

Practical takeaways: (1) Unconscionable rates can be struck down or reduced by courts; (2) SEC polices online lending companies and can fine/suspend them; (3) NPC may penalize privacy violations; (4) Consumers can challenge abusive charges through regulators and courts and seek recomputation at lawful/reasonable rates.

Legal framework

1) Contract freedom vs limits on interest

Freedom to stipulate: Parties may agree on interest (Civil Code Art. 1306), but interest must be expressly stipulated in writing (Art. 1956).
Judicial control: Courts may strike down or reduce interest/penalties that are iniquitous, unconscionable, or contrary to morals/public policy (Arts. 1229 on penalties; 2227 on liquidated damages; 19–21 on abuse of rights; 1409 on void stipulations).
Doctrine: Even without a statutory cap, the Supreme Court has repeatedly reduced steep rates (e.g., double-digit monthly rates) to more reasonable levels, applying the unconscionability standard.

2) Usury Law and BSP “legal interest”

Usury caps suspended: By Central Bank/BSP circulars (not repealed Usury Law, but ceiling suspended), there is no fixed numeric cap generally applicable to private loans.
Legal interest for forbearance/damages: The default/“legal” interest for monetary judgments and forbearance is 6% per annum (post-2013 jurisprudence and BSP circulars). This does not bar higher contractual rates, but serves as a benchmark when courts recompute excessive charges or where no valid stipulation exists.

3) Sectoral regulation of online lending apps

Lending Company Regulation Act (LCRA) — R.A. 9474:
- Requires SEC registration and licensing before engaging in lending as a business.
- Penalizes unregistered or non-compliant lending operations and misrepresentations.
Financing Company Act (FCA) — R.A. 8556 (as amended): Applies to financing companies distinct from lending companies, also overseen by the SEC.
Financial Consumer Protection Act (FCPA) — R.A. 11765 (2022):
- Empowers financial regulators (including the SEC for lending/financing companies) to set market-conduct standards, cap fees/charges for specific products, order restitution, and impose administrative sanctions for abusive collection, misleading advertising, unfair contract terms, or overcharging.
SEC issuances for consumer micro-loans: For small, short-tenor consumer loans commonly offered by online lending apps, the SEC has issued circulars prescribing rate and fee ceilings, disclosure rules, and debt-collection conduct standards. While general usury caps remain suspended, these targeted caps and fee limits are binding on covered lending/financing companies and their digital channels.
Debt-collection rules: SEC memoranda prohibit threats, profane language, public shaming, workplace disclosures, contact-spamming of a borrower’s phonebook, collection outside permitted hours, and other unfair practices. Violations can trigger fines, suspensions, or license revocation.

4) Data privacy and harassment

Data Privacy Act — R.A. 10173:
- Requires lawful, transparent, and proportionate processing of personal data.
- Using a borrower’s contacts for harassment/shaming, or scraping excessive permissions, can be unlawful processing.
- The National Privacy Commission (NPC) has sanctioned online lenders for privacy violations tied to abusive collection.
Other laws: Depending on conduct, libel, grave coercion, unjust vexation, and anti-cybercrime provisions can be implicated in extreme cases of shaming or threats.

When is an interest rate “excessive” or “unconscionable”?

Courts use a totality-of-circumstances test rather than a single number. The following factors commonly matter:

Magnitude and structure
- Monthly rates stacking up to triple-digit annualized costs (APR/EIR) are suspect.
- Add-ons like “processing fees,” “service fees,” or “facilitation fees” deducted upfront effectively inflate the true cost of credit.
Transparency & disclosure
- Was the effective cost (APR/EIR) clearly disclosed before disbursement?
- Were penalties, default interest, and collection fees conspicuously explained?
Borrower leverage & context
- Payday-style, no-underwriting, emergency loans to vulnerable consumers invite closer scrutiny.
Penalty layering
- Default interest on top of regular interest, plus penalties and collection charges, may be deemed duplicative or oppressive.
Comparative benchmarks
- BSP legal interest (6% p.a.) is not a cap, but courts often re-anchor recomputation to this or other reasonable rates where stipulations are void/unconscionable.
Regulatory caps (where applicable)
- For covered micro-loans, SEC-imposed monthly caps and penalty/fee limits provide bright lines. Charging beyond those limits is a regulatory violation even if the borrower signed.

Anatomy of common online-lending charges (and how courts/regulators treat them)

Charge	Typical form	Legal treatment
Stipulated interest	“x% per day/week/month,” often quoted as “₱ cost per ₱1,000”	Valid if in writing and not unconscionable; otherwise reduced or voided.
Default interest	Higher rate after due date	Permissible but can be struck/reduced if punitive or duplicative with penalties.
Penalty	“Late payment fee/penalty of x% per day/month”	Subject to Art. 1229 reduction if iniquitous or disproportionate.
Processing/service fees	Upfront deductions from loan proceeds	Count toward effective interest; undisclosed or excessive fees may be invalid or refundable.
Collection/attorney’s fees	Fixed percentage or “10–25% of amount due”	Allowed if reasonable and actually incurred; courts often slash percentages to reasonable sums.
Referral/technology fees	Add-on by app/partner	Scrutinized as cost of credit; must be clearly disclosed and within SEC limits where applicable.

How to evaluate and challenge an excessive loan

Step 1 — Gather documents and data

Loan agreement, e-mail/SMS/app screenshots, e-wallet release proof, amortization/repayment schedule, receipts, and collection messages.
Note dates, principal released, net proceeds (after deductions), due dates, and all charges.

