“Excessive Interest” in Philippine Loan-App Deals: A Comprehensive Legal Primer
(Updated as of June 20 2025)
1. Overview
The explosion of mobile “loan apps” has made micro-credit instantly accessible, yet it has also spawned abusive practices—most notoriously, interest and charges that balloon far beyond the principal. Philippine law does not resurrect the pre-1982 Usury Law ceilings, but it has evolved a multi-layered consumer-protection regime that, taken together, outlaws “excessive” or unconscionable interest and the predatory tactics that often accompany it. This article maps the entire landscape: statutes, regulations, jurisprudence, regulators, remedies, and practical tactics for borrowers.
2. Core Statutes & Regulations
Legal Source | Key Provisions / Relevance to Loan Apps |
---|---|
Civil Code (Arts. 19–21, 1306, 1159, 1229) | Contracts must observe justice, equity, and good customs; courts may reduce “iniquitous or unconscionable” interest. |
Act No. 2655 (Usury Law) as amended by CB Circular 905-82 | Suspended fixed ceilings, but does not prevent courts from striking down unconscionable rates. |
Republic Act (RA) 3765 — Truth in Lending Act (TILA) | Mandates full, advance and written disclosure of the “Finance Charge” and Effective Interest Rate (EIR). Non-compliance voids undisclosed charges and can incur civil/criminal liability. |
RA 7394 — Consumer Act | Declares as deceptive any hidden charges or false representations; empowers DTI and other agencies. |
RA 11765 — Financial Products and Services Consumer Protection Act (FPSCPA, 2022) | Overarching charter for the BSP, SEC, IC & CDA to police abusive terms and collection conduct; imposes fines up to ₱2 million or twice the transaction value plus imprisonment of responsible officers. |
Data Privacy Act (RA 10173) & NPC Circular 20-01 | Prohibits harvesting contacts/camera/microphone data not necessary to the loan; “debt-shaming” texts, group chats, or social-media posts are punishable. |
SEC Memorandum Circular (MC) 10-2021 (“Disclosure MC”) | Requires lending/financing companies to display their Certificate of Authority and app name; penalises hidden identities and misleading pricing. |
SEC MC 3-2022 (Interest-Rate Caps) | For loans ≤ ₱10,000 and tenure ≤ 4 months: • Nominal Interest Cap: 0.2 % /day (≈ 6 % /month). • Monthly EIR Cap: 15 % (computed the TILA way). • Penalty Cap: 5 % /month on outstanding principal. • Total Cost Cap: all interest + fees ≤ 100 % of principal. |
BSP Circular 1166-2023 (Small-Value Credit Lines by Banks/EMIs) | Mirrors SEC caps for BSP-supervised entities; violations can trigger CAMELS downgrades and monetary penalties. |
Supreme Court Small-Claims Rule (A.M. 08-8-7-SC, as amended by A.M. 11-11-6-SC) | Borrowers may sue for recovery/refund of usurious charges up to ₱400,000 without a lawyer. |
3. Defining “Excessive” or “Unconscionable”
The absence of a statutory ceiling does not give creditors a free hand. The Supreme Court has repeatedly voided or reduced interest it deemed unconscionable:
Case | Interest Struck Down | Court’s Rationale |
---|---|---|
Medel v. Court of Appeals, G.R. 131622 (27 Nov 1998) | 5.5 % per month (≈ 66 % p.a.) | “Iniquitous… shocking to the conscience.” |
Spouses Abella v. Spouses Abella, G.R. 164201 (13 Jan 2016) | 3 % per month (36 % p.a.) | Absent risk-justifying evidence, rate void. |
Security Bank v. Pabalan, G.R. 211364 (11 Jan 2021) | 48 % p.a. | Reduced to prevailing legal interest (6 % p.a.) after full payment of principal. |
Key Take-away: Courts look at proportionality, market averages, transparency, and the borrower’s bargaining power. Even a rate within the SEC/BSP caps can be cut if hidden or if combined with abusive penalties.
4. Typical Violations by Loan-App Operators
- Stacked Fees disguised as “processing,” “service,” or “platform” charges deducted upfront, inflating the effective interest above the 100 % cost-cap.
- Auto-harvesting phone contacts and sending “shame” blasts—violates both the Data Privacy Act and Art. 19 Civil Code (abuse of rights).
- Roll-over traps: requiring renewal fees every 7–14 days, with snowballing penalties beyond the 5 %/month cap.
- False threat of criminal suit for non-payment of a purely civil debt—constitutes unfair collection under SEC/BSP rules and, when combined with threats, grave coercion under the Revised Penal Code.
