Excessive Interest Rates on Online Loans (Philippines)

Practical legal guide for borrowers, counsel, and compliance teams. Philippine context; no external search used. This is general information, not legal advice.

1) The big picture: “No usury” is not a license to gouge

The Usury Law’s interest ceilings are not in force (they were lifted by monetary authority decades ago).
But Philippine courts still strike down interest, penalty, and fee schemes that are “unconscionable” or contrary to morals, good customs, public policy (Civil Code arts. 19, 20, 21, 1306, 1352, 1409, 1229/2227 on reducing penalties).
Result: even with an e-signed loan contract, a court or adjudicator can void or reduce excessive interest/charges and replace them with legal interest (commonly 6% per annum on money judgments) from the proper reckoning point.

Takeaway: There is no statutory cap for most private loans, but the courts (and regulators under consumer-protection mandates) police unconscionability and abusive practices.

2) Who regulates online lenders?

Banks/e-money issuers → primarily BSP (Bangko Sentral ng Pilipinas).
Financing/Lending companies & their online lending platforms (OLPs) → SEC (Lending Company Regulation Act & Financing Company Act; implementing rules, OLP registration rules, disclosure, and debt-collection standards).
Data handling/harassment → National Privacy Commission (NPC) (Data Privacy Act).
Deceptive acts & consumer redress → Financial Consumer Protection Act (FCPA) framework (applies via the competent regulator: BSP or SEC).
Criminal harassment/defamation/extortion → PNP/DOJ/NBI (anti-cybercrime, grave threats, unjust vexation, etc.).

3) What courts call “excessive” (typical patterns)

Courts don’t use a single number; they look at context and total cost of credit. Red flags:

Sky-high periodic rates: e.g., 3–10% per month (or worse, 1–2% per day).
Short-term loans with “processing fees” or “service charges” deducted up-front, effectively inflating the rate (APR explodes when you only receive a net amount).
Stacked charges: interest + daily late fees + “collection fee” + “legal fee” + “app fee” on the same principal (double counting).
Penalty clauses that are disproportionate (e.g., flat 10% penalty plus 3% per month default interest and per-day charges).
Auto-rollover that capitalizes unpaid interest into principal repeatedly.
Disclosure failure: vague or hidden pricing, or no APR; terms appear only after you upload IDs/contacts.
Tie-in practices: forcing insurance/“membership” that you can’t reasonably decline.

How courts fix it: reduce the rate to a reasonable level or to legal interest, nullify abusive penalties, and recompute.

4) APR reality check (why “1% per day” is predatory)

Example (14-day payday-style loan):

“Principal” ₱10,000, 1%/day interest for 14 days, 20% processing fee deducted at release.
Cash you actually receive: ₱10,000 − ₱2,000 = ₱8,000.
Amount due after 14 days: ₱10,000 + 14% = ₱11,400.
Cost you pay for using ₱8,000 for 14 days: ₱11,400 − ₱8,000 = ₱3,400.
Effective 14-day rate: 3,400 / 8,000 = 42.5%.
Approx. APR: 42.5% × (365/14) ≈ 1,108% per annum.

Courts and regulators routinely view this total-cost perspective—not just the posted “rate.”

5) Contract law levers you can invoke

Freedom to contract has limits (art. 1306): terms contrary to law, morals, good customs, public order/policy are void.
Penalty reduction (art. 1229 / 2227): courts may reduce iniquitous penalties even if you “agreed.”
Abuse of rights (arts. 19–21): harassing collections, shaming, doxxing contacts, threats → actionable torts (damages).
Consent defects (arts. 1330–1346): misrepresentation/concealment can vitiate consent or justify reformation.
Unjust enrichment (art. 22): prevents lenders from pocketing windfalls via illegal fees.

6) Debt-collection limits for online lenders

Harassment & shaming are illegal. Calling your phone contacts, posting on social media, threats of arrest, slurs, midnight calls, or contacting your employer to shame you are prohibited.
Data Privacy: Accessing/using your phonebook, photos, or messages beyond legitimate, consented purposes can breach the Data Privacy Act (administrative fines, civil, and criminal exposure).
Demand letters: must be professional, identify the lender, amount, and legal basis; false threats (e.g., “we will jail you tomorrow”) are unlawful.
Third-party collectors must follow the same standards; principals are liable for their agents.

7) Are caps ever applied?

Sector-specific ceilings exist for some products (e.g., credit cards set by monetary authorities from time to time).
For most non-bank online loans, there is no hard cap, but SEC/BSP can sanction unfair/deceptive pricing and shut down unregistered OLPs or abusive lenders. Courts, meanwhile, can rewrite the economics through judgments.