Step 2 — Compute the effective cost of credit

Start with the net cash actually received (principal less upfront fees).
Model the time value of each repayment to estimate APR/EIR.
Separate regular interest, default interest, penalties, and fees. Where a loan violates SEC caps (for covered products) or rates are patently oppressive, mark those amounts for exclusion or reduction.

Step 3 — Identify legal hooks

No written interest? Only legal interest may apply.
Unconscionable rates/penalties? Seek judicial reduction/voiding of the offending stipulations.
Regulatory breaches (rate caps, conduct rules)? File with SEC for administrative sanctions and restitution under the FCPA and sector laws.
Privacy abuses/harassment? File with NPC (and evidence with law enforcement if criminal acts occurred).

Step 4 — Demand letter and negotiation

Send a written demand disputing unlawful charges and proposing recomputed amounts.
Insist that collection stop on the contested portion pending resolution; cite FCPA and SEC/NPC rules on consumer protection and fair collection.

Step 5 — File cases if needed

Regulatory complaints:
- SEC (Enforcement and Investor Protection Department) for overcharging, uncapped fees on covered products, unlicensed lending, or abusive collection.
- NPC for data-privacy violations (e.g., contact scraping/shaming).
Civil suit (RTC or, if within threshold, Small Claims):
- Seek declaration of nullity of unconscionable terms, reformation/reduction of interest/penalties, restitution of overpayments, and damages for abusive practices.
Criminal/administrative:
- Unlicensed lending under the LCRA; libel/coercion/cybercrimes for shaming or threats where elements are present.

Defenses typically raised by borrowers (and how courts view them)

Unconscionability: “The combined interest/penalties reach triple-digit annual rates.”
- Courts may reduce to a reasonable rate and disallow stacking of duplicative charges.
Lack of informed consent: “Key charges were hidden in fine print or only shown after disbursement.”
- Stronger where disclosures were inadequate or misleading; regulators may order restitution.
No written stipulation: “Interest was not clearly set in writing.”
- Only legal interest applies; other charges may be void.
Penalty duplication: “Default interest plus daily penalty plus collection fee for the same delay.”
- Courts typically pare down to prevent double recovery.
Unlicensed lender: “The app has no SEC license.”
- Contracts may be voidable for illegality; regulators can shut down operations and penalize the operator.

Evidence and documentation checklist

Government-issued ID; the exact corporate name of the lender (from the app/receipts).
SEC registration/Certificate of Authority details (often in app footer or disclosure page).
The promissory note/loan terms, screenshots of rates/fees, timestamps of consent.
Disbursement proof (e-wallet/bank credit) and net cash actually received.
Payment history, including automatic debits, and any refunds.
Communications evidencing threats/shaming, including caller IDs, message headers, and contact-list scraping consents requested by the app.
Computation sheet showing how the claimed balance was built.

How courts typically recompute

Strike illegal/unconscionable interest/penalty stipulations.
Apply a reasonable rate (often 6% p.a. legal interest) from default until full payment, unless a valid, non-oppressive contractual rate is retained.
Deduct unlawful fees/duplicative charges and credit all payments first to principal, then to lawful interest.
Reduce attorney’s fees/collection charges to reasonable amounts.

Regulatory remedies and sanctions overview

SEC (for lending/financing companies and their apps):
- Administrative fines, cease-and-desist, suspension/revocation of license, order to refund/exclude unlawful charges, and publication of blacklisted apps.
NPC:
- Compliance orders, fines, and directives to cease unlawful processing, delete unlawfully obtained data, and notify affected contacts where appropriate.
DTI:
- Can act on deceptive marketing (e-commerce/consumer-protection angles) for non-financial aspects of the transaction.
Law enforcement:
- For crimes such as libel, grave coercion, threats, or cybercrime conduct in collections.

Special issues in online lending

Click-wrap consents: Courts examine clarity and prominence; hidden “fees” deep in hyperlinked terms fare poorly.
Permissions overreach: Access to contacts/photos/location must be necessary and proportionate; misuse invites NPC action.
Third-party collectors: Lenders remain responsible for agents’ abuses.
Cross-border apps: Offering loans to persons in the Philippines targets the local market; operators still risk SEC/NPC jurisdiction.
Rollover loans: Repeated “renewals” with fresh fees can be treated as single continuous credit, elevating the effective cost and scrutiny.

Litigation and prescription

Written contracts: Actions based on written loan contracts generally prescribe in 10 years from breach.
Administrative complaints: File promptly; regulators may set filing windows in their rules.
Evidence retention: Preserve app data (screenshots, logs) and request transaction histories from e-wallets/banks.

Borrower strategy blueprint (concise)

Freeze facts: Secure all documents and screenshots; export app data.
Recompute: Build a net-proceeds and effective-rate spreadsheet; isolate unlawful charges.
Send dispute: Formal letter/email contesting excessive charges and abusive conduct; cite FCPA, LCRA/FCA, Civil Code doctrines.
Regulatory filing: Lodge complaints with SEC (overcharging/abusive collection) and NPC (privacy abuses).
Court action: If needed, seek reduction/nullity of unconscionable terms, restitution, and damages; ask for injunctive relief against harassment.
Record everything: Calls, threats, payment demands, and any attempt to contact your employer/contacts.

Bottom line

Even without a universal usury ceiling, excessive rates by online lending apps are legally vulnerable. Between Civil Code unconscionability, SEC-imposed caps and conduct rules for consumer micro-loans, the Financial Consumer Protection Act’s enforcement toolkit, and data-privacy safeguards, borrowers have multiple avenues to invalidate, reduce, or recover oppressive charges — and to curb abusive collection tactics.