Excessive Interest in Online Loans: Philippine Law on Unconscionable Rates and How to Complain

Jurisdiction: Philippines. This is general information, not legal advice.

1) The big picture

Usury ceilings are suspended, not repealed. The old Usury Law (Act No. 2655) set caps, but these caps were suspended by Central Bank Circular No. 905 (1982). That’s why you may see very high stated rates today.
Courts still strike down “unconscionable” rates. Even without statutory caps, the Supreme Court has repeatedly voided or reduced iniquitous interest and penalty charges based on the Civil Code’s doctrines on equity, morals, and public policy.
Consumer-protection laws apply to online lenders. Online lending is governed by a web of rules—Civil Code, Truth in Lending Act, the Financial Consumer Protection Act (RA 11765), the Lending Company Regulation Act (RA 9474) and SEC rules for lending/financing companies, BSP rules for banks/e-money/pawnshops, and the Data Privacy Act (RA 10173) for abusive collection/“contact scraping.”
No jail for non-payment of debt. The 1987 Constitution forbids imprisonment for non-payment of debt or poll tax. Threats of jail (absent fraud/bounced checks, etc.) are scare tactics.

2) When is an interest rate “unconscionable”?

There’s no single magic number in Philippine law. Courts look at the totality of the deal and have:

Invalidated very high monthly rates (e.g., 3%–7% per month and above) and punitive penalties, especially when stacked with other fees or when the borrower had little bargaining power.
Reduced or deleted penalty charges if they duplicate regular interest or are clearly excessive.
Imposed legal interest instead where the stipulated rate is void.

Key Civil Code anchors

Art. 1306 – Freedom to contract, but not contrary to law, morals, good customs, public order, or public policy.
Art. 1956 – No interest is due unless expressly stipulated in writing.
Art. 1959 & 2212 – No interest on interest unless expressly agreed and (as to legal interest on accrued interest) judicially demanded.
Art. 1229 & 2227 – Courts may reduce penalties/liquidated damages if iniquitous or unconscionable.

Practical markers of unconscionability

Short tenors (7–28 days) with daily rates (e.g., “1–2% per day”), plus up-front “service/processing” deductions and hefty late fees.
“Fee-washing”: labeling charges as “fees” to disguise interest.
Adhesion: take-it-or-leave-it click-wrap contracts with hidden or unreadable terms.
Aggressive collection: threats, public shaming, contacting your phonebook.

Courts do not always strike down 18–24% per annum in commercial settings, but will more readily rein in short-term, high-fee consumer micro-loans that explode in cost.

3) APR/EIR: How to tell if the rate is excessive

Online apps often deduct fees up-front and quote “per day” interest, masking the real cost. To annualize the cost in a simple, borrower-friendly way:

Simple APR (non-compounding)

$$ \text{APR} \approx \frac{\text{Total Finance Charge}}{\text{Cash Actually Received}} \times \frac{365}{\text{Loan Days}} $$

Worked example (typical OLA pattern)

Face amount: ₱5,000
Deducted “service fee”: 20% (₱1,000) → Cash you receive: ₱4,000
Stated interest: 1%/day for 7 days → ₱350
Total you must repay in 7 days: ₱5,350
Finance charge = ₱1,350 (₱1,000 fee + ₱350 interest)

APR ≈ (₱1,350 / ₱4,000) × (365/7) ≈ 1,760% per year (simple). That’s a powerful indicator of unconscionability, regardless of how the app labels the charges.

Tip: If interest wasn’t clearly disclosed in writing before you borrowed, you can invoke Art. 1956 (no interest without written stipulation) and the Truth in Lending Act (RA 3765) (requires clear, meaningful disclosure of finance charges and effective cost of credit).

4) What parts of the contract can be attacked?

