EXCESSIVE INTEREST RATES IN ONLINE LENDING APPS: A PHILIPPINE LEGAL PRIMER
1. Introduction
The explosion of smartphone‐based “online lending apps” (OLAs) in the Philippines since ≈ 2016 has unlocked quick credit for millions of Filipinos—but also revived an old evil: usurious or unconscionable interest and fees, sometimes layered with abusive collection tactics and data-privacy violations. Because the pre-1982 Usury Law ceilings were suspended by Bangko Sentral ng Pilipinas (BSP)-Circular 905, the Philippines has no fixed statutory rate cap; instead, reasonableness is policed through sector-specific regulation, central-bank circulars, Securities and Exchange Commission (SEC) directives, the Civil Code’s fairness doctrines, and case-law.
This article surveys the entire Philippine legal landscape governing excessive interest in OLAs, explains how a borrower may complain, and outlines the liability risks for fintech-lenders.
2. Statutory and Regulatory Framework
| Instrument | Key Provisions on Interest & Charges |
|---|---|
| RA 9474 – Lending Company Regulation Act (2007) | • Lending companies must “charge only such rates… as may be agreed upon” but SEC may suspend/revoke licenses for “unconscionable” interest. • Sec. 9(e) empowers SEC to set ceilings by Rule. |
| RA 11765 – Financial Consumer Protection Act (2022) | • Broad power to BSP, SEC, Insurance Commission & CDA to issue conduct rules that can cap charges. • Provides administrative, civil & criminal penalties for abusive practices. |
| BSP Circular 1098 (2020) | Caps credit-card interest at 2 %/month (24 % p.a.) and fees (P200 cash-advance charge) – persuasive precedent for small-loan caps. |
| BSP Memorandum M-2023-039 (pilot cap for payday-style digital loans, ≤ ₱10 000, ≤ 90 days) | Imposes nominal interest cap of 0.8 % per day and total cost of credit (TCC) cap at 35 % of principal; currently voluntary but cited by SEC in enforcement. |
| SEC Memorandum Circular No. 18-2019 | Registration rules for OLAs; requires full disclosure of APR and fees. |
| SEC MC 19-2019 & 10-2021 | Prohibits unfair debt-collection (public shaming, threats) and flags interest stacking as unfair practice. |
| RA 7394 – Consumer Act | Declares “unfair or unconscionable sales acts” unlawful (Sec. 48). |
| Civil Code (Arts. 1229, 1306 & 1159) | Courts may reduce or nullify interest deemed “iniquitous or unconscionable.” |
| Data Privacy Act (2012) | Collection of contacts/photos to coerce payment may violate data-privacy principles. |
Take-away: While no across-the-board statutory cap exists, regulators can fix sectoral caps, and courts routinely strike down oppressive rates.
3. Supreme Court Doctrine on Unconscionable Interest
Even after Circular 905, courts intervene when interest “shocks the conscience.” Representative rulings:
| Case | Rate Struck Down | Ratio decidendi |
|---|---|---|
| Medel v. CA (G.R. 131622, 27 Nov 1998) | 66 % p.a. | “Plainly excessive and unconscionable; reduce to 12 %.” |
| Spouses Almeda v. CA (G.R. 131692, 11 Apr 2002) | 6 %/month (72 % p.a.) | Court may equitably temper under Art. 1229. |
| Spouses Abella v. CACIB (G.R. 164298, 14 Apr 2008) | 5 %/month (60 % p.a.) | Retained but imposed interest-on-interest prohibition. |
| Cebu Teachers’ v. PNB (G.R. 173131, 13 Mar 2013) | 120 % p.a. | Slashed to 12 % and disallowed penalty charges as usurious penalty. |
Trend: Anything reaching 3 %/month (≈ 36 % p.a.) may be labelled usurious unless justified by market norms; rates ≥ 5 %/month are routinely chopped.
4. How to Lodge a Complaint
Identify the Regulator
- SEC Enforcement and Investor Protection Department (EIPD) – if the lender is a lending/financing company or an unlicensed OLA.
- BSP Consumer Assistance Management System (CAMS) – if the app is operated by a bank, e-money issuer, or BSP-supervised fintech.
- National Privacy Commission (NPC) – for privacy violations.
- DTI – Fair Trade Enforcement – if framed as unfair sales practice under RA 7394.
Gather Evidence
- Loan contract & in-app screenshots of interest schedule.
- Payment receipts, chat messages, call recordings, proof of harassment.
File
- SEC Online Complaint Form (EIPD portal) or e-mail to epd@sec.gov.ph.