5. Your Rights as a Borrower
Right | Source | What It Means in Practice |
---|---|---|
Full Cost Disclosure | TILA; SEC MC 10-2021 | The app must show, before you agree, the exact peso cost, EIR, due dates, and penalties. |
Reasonable Pricing | SEC MC 3-2022; Civil Code Art. 1229 | Rates breaching the caps or “shocking the conscience” are void or reducible. |
Fair, Respectful Collection | FPSCPA IRR §14; SEC MC 18-2019 | No public humiliation, profanity, or third-party disclosure of your debt. |
Data Privacy & Security | RA 10173; NPC rules | The lender may not access your gallery, files, SMS, or contacts without a legitimate purpose expressly consented to. |
Redress & Compensation | FPSCPA §§33-37; Civil Code Arts. 21-24 | You may recover actual damages, moral damages, and nominal damages for a breached right even without financial loss. |
Easy Dispute Resolution | Small-Claims Rule; Regulator ADR | File a ₱400k-and-below claim sans lawyer; or seek mediation with SEC/BSP for free. |
Regulatory Complaint | SEC, BSP, NPC, DTI | Regulators can suspend the app, impose hefty fines, or file criminal charges against its officers. |
6. How to Enforce Your Rights
Gather Evidence Screenshots of disclosures (or their absence), chat logs, call recordings, “shaming” messages, proof of payments, and the app’s Play-Store listing.
Send a Demand Under Art. 1159 Civil Code, place the lender in default: demand correction of interest/charges and deletion of personal data accessed without clear consent.
File with the Proper Regulator • SEC – Corporate Governance and Finance Department (CGFD) handles lending/financing companies. • BSP – Consumer Empowerment Group for bank/EMI-based apps or those integrated with InstaPay/Pesonet. • NPC – If the issue involves contact scraping, identity exposure, or harassment messages. Attach your demand, evidence, and copy of any ID.
Consider a Small-Claims or Regular Civil Case • Refund of usurious interest/penalties. • Damages for harassment or privacy breach. Courts typically apply 6 % p.a. legal interest on unlawful charges from date of extrajudicial demand (per Nacar v. Gallery Frames, G.R. 189871).
Criminal Actions (last resort) • Estafa (Art. 315 RPC) – if misrepresentation or double charging. • Grave Coercion / Unjust Vexation – for threats. • Republic Act 10175 (Cyber-libel) – if public posts defame you. Coordinate with the PNP Anti-Cybercrime Group or NBI.
7. Recent Enforcement Highlights (2019 – 2025)
Year | Agency Action | Outcome |
---|---|---|
2020 | SEC revoked 63 lending CAs & ordered Google to remove 2,000+ apps. | ₱2.7 M fines; criminal cases vs. 17 officers. |
2021 | NPC slapped ₱28 M cumulative penalties on 26 apps for debt-shaming. | First application of Circular 20-01’s maximum ₱5 M per continuing breach. |
2023 | SEC issued show-cause orders to five top-grossing apps for breaching MC 3-2022 interest caps. | Two apps voluntarily slashed rates; three ceased operations. |
2024 | BSP imposed ₱29 M penalty on a rural bank partnering with an app that charged “tipping fees” outside disclosure. | Bank forced to reimburse 45,000 borrowers. |
2025 | FPSCPA fully in force; regulators launched the One-Stop e-Complaint Portal (e-FPSCP). | 3,842 complaints lodged in first quarter; average resolution time 22 days. |
8. Practical Tips Before Borrowing
- Check the SEC list of registered lending/financing companies and cross-match the exact corporate name with the developer name on Google Play or the App Store.
- Compute the Effective Interest Rate yourself. A handy thumb-rule: doubling time in months ≈ 72 ÷ monthly rate %. If you can double in <12 data-preserve-html-node="true" months, the rate is >6 %/month—already at the SEC ceiling for small loans.
- Read permissions. Deny access to Contacts, Photos, and Location; the app must remain functional for the loan contract to be valid under the Principle of Relativity (Arts. 1306-1311 Civil Code).
- Demand a copy of the Disclosure Statement (TILA). If refused, you have grounds to nullify undisclosed charges.
- Plan an exit: pay on time, then send an account-closure notice requesting deletion of your data, invoking Data Privacy rights to erasure.
9. Conclusion
While the Philippine Usury Law ceilings remain suspended, excessive interest is far from legal. Through a web of statutes—TILA, Consumer Act, FPSCPA, SEC/BSP circulars, the Data Privacy Act—and a solid line of Supreme Court cases, borrowers enjoy robust protection against predatory loan-app practices. The key is asserting those rights: documenting every violation, invoking the correct regulator, and, when needed, bringing the matter to court. With interest-rate caps now codified for small-value digital loans and regulators empowered by RA 11765, the law has finally caught up with fintech—putting abusive loan apps on notice and arming consumers with actionable remedies.