Regular interest – Void or reduced if unconscionable.
Penalty interest/late fees – Often slashed under Arts. 1229/2227 when oppressive or duplicative.
Compounded interest – Generally disallowed without clear written consent; even then, legal interest applies only from judicial demand on unpaid interest (Art. 2212).
Buried terms – Ambiguities are construed against the drafter (contra proferentem).
Privacy waivers – Overbroad consents to scrape your contacts or publicly shame you clash with the Data Privacy Act and have been the subject of enforcement actions.

5) Who regulates what?

If lender is a bank, pawnshop, EMI/e-wallet, or their partner: BSP supervises (plus RA 11765 on financial consumer protection).
If lender is a lending/financing company (most OLAs): SEC supervises (RA 9474 + RA 11765; SEC MCs on online lending and collection conduct).
If it’s a cooperative: CDA supervises.
If it’s an insurer/plan: IC supervises.
Privacy/harassment (contact-list scraping, doxxing, “shaming”): NPC (Data Privacy Act).
Criminal threats/extortion/cyber-harassment: NBI/PNP (and barangay for conciliation in certain civil disputes).

Unregistered online lenders: Operating without SEC authority can trigger cease-and-desist and penalties. Borrowers typically still owe the principal (to avoid unjust enrichment), but the lender’s non-compliance is a strong defense and may limit or defeat their ability to sue/collect, and exposes them to administrative/criminal sanctions.

6) Your rights in collection

Generally prohibited in consumer collections:

Threats of violence, defamation, or jail for mere non-payment.
Public shaming (texts or posts to your contacts, employer, school).
False representation (e.g., pretending to be a government officer).
Harassing calls/texts (especially at odd hours), obscene language, repeated robo-spam.
Contacting third parties other than for locating you, and even then without disclosing debt details.

Document everything. Abusive collection helps your case on unconscionability and can ground separate complaints (SEC/BSP) and privacy complaints (NPC).

7) What courts usually do when rates are unconscionable

Strike down the rate and impose legal interest instead (now 6% per annum) on the principal from the proper reckoning point (e.g., date of demand), or reduce rates/penalties to reasonable levels.
Delete duplicative penalties and disallow snowballing interest on interest.
Award damages (sometimes moral/exemplary) for abusive collection, plus attorney’s fees in proper cases.

8) How to complain (step-by-step)

A) Build your evidentiary file

Screenshots of every loan screen before you clicked “Agree” (rates, fees, tenor).
The Disclosure Statement (if any), e-mail/SMS confirmations, e-signed contract.
Proof of disbursement (bank/e-wallet), repayment receipts.
Logs of calls/SMS/IM, especially abusive ones; photos of threats/shaming posts.
A simple APR/EIR worksheet (use the formula above).

B) Start with the lender’s helpdesk (required by RA 11765)

File a formal written complaint through their in-app or e-mail channel. Keep the ticket/acknowledgment.
Ask for: (i) Itemized finance charges; (ii) Rate reduction to a reasonable/legally compliant level; (iii) Cessation of harassment; (iv) Correction of data shared with third parties.

C) Escalate to the right regulator

SEC – for lending/financing companies and unfair collection; request cease-and-desist, administrative penalties, and restitution/refund under RA 11765.
BSP – for banks, pawnshops, EMIs/e-wallets, and their agents; invoke the Financial Consumer Protection framework.
NPC – for privacy violations (contact scraping, disclosure to contacts, shaming posts); ask for orders to stop processing, delete data, and penalties.
CDA/IC – if it’s a coop/insurance product.
NBI/PNP – for grave threats, extortion, cyber-harassment. Save the URLs, numbers, and headers.

You can pursue multiple tracks at once (e.g., SEC for lending abuses and NPC for privacy). Keep your case numbers aligned across filings.

D) Consider court action

Small Claims: For money claims up to ₱1,000,000, you can sue in first-level courts without a lawyer using the Small Claims rules (ideal to recover overcharges or damages for abusive collection).
Defensive posture: If the lender sues you, plead unconscionability, lack of written stipulation (Art. 1956), fee-washing, privacy violations, and seek rate reduction to legal interest and damages for abuse.