- BSP: cams@bsp.gov.ph or hotline (02) 8708-7087.
- NPC: complaints@privacy.gov.ph.
Possible Outcomes
- Cease-and-desist order (CDO), deletion from Google Play/AppStore.
- Revocation of certificate of authority (e.g., Cash Lending Co., C.A. revoked 2019).
- Administrative fine up to ₱1 000 000 per violation plus ₱2 000/day for continuing offense (RA 9474).
- Referral to DOJ for criminal prosecution (up to ₱50 000 fine + 6‒20 years imprisonment under RA 9474 Sec. 23).
- For banks/EMIs: BSP may impose ₱30 000/day penalty and fit-and-proper disqualification.
5. Defenses & Lender Compliance Checklist
| Risk Area | Common Violations | Mitigation |
|---|---|---|
| Interest & Fees | • Nominal rate > 0.8 %/day • Non-disclosure of APR • Hidden “service fees” | • Adopt APR-based disclosure • Align with BSP pilot caps • Board‐approved pricing policy |
| Debt Collection | • Threats, doxxing, SMS blast to contacts | • Strictly follow SEC MC 19-2019 • Third-party collectors must sign code-of-conduct |
| Data Privacy | • Excessive permission requests (camera, contacts) | • Minimize data, show consent menu, privacy notice |
| Licensing | • Operating without Certificate of Authority | • Register under RA 9474; exhibit CA number on app store listing |
| AMLA & Terror-Financing | • No KYC, no transaction screening | • Integrate electronic KYC, sanctions screening |
| Cyber Fraud | • “Phishing” style repayment links | • Use in-app or bank-authenticated payment rails |
Failure to implement these controls heightens regulator scrutiny and potential civil suits.
6. Civil Remedies for Borrowers
- Judicial Reduction or Nullification of Interest – Sue in RTC/MTC (or Small Claims Court if ≤ ₱1 000 000); invoke Art. 1229 & case-law.
- Damages for Moral & Exemplary Injury – harassment may support moral damages; pattern of abuse merits exemplary damages.
- Rescission for Vitiated Consent – if deceptive UI misrepresented cost of credit.
- Class or Test Cases – permitted under Rule 3, Sec. 12 (representative suits) and FCP Act Sec. 31.
7. Criminal Exposure
| Statute | Offense | Penalty |
|---|---|---|
| RA 9474 Sec. 23 | Operating without SEC authority / employing harassment | ₱10 000–₱50 000 fine & 6–20 yrs prison |
| Revised Penal Code, Art. 315(2-a) | Estafa by fraudulent loans | Prision correccional to reclusion temporal + restitution |
| RA 10175 – Cybercrime Act | Qualified threats/libel via ICT | Higher penalties (1 degree higher) |
| RA 11934 – SIM Registration Act | Using unregistered SIM for harassment | ₱100 000–₱1 000 000 & up to 2 yrs prison |
8. Policy Developments and Reform Proposals
- Pending Senate Bill 166 (Usury Revival Act) – proposes 36 % p.a. hard cap for loans ≤ ₱50 000.
- House Bill 6779 – “Loan Interest Rate Cap Act” mirroring BSP pilot caps nationwide.
- SEC Fintech License Tiering (draft 2025) – interest-based “traffic-light” approach: ≤ 24 % p.a. = green, 25–48 % = yellow (enhanced monitoring), > 48 % = red (denied).
- BSP “Lending Stack” Sandbox – ongoing trial of algorithmic credit-scoring with built-in usury guardrails.
9. Practical Tips for Borrowers
- Compute the APR. Convert daily/weekly rates to annual terms; any figure breaching 36 % p.a. is suspect.
- Screenshot Everything. Philippine courts accept screenshots as secondary evidence (Rules on Electronic Evidence).
- Pay via Formal Channels. Avoid giving debit-card details through SMS links.
- Send a Demand Letter before suing to toll interest and show good faith.
- Consider Compromise under ADR rules—many OLAs settle when faced with litigation.
10. Conclusion
Philippine law treats interest freedom as a default—but not a license for oppression. Through the combined muscle of SEC disciplinary powers, BSP sectoral caps, the Financial Consumer Protection Act, the Civil Code’s unconscionability principle, and a string of Supreme Court precedents, borrowers have robust weapons against exorbitant interest in online lending apps. Lenders who ignore these guardrails court reputational ruin, loss of licence, heavy fines, and even jail. Consumers, regulators, and fintech innovators must collaborate to balance financial inclusion with fair-lending norms—so that digital credit expands opportunity without reviving usury’s ancient sting.