Updated for general doctrinal rules as of 2024. This is an informational article, not legal advice.

1) Why “excessive interest” is still a legal issue (even after usury ceilings were lifted)

No more statutory caps. The old Usury Law (Act No. 2655) interest ceilings have long been suspended, so parties may generally agree on any rate.
Courts still police unconscionable rates. Philippine courts consistently strike down or reduce interest rates, penalties, and default charges when they are iniquitous or unconscionable, relying on:
- Civil Code Art. 1956 – interest is not due unless expressly stipulated in writing.
- Civil Code Art. 1229 – courts may reduce penalties if they are iniquitous or unconscionable.
- Civil Code Art. 2227 – liquidated damages may be reduced if unconscionable.
- Public policy / equity – freedom to contract is not a license to oppress.
Disclosure still matters. The Truth in Lending Act (RA 3765) and related rules require clear disclosure of finance charges and the true cost of credit.

Bottom line: Even without a fixed legal ceiling, lenders can lose (or have rates cut) when terms are hidden, predatory, or shock the conscience.

2) Red flags that commonly support an excessive-interest complaint

Sky-high nominal rates: e.g., “5% per month” (60% p.a.) or more, especially on short, repeat-rollover loans.
“Flat rates” disguised as low: A “3% per month flat” on the original principal (not the declining balance) overstates the lender’s yield and understates the borrower’s cost.
Stacked fees: “processing,” “service,” “document,” “renewal,” “collection,” “one-time” charges that, when added, explode the effective APR.
Punitive default terms: additional penalty interest (e.g., 3%–10% per month) plus liquidated damages plus collection fees.
Poor or missing disclosure: no written contract, or the contract omits the rate, the computation method, or the total finance charge.
Unfair collection practices: threats, public shaming, contacting people in your phone book, profane/harassing messages, posting photos—these can trigger regulatory sanctions and Data Privacy and consumer-protection claims.
Adhesion contracts: one-sided, take-it-or-leave-it forms with unreadable fine print.

3) Legal bases typically invoked

Civil Code
- Art. 1956 – no interest unless written and express.
- Arts. 1229 & 2227 – reduce iniquitous/unconscionable penalties and liquidated damages.
- Art. 19–21 (Abuse of rights / human relations) – for oppressive conduct.
- Art. 1306 – contractual autonomy limited by law, morals, good customs, public order, or public policy.
Truth in Lending Act (RA 3765) – requires clear disclosure of the total finance charge and effective cost.
Financial Consumer Protection Act (RA 11765) – mandates fair treatment, transparent pricing, complaint handling, and empowers regulators to order restitution and impose sanctions.
Lending Company Regulation Act (RA 9474) and Financing Company Act (RA 8556) – licensure, conduct rules; violations can mean fines, suspension, or revocation.
Data Privacy Act (RA 10173) – prohibits unauthorized processing, excessive collection, and improper disclosure (e.g., shaming borrowers using contact lists).
Special rules for banks vs. non-banks – Banks fall under BSP; lending/financing companies under SEC; cooperatives under CDA; insurance-linked credit under IC.

4) What counts as “unconscionable” in practice?

There’s no single magic number. Courts look at totality of circumstances, including:

Magnitude of interest and penalties (monthly and annualized).
How charges are computed (flat vs. diminishing balance).
Disclosure quality and whether the borrower truly understood the costs.
Borrower vulnerability (e.g., emergency, small wage loans).
Stacking of multiple charges for the same default.
Comparative reasonableness versus prevailing market rates.

Practical trend: Monthly rates of 3% and up (36% p.a. and beyond), compounded penalties, and multiple “fees” often get judicially reduced—especially when disclosure is poor or the lender’s behavior is abusive.

5) Remedies you can ask for

Judicial reduction of interest and/or penalties to reasonable levels.
Deletion/limitation of compounding and overlapping default charges.
Recomputation of the obligation (principal, allowed interest, allowed penalties).
Refund/Restitution of unlawful or unconscionable charges.
Damages (actual, moral, exemplary) and attorney’s fees for abusive collection or bad faith.
Administrative sanctions against the lender (fines, suspension, license revocation).
Data privacy remedies (cease-and-desist, damages) for harassment/shaming.

Post-judgment interest: Unless a law or contract validly provides otherwise, courts generally apply 6% per annum on sums due from finality of judgment until full satisfaction.

6) Where to file (choose what fits your situation)

With the lender (internal complaint): Many institutions must run a Consumer Assistance Mechanism. Demand written acknowledgment and a final response.
Regulator complaint (administrative):
- BSP – for banks and BSP-supervised institutions.
- SEC – for lending/financing companies and most online lending apps.
- CDA – for cooperative lenders.
- IC – for insurance/credit life add-ons or premium-financed products.
- NPC – for Data Privacy violations (e.g., contact-list harvesting, shaming).
Court action (civil):
- Small Claims – money claims up to ₱1,000,000 (no lawyers required; speedy).
- Regular civil action – for higher claims or when seeking injunctions/damages beyond small-claims scope.
Criminal/other (where facts fit): e.g., grave coercion, unjust vexation, libel, or anti-cybercrime angles for shaming; illegal lending for unlicensed operators (via SEC).

Tip: Administrative filings do not stop prescription for civil actions. Track deadlines (see § 9).

7) Evidence checklist

Contract and promissory note (ensure the rate is written).
Schedules showing how interest/fees/penalties were computed.
Receipts, SOAs, SMS/chats/emails, call recordings.
Screenshots of app interfaces and disclosures at the point of contracting.
Proof of harassment or public shaming (messages, posts, witness statements).
Proof of licensure (or lack thereof) of the lender (SEC/BSP/CDA/IC).
Computation sheet converting all charges to effective annual rate (EAR/APR).
Your demand letter and the lender’s response (or non-response).