9) Templates you can adapt

(1) Letter to the lender (rate reduction & cease harassment)

Subject: Request for Rate Review, Cease-and-Desist on Abusive Collection, and Data Correction I am writing to dispute the interest and fees on Loan No. ______ dated ______. The effective annual cost of credit, based on your deductions and required repayment, is approximately ______% p.a., which is unconscionable. Under Civil Code Arts. 1306, 1956, 1229 and 2227, and the Financial Consumer Protection Act (RA 11765), I request that you:

Reduce charges to a reasonable level (not exceeding legal interest of 6% p.a.) and waive duplicative penalties;

Provide an itemized disclosure of all finance charges and the effective rate;

Cease communications to my contacts and any public posts; and

Rectify/delete any unlawfully processed personal data. Kindly respond within ___ calendar days. I reserve my rights to seek regulatory and judicial relief.

(2) Outline for a regulatory complaint (SEC/BSP/NPC)

Complainant: Name, address, contact
Respondent: App name, legal entity (if known)
Facts: Date borrowed, face amount, cash received, due date, repayment amount; attach screenshots/receipts
Issue: Unconscionable interest/fees; lack of clear disclosure; abusive collection/privacy violations
Relief sought: Rate/penalty reduction, refund of overcharges, cessation of harassment, data deletion, administrative fines, restitution under RA 11765
Attachments: Evidence bundle, APR worksheet, prior demand to lender

10) Practical defenses to common lender arguments

“You clicked agree.” Consent does not validate terms that are against public policy or unconscionable.
“Those are fees, not interest.” Courts look at substance over labels; all charges incident to credit count toward the effective rate.
“We can compound interest.” Not without clear written stipulation; even then, legal interest on unpaid interest runs only from judicial demand.
“We’ll send you to jail.” Non-payment of debt is not a crime. Jail threats bolster your abuse case.

11) Negotiation strategy that often works

Acknowledge the principal (less any unlawful deductions).
Offer to pay principal + 6% p.a. legal interest from date of default/demand, and reasonable documented fees.
Condition any settlement on a clean-slate letter and deletion of any harassing posts/messages.
Get everything in writing before you pay.

12) Red flags & self-protection

No clear legal name/physical address/registration details.
Daily rates and up-front deductions >10–20% of the face amount.
Access requests to your contacts, photos, and social media as a condition of approval.
Threats or public shaming in the app’s T&Cs or marketing.
“Roll-over” traps: pushy offers to refinance repeatedly.

Do this before borrowing:

Screenshot the rate, fees, and tenor screens; keep a copy of the Disclosure Statement.
Borrow only what you can repay in full on the due date.
Prefer regulated institutions you can verify and that give transparent APRs.

13) Quick FAQ

Q: Can I refuse to pay any interest at all? If there’s no written stipulation, yes (Art. 1956). If there is a written rate but it’s unconscionable, courts typically reduce/replace it with legal interest.

Q: The lender is not registered. Is the loan void? Regulatory non-compliance can bar or hamper enforcement and merits sanctions, but courts often allow recovery of principal to avoid unjust enrichment—while denying excessive charges.

Q: Can they sue me in a far-away city? Oppressive venue clauses in consumer contracts may be set aside. You can contest improper venue/choice-of-forum.

Q: They messaged my boss and classmates. What can I do? File NPC privacy complaints and SEC/BSP misconduct complaints, keep screenshots, and consider damages in court.

14) Bottom line

There’s no statutory interest ceiling for most loans, but there is a ceiling imposed by conscience and public policy.
Document, dispute, and escalate. Use the APR test, invoke the Civil Code and RA 11765, and complain to the proper regulator(s)—and to the courts if needed.
When negotiating or litigating, a reasonable benchmark is principal + 6% p.a. legal interest, with unlawful fees and abusive penalties struck out.

If you’d like, share your actual numbers (face amount, cash received, days to maturity, total due, and any fees). I’ll compute the APR, identify which charges are vulnerable, and draft a regulator-ready complaint package tailored to your case.