Introduction

In the digital age, online lending applications have proliferated in the Philippines, offering quick access to credit through mobile platforms. However, this convenience has been marred by reports of predatory practices, including the imposition of excessive interest rates that burden borrowers and potentially violate legal standards. While the Philippines deregulated interest rates in the 1980s, allowing lenders to set rates based on market conditions, certain thresholds and principles still govern lending practices to prevent abuse. This article explores the legal framework surrounding excessive interest in online lending, the grounds for filing complaints, the relevant regulatory bodies, the complaint filing process, potential remedies, and related considerations, all within the Philippine context.

Understanding Excessive Interest in Philippine Law

Historical and Current Legal Basis

The concept of usury—charging excessively high interest rates—has evolved in Philippine jurisprudence. Prior to deregulation, the Usury Law (Act No. 2655, as amended) capped interest rates at 12% per annum for secured loans and 14% for unsecured ones. However, Central Bank Circular No. 905-82, issued in 1982, effectively lifted these ceilings, allowing interest rates to be determined by agreement between parties, subject to market forces.

Despite this deregulation, interest rates are not entirely unchecked. The Philippine Supreme Court has consistently ruled that interest rates can be deemed "unconscionable" or "exorbitant" if they shock the conscience or are grossly unfair, even in the absence of a fixed ceiling. In cases like Medel v. Court of Appeals (G.R. No. 131622, 1997) and Spouses Solangon v. Salazar (G.R. No. 125944, 2001), the Court intervened to reduce rates exceeding 3% per month (36% annually) when they were found to be iniquitous.

For online lending apps, which often target unbanked or low-income individuals, rates can reach 1% per day or more, translating to annual percentage rates (APRs) of over 365%. Such rates may be challenged as unconscionable, especially if compounded with hidden fees, penalties, or coercive collection tactics.

Relevant Statutes and Regulations

Several laws and regulations apply specifically to online lending:

Republic Act No. 9474 (Lending Company Regulation Act of 2007): This mandates that all lending companies, including those operating online, must register with the Securities and Exchange Commission (SEC). Unregistered lenders are illegal, and their contracts may be void.
SEC Memorandum Circular No. 19, Series of 2019: This provides guidelines for the registration and operation of financing companies, including online platforms. It requires transparency in interest rates, fees, and terms, and prohibits unfair collection practices.
Republic Act No. 3765 (Truth in Lending Act): Lenders must disclose the full cost of credit, including interest rates, finance charges, and effective interest rates (EIR), in a clear manner before the loan is consummated. Failure to comply can lead to penalties and allow borrowers to recover damages.
Bangko Sentral ng Pilipinas (BSP) Circulars: While BSP primarily regulates banks and non-bank financial institutions, it oversees certain fintech lenders. BSP Circular No. 1133, Series of 2021, addresses digital lending and emphasizes consumer protection, fair lending, and prohibition of abusive practices.
Republic Act No. 10173 (Data Privacy Act of 2012): Often invoked in complaints against online lenders for unauthorized access to contacts or public shaming via social media, which can accompany excessive interest disputes.
Civil Code Provisions: Articles 1956 and 1961 of the Civil Code allow courts to equitably reduce stipulated interest if it is iniquitous or unconscionable. Article 1409 declares contracts with illegal causes as void.

In essence, while no absolute cap exists, interest rates must be reasonable, transparent, and not exploitative. Borrowers can argue that rates violating these principles constitute grounds for complaint.

Grounds for Filing a Complaint

Complaints against online lending apps for excessive interest typically arise from:

Unconscionable Rates: Rates that are disproportionately high relative to the risk, often exceeding 2-3% monthly without justification.
Non-Disclosure or Misrepresentation: Failure to clearly state the EIR, leading to "surprise" costs.
Hidden Fees and Penalties: Additional charges that inflate the effective rate, such as processing fees, service charges, or daily penalties.
Harassment and Unfair Collection: Threats, public shaming, or unauthorized deductions, often tied to enforcing high-interest loans.
Unregistered Operations: Many apps operate without SEC registration, making their entire business illegal.
Violation of Consumer Rights: Under the Consumer Act of the Philippines (Republic Act No. 7394), deceptive practices in lending can be challenged.

Evidence such as loan agreements, app screenshots, payment records, and communication logs strengthens a complaint.

