Excessive Interest Rates on Online Loans in the Philippines: A Comprehensive Overview

In recent years, the rapid rise of online lending platforms in the Philippines has made borrowing more accessible and convenient—particularly for individuals who have difficulty securing traditional bank loans. However, with convenience has come a notable surge in complaints about abusive debt collection practices and excessive interest rates. This article outlines the legal framework governing interest rates in the Philippines, explores the regulatory environment for online lenders, and explains the rights and remedies available to borrowers who find themselves burdened by steep finance charges.

1. Historical and Legal Foundations of Interest Rate Regulation

1.1. The Anti-Usury Law (Act No. 2655) and Subsequent Developments

Historically, the Philippines has had usury laws dating back to Act No. 2655 (the “Anti-Usury Law”), enacted in 1916. This law set ceilings on interest rates to protect borrowers from being charged unconscionable fees. Over time, however, economic realities prompted amendments, including:

Presidential Decree No. 116 (1973), which increased the allowable interest rates for certain transactions.
Central Bank Circulars that gradually lifted the strict imposition of fixed ceilings and authorized parties to agree on the rate of interest freely.

By the 1980s and beyond, the Anti-Usury Law’s fixed ceilings on interest became effectively inoperative as the Bangko Sentral ng Pilipinas (BSP) began to liberalize the setting of interest rates. Despite this, courts have maintained the power to strike down interest rates that are found to be “excessive,” “unconscionable,” or “contrary to morals.”

1.2. Supreme Court Jurisprudence on Unconscionable Rates

Although Filipino law no longer imposes a strict, blanket cap (e.g., a fixed 12% per annum) on interest rates, Philippine Supreme Court decisions have made it clear that courts may intervene if the imposed rate is proven to be inordinately high and shocks the conscience. In Medel v. Court of Appeals (1998), for example, the Supreme Court reduced a 5.5% per month interest rate (66% per annum) to a more equitable level, deeming the original rate unconscionable.

2. Regulatory Framework for Online Lending

2.1. The Lending Company Regulation Act of 2007 (Republic Act No. 9474)

Online lending platforms typically fall under the purview of the Lending Company Regulation Act of 2007 (R.A. 9474). This law requires:

Registration with the Securities and Exchange Commission (SEC).
Adequate Disclosure of Loan Terms and Charges.
Maintenance of a certain minimum capitalization, depending on the size and area of operation.

While R.A. 9474 does not specify a fixed interest rate cap, it gives the SEC authority to ensure that lending activities are “fair, honest, and equitable.”

2.2. Truth in Lending Act (Republic Act No. 3765)

R.A. 3765, commonly known as the Truth in Lending Act, requires lenders—offline or online—to provide clear and complete information on:

Finance charges (interest and other fees).
Effective interest rates, including how these rates are compounded.
Payment schedules and any penalties or default charges.

Failure to make the required disclosures can subject a lending entity to civil and criminal liability.

2.3. Securities and Exchange Commission (SEC) Circulars and Advisories

The SEC closely monitors online lending platforms via special advisories and occasionally suspends or revokes licenses of those found engaging in abusive practices. Notably, the SEC has issued warnings to the public about unauthorized lending apps and has clamped down on those that impose hidden charges or extremely high interest rates.

Furthermore, the SEC has ordered errant online lenders to cease and desist if they fail to register or if they violate disclosure rules.

3. Common Abuses in Online Lending

Exorbitant Interest Rates and Fees
Some online lenders impose daily or weekly interest charges that quickly balloon the total amount due, sometimes amounting to interest rates of several hundred percent per annum.
Unclear or Misleading Loan Terms
Borrowers often discover only upon repayment—or default—that the effective interest rate is far higher than advertised.
Harassment and Public Shaming
It is not uncommon for unscrupulous online lending apps to contact friends, family, or employers of delinquent borrowers, sometimes posting humiliating messages on social media. These actions not only violate lending regulations but may also run afoul of data privacy laws.
Unauthorized Data Access
Some apps force users to grant access to contacts, photos, and other personal data, which are then used to harass or threaten borrowers in case of default.