8) How to compute if a rate is “really” excessive

A) Convert “per month” to annual

5% per month nominal ≈ 60% p.a.
Effective annual rate (EAR) with monthly compounding: EAR = (1 + 0.05)¹² − 1 ≈ 79.6% p.a.

B) Watch out for “flat” rates

A “3% per month flat” on a 12-month loan repaid in equal installments yields an effective borrower cost far above 36% p.a. because interest is computed on the original principal, not the declining balance.

C) Stack all charges

Add processing, service, collection, insurance add-ons, and default penalties to compute the true cost. Courts look at total economic burden, not just the headline rate.

9) Prescriptive periods (how long you have)

Written contract claims: generally 10 years from breach or accrual.
Quasi-delict / tort (e.g., harassment damages): 4 years.
Administrative complaints: check the regulator’s rules; file promptly to preserve records and remedies.
Data privacy actions: timeframes depend on the specific remedy pursued; file early to secure evidence.

10) Strategy: a step-by-step playbook

Freeze the facts
- Export app data, save messages, download statements, request payoff/ledger.
Demand letter (without delay)
- Ask for: (i) contract copy, (ii) complete fee/interest disclosure, (iii) recomputation applying reasonable rates, (iv) stop-and-desist from unlawful collection.
Regulator route (in parallel)
- File with BSP/SEC/CDA/IC as appropriate; attach evidence.
- For harassment/shaming, file with the NPC for Data Privacy violations.
Recompute the debt
- Strip out unconscionable interest/penalties; re-apply a reasonable rate (often courts use 6% p.a. simple interest absent a valid stipulation).
Negotiate
- Offer payment of principal plus reasonable interest and documented fees; seek waivers of excessive penalties and incorrect compounding.
Litigate if needed
- Small Claims (≤ ₱1,000,000) for speedy money claims/refund.
- Regular civil action for declaratory relief, annulment/reformation, injunction, damages.
Protect your reputation and data
- Send a data-privacy notice demanding erasure of unlawfully obtained contacts, and prohibiting disclosure to third parties.

11) Sample demand outline (adapt as needed)

Subject: Demand for Disclosure, Cease-and-Desist from Unfair Collection, and Recomputation of Account To: [Lender Name / Compliance Office]

Please provide within 5 days: (a) executed contract and promissory note; (b) detailed interest/fee schedule; (c) licensure details.

We object to the following terms as unconscionable: [identify rates/penalties/fees and computation method].

We demand recomputation to principal plus reasonable interest and legitimate fees, and removal of unlawful charges.

Cease unfair collection and any disclosure to third parties; retain only data necessary and lawful under the Data Privacy Act.

Absent compliance, we will file with the [BSP/SEC/CDA/IC/NPC] and pursue civil remedies, including damages and attorney’s fees.

Sincerely, [Name, Address, Contact]

12) Frequently asked questions

Q1: The contract states “interest to be determined by lender from time to time.” Valid? Risky for the lender. Courts disfavor open-ended or unilateral rate-setting clauses, especially without a clear disclosure mechanism and borrower consent.

Q2: The contract is silent on interest. Can the lender still charge? Under Art. 1956, no—unless interest is expressly stipulated in writing. Absent a valid stipulation, only legal interest may be imposed by judgment.

Q3: Can penalties be higher than the interest rate? They often are, but courts reduce them when punitive or duplicative of interest.

Q4: I signed. Am I stuck? No. Signing doesn’t immunize unconscionable terms or illegal practices.

Q5: Can I get damages for public shaming by an online lender? Yes—possible Data Privacy, civil, and even criminal angles, plus regulatory sanctions.

13) Practical drafting tips for complaints and pleadings

Lead with facts + math. Attach a clear APR/EAR computation showing the burden.
Cite the Civil Code hooks (Arts. 1956, 1229, 2227) and public policy.
Invoke RA 3765 (disclosure) and RA 11765 (fair treatment; restitution).
Document harassment with timestamps and screenshots.
Pray for: reduction/annulment of unconscionable charges, recomputation, refunds, damages, injunction against unfair collection, and post-judgment 6% p.a. interest.

14) When the lender is a cooperative, bank, or insurer

Cooperatives (CDA): By-laws and CDA rules apply; still subject to public policy and anti-harassment norms.
Banks (BSP): Tighter disclosure/collection standards; robust consumer-assistance mechanisms; BSP can order corrective action.
Insurer-tied credit (IC): Scrutinize premium financing, credit life, and forced add-ons; mis-selling can fuel a complaint.

15) Settlement terms to target

Waiver of penalties and excess interest.
Fixed payoff amount with no further interest if paid by a date certain.
Record correction and deletion of unlawful negative reporting/shaming.
No-harassment and data-erasure undertakings.

16) Quick self-assessment (borrower)

Do I have everything in writing?
Do the math: what is the effective yearly cost including all fees?
Are default penalties layered (interest + penalty + fees)?
Did the lender harass or shame me?
Is the lender properly licensed with the right regulator?
Is my claim ≤ ₱1,000,000 (small claims path)?

Final word

In the Philippines, you can challenge excessive interest. The absence of a hard legal ceiling does not mean lenders may impose anything. If the overall cost is unconscionable, poorly disclosed, or enforced through abusive collection, both courts and regulators have the tools to cut it down and make you whole.

If you’d like, tell me your lender type (bank, online lending app, financing, or cooperative), the stated rate(s) and fees, and I can draft a tailored demand letter and recomputation outline for your case.