8) Practical borrower playbook

A) Before you borrow

Compute the APR (include all fees). If they don’t disclose, assume the worst.
Borrow from regulated entities (banks, licensed lending/financing companies; registered OLPs).
Read defaults/penalties: look for per-day charges and stacked fees.
Permissions: decline apps that demand phonebook/SMS/photo access to “ensure payment.”

B) If you already borrowed and rates are abusive

Gather evidence: app screenshots, e-contracts, chat/call logs, receipts, bank statements.
Demand a clean computation: principal, interest, fees, penalties, and the legal basis for each; ask for waiver/reduction of unconscionable parts.
Offer a reasonable settlement plan pegged to principal + reasonable interest; put it in writing.
Document harassment (recordings, screenshots, timestamps).
Escalate (see §10 remedies) if they refuse or continue abusive collection.

C) If sued or you sue

Defenses/counterclaims: unconscionability, illegal penalties, lack of disclosure, privacy violations, abusive collection (damages and attorney’s fees).
Small Claims (no lawyers required up to the current jurisdictional amount): you may contest unlawful charges or seek damages for harassment.

9) Compliance checklist for lenders/collectors (to avoid liability)

Clear disclosures: APR or equivalent total cost, tenor, fees, penalties, prepayment terms.
Fair collection protocols: no shaming, no third-party disclosure, contact only borrower/authorized persons, within reasonable hours, with proper identification.
Data minimization: no contact-scraping; obtain specific, informed consent; secure data; honor data-subject rights.
Complaint handling: accessible channels, time-bound resolution, written computations on request.
KYC/AML: robust onboarding without intrusive/irrelevant data grabs.

10) Where and how to enforce your rights

SEC (for non-bank lenders/OLPs): complaints for unfair collection, misleading pricing, unregistered platforms, and violations of lending/financing company rules.
BSP (for banks/e-money/card issuers): pricing/fee disputes, disclosure failures, and collection issues.
NPC: privacy complaints (contact scraping, doxxing, unlawful disclosures).
DOJ/NBI/PNP Anti-Cybercrime: grave threats, extortion, libel, stalking, identity theft, illegal access.
Courts/NLRC (if employer was dragged/shamed): civil damages; labor redress if workplace was harassed.

Tip: In your complaint, include (i) the computation showing effective APR, (ii) screenshots of harassment, and (iii) a settlement offer you made (shows good faith).

11) Model letters (copy/adapt)

A) Request for recomputation & rate reduction

Subject: Request for Fair Recalculation – Loan #[…] Dear [Lender], Please provide an itemized computation (principal, interest rate per period, fees, penalties) and the legal basis for each. The total cost appears unconscionable (e.g., [1%/day + up-front deductions]). I am ready to settle principal plus reasonable interest at [proposal] within [days]. Kindly confirm in writing.

B) Cease harassment & data-privacy demand

Subject: Cease and Desist – Unlawful Collection & Privacy Violations Dear [Lender/Collector], Your agents have contacted my contacts/employer and issued threats. This violates debt-collection and data-privacy rules. Cease immediately and limit communications to me at [number/email] during [hours]. Further violations will be recorded and reported to SEC/NPC/authorities and pursued for damages.

12) How courts usually recompute

Strike unconscionable interest/penalties and substitute a reasonable or legal interest rate.
Disallow duplicate fees and interest-on-interest.
Apply 6% p.a. legal interest on the adjudged sum from default or filing (depending on circumstances) until full payment.
Award damages/attorney’s fees for abusive collection or privacy breaches (case-by-case).

13) FAQs

Q: If I agreed in the app, am I stuck with the rate? A: No. Courts may reduce rates and penalties that are unconscionable or illegally imposed.

Q: Can the lender contact my phone contacts? A: No lawful basis. That’s typically a privacy violation and an unfair collection practice.

Q: Can they have me arrested for non-payment? A: No imprisonment for debt. Criminal cases apply only if there’s separate crime (e.g., fraud, bouncing checks with deceit) — not mere inability to pay.

Q: Is there a legal “maximum interest” for online loans? A: Generally no across the board, but sector caps exist (e.g., certain payment cards) and unconscionable rates can be struck down.

Q: What if the app keeps rolling over my loan? A: Auto-rollover that capitalizes interest can be challenged as unconscionable; demand a stop and recompute on principal only.

14) Bottom line

The absence of hard usury caps does not allow predatory pricing. Unconscionable online-loan rates and penalty stacks can be cut down by courts and sanctioned by regulators.
Borrowers should compute APR, document, negotiate, and escalate; lenders should disclose, treat fairly, and protect data.
When in doubt, peg any settlement to principal + reasonable interest, and keep a written trail—that’s what regulators and courts will look for.