4. Applicable Laws Protecting Borrowers

4.1. Data Privacy Act of 2012 (Republic Act No. 10173)

The Data Privacy Act penalizes companies—lenders included—that collect or process personal data without proper consent, or misuse it in ways beyond the scope of the original agreement. It also confers rights on data subjects, such as the right to:

Withdraw consent for data processing,
Seek damages for unauthorized use of personal information,
File complaints with the National Privacy Commission (NPC).

4.2. The Revised Penal Code

Extreme harassment or threats by lenders (e.g., threatening physical harm, blackmailing with personal data) can give rise to criminal liability under various provisions of the Revised Penal Code such as grave threats, slander, or unjust vexation.

4.3. Consumer Act of the Philippines (Republic Act No. 7394)

Although more focused on the sale of consumer products, R.A. 7394 also supports consumer protection principles that extend to financial transactions. Misrepresentation of loan terms and hidden charges, for example, may be deemed fraudulent and punishable under consumer protection provisions.

5. Determining “Excessive” or “Unconscionable” Interest

Since the Philippines no longer adheres to a strict usury ceiling, the determination of an “excessive” rate is typically left to the courts. Factors considered include:

Market Conditions: Prevailing interest rates and the nature of the financial market.
Type of Loan: Consumer loans, personal loans, or microfinance often have different risk profiles than big commercial loans.
Borrower’s Economic Circumstances: Courts may look at the borrower’s vulnerability or potential lack of alternatives.
Comparisons with Industry Norms: Courts consider whether similarly situated lenders typically charge significantly lower rates.

If a rate is declared unconscionable, courts have the power to reduce the interest to a more reasonable level.

6. Filing Complaints and Seeking Remedies

6.1. Where to File Complaints

Securities and Exchange Commission (SEC): For violations of the Lending Company Regulation Act and related rules.
National Privacy Commission (NPC): For breaches of data privacy, harassment using personal data, or unauthorized disclosure of personal information.
Bangko Sentral ng Pilipinas (BSP): Though primarily regulating banks and quasi-banks, the BSP may receive complaints if the online lender is affiliated with a BSP-supervised entity.
Department of Trade and Industry (DTI): For fraudulent or deceptive practices, although this is more commonly applied to goods and services rather than loans.
Local Police / NBI: For threats, harassment, or other criminal actions under the Revised Penal Code.

6.2. Civil Remedies

A borrower may file a civil case to:

Nullify or Reform Contracts containing unconscionable terms, including interest rates.
Seek Damages for any harm caused by unfair collection practices or reputational harm from public shaming.

6.3. Criminal Liability

Violations of the Truth in Lending Act can also lead to criminal sanctions if there is willful non-compliance with mandatory disclosures. Moreover, harassment or threats that amount to criminal offenses (e.g., unjust vexation, grave threats) can be prosecuted under the Revised Penal Code.

7. Best Practices for Borrowers

Read the Fine Print: Always check the Annual Percentage Rate (APR), effective interest, penalties, and other charges before accepting any loan offer.
Compare Multiple Lenders: Seek out more reputable lending platforms with transparent rates and user feedback.
Check Registration: Confirm whether a lending entity is duly registered with the SEC. Unlicensed operators pose higher risks of imposing illegal or exploitative terms.
Be Vigilant About Privacy: Carefully review app permissions and the platform’s privacy policy. Avoid granting unnecessary access to contacts or photos.
Document Everything: Save screenshots of loan terms, text messages, and any evidence of harassment. This documentation can be critical if you later need to file a complaint.

8. Conclusion

While online lending has made credit more accessible in the Philippines, it has also opened the door for unscrupulous operators charging exorbitant interest rates and employing abusive collection methods. Under Philippine law, there is no absolute numerical cap on interest; yet courts, regulators, and lawmakers continue to condemn rates and practices that are deemed excessive, unconscionable, or contrary to public policy. Borrowers who find themselves subjected to questionable loan terms or collection methods have multiple legal avenues for relief, ranging from regulatory complaints to civil litigation and even criminal prosecution where warranted.

Ultimately, the key to protecting oneself lies in staying informed, carefully reading and understanding the loan terms, dealing only with accredited lenders, and promptly reporting any abuses to the appropriate government agencies. By knowing and exercising one’s rights, borrowers can better avoid the pitfalls of excessive interest and abusive practices that have become all too common in the realm of online lending.