Regulatory Bodies and Jurisdiction

Depending on the nature of the lender and the violation, complaints can be directed to specific agencies:

Securities and Exchange Commission (SEC): Primary regulator for financing and lending companies. Handles complaints against registered or unregistered online lenders for violations of registration, disclosure, and fair practice rules.
Bangko Sentral ng Pilipinas (BSP): For lenders classified as banks, quasi-banks, or those under BSP supervision. BSP's Consumer Assistance Mechanism addresses grievances related to interest and collection.
Department of Trade and Industry (DTI): Through its Fair Trade Enforcement Bureau, handles consumer complaints under the Consumer Act, especially for deceptive advertising or unfair terms.
National Privacy Commission (NPC): For data privacy breaches accompanying interest disputes.
Courts: For civil actions to annul contracts, recover damages, or seek injunctions. Criminal complaints for estafa (under Revised Penal Code Article 315) or illegal lending may be filed with the Prosecutor's Office if fraud is involved.
Integrated Bar of the Philippines (IBP) or Public Attorney's Office (PAO): Provide free legal aid for indigent borrowers.

In practice, starting with administrative agencies like SEC or BSP is advisable, as they can impose sanctions, order refunds, or revoke licenses before escalating to courts.

Step-by-Step Process for Filing a Complaint

1. Gather Evidence

Collect all loan documents, terms and conditions, payment receipts, and correspondence.
Screenshot app interfaces showing rates and fees.
Note instances of harassment or non-disclosure.

2. Attempt Amicable Settlement

Contact the lender via their customer service to negotiate rate reduction or settlement. Document all interactions.

3. File with the Appropriate Agency

For SEC: Submit a verified complaint via email (cgfd_md@sec.gov.ph) or online portal. Include personal details, lender information, loan specifics, and evidence. SEC investigates within 30-60 days, potentially leading to cease-and-desist orders.
For BSP: Use the BSP Online Complaint Form or email consumercomplaints@bsp.gov.ph. Provide similar details; BSP mediates and can impose fines up to PHP 1 million per violation.
For DTI: File via the DTI Consumer Complaint Form online or at regional offices. Focus on consumer rights violations.
For NPC: Report data privacy issues through their complaint portal.

Complaints are generally free, but notarization may be required for verified statements.

4. Administrative Proceedings

Agencies conduct investigations, hearings, and mediations. Borrowers may be required to attend or submit affidavits.
Possible outcomes: Rate reduction, refund of excess payments, cancellation of debt, or administrative penalties on the lender.

5. Judicial Remedies if Needed

If unsatisfied, file a civil case in the Regional Trial Court for contract nullification or damages. Small claims courts handle amounts up to PHP 1 million without lawyers.
For criminal aspects, file with the Department of Justice or local prosecutor's office.

Timelines vary: Administrative resolutions can take 1-6 months, while court cases may span years.

Potential Remedies and Outcomes

Successful complaints can yield:

Refund of Excess Interest: Courts or agencies may order repayment of amounts exceeding reasonable rates (e.g., reduced to 1-2% monthly).
Contract Annulment: If rates are void for being unconscionable, the loan may be deemed unenforceable.
Damages: Moral, exemplary, or actual damages for distress caused by harassment.
Injunctions: Stopping collection activities.
Penalties on Lenders: Fines, license revocation, or blacklisting by SEC/BSP.

In landmark cases, such as those involving apps like Cashwagon or JuanHand, SEC has revoked certificates and imposed fines for usurious practices.

Challenges and Considerations

Burden of Proof: Borrowers must demonstrate unconscionability, which requires showing the rate's unreasonableness in context (e.g., borrower's vulnerability).
Jurisdictional Issues: Some apps are based overseas, complicating enforcement, though SEC asserts jurisdiction over Philippine-targeted services.
Class Actions: Multiple borrowers can file joint complaints for efficiency.
Preventive Measures: Borrowers should verify lender registration on SEC's website, read terms carefully, and use apps endorsed by BSP.
Evolving Regulations: With the rise of fintech, proposals for reimposing interest caps (e.g., House Bill No. 1054) are under discussion, potentially capping rates at 39% APR for small loans.

Conclusion

Filing complaints against online lending apps for excessive interest in the Philippines empowers borrowers to combat predatory lending and uphold fair financial practices. By leveraging the legal framework and regulatory mechanisms, individuals can seek redress and contribute to a more equitable lending environment. Awareness of rights and proactive documentation are key to navigating this process effectively.