General information, not legal advice.

1) The issue: “deduction fees” that make the real interest sky-high

Many online loan apps advertise a loan amount (the face amount) but release a smaller net proceeds amount because they deduct charges up front—often labeled processing fee, service fee, membership fee, convenience fee, insurance fee, handling fee, advance interest, or “deducted interest.” The borrower then repays based on the face amount, not what was actually received.

This matters because Philippine law and regulation focus heavily on full disclosure of the true cost of credit and fair treatment of financial consumers, even if there is no fixed statutory cap on interest for most private lenders.

A quick way to see why “deductions” can be abusive

Example:

Face amount: ₱10,000
Upfront deductions: ₱2,000
Net proceeds received: ₱8,000
Repayment due in 15 days: ₱10,000

Finance charge is effectively ₱2,000 on ₱8,000 for 15 days = 25% per 15 days. A simple (non-compounded) annualized approximation: 25% × (365/15) ≈ 25% × 24.33 ≈ 608% per year.

Even if a lender argues these are “fees,” the law often treats many of them as part of the finance charge.

2) Who regulates online loan apps (depends on what the provider is)

Online lenders in the Philippines can fall into different buckets:

2.1 SEC-regulated: Lending companies and financing companies

Most stand-alone “online loan apps” are linked to a lending company (covered by R.A. 9474, the Lending Company Regulation Act) or a financing company (covered by R.A. 8556, the Financing Company Act), both under the Securities and Exchange Commission (SEC).

Key idea: Operating as a lending/financing company without SEC authority exposes an entity to enforcement and penalties, and can make the operation legally vulnerable.

2.2 BSP-regulated: Banks, digital banks, and BSP-supervised financial institutions

If the loan is coming from a bank or BSP-supervised institution (including certain digital banks), the Bangko Sentral ng Pilipinas (BSP) consumer protection and banking regulations apply alongside general laws.

2.3 Others

Some “lending” may be done through cooperatives or pawnshops (with separate regulatory frameworks), but the typical “loan app with deductions” model is commonly SEC-linked.

3) Core consumer rights that apply to high fees and deductions

3.1 Right to full disclosure of the cost of credit (Truth in Lending Act)

The Truth in Lending Act (R.A. 3765) is foundational. It requires creditors to disclose, clearly and prior to consummation of the credit, the true cost of the loan, including:

The finance charge (which generally includes interest and many loan-related charges incident to credit),
The effective interest rate / annual percentage rate concept, and
The amount financed versus amounts deducted.

Why it matters for deduction fees: A lender cannot lawfully “hide” the true cost by splitting it into labels. If charges function as the cost of borrowing, they are typically treated as part of the finance charge for disclosure purposes.

3.2 Right to fair, honest, and non-misleading terms (Financial consumer protection)

The Financial Products and Services Consumer Protection Act (R.A. 11765) strengthens financial consumer rights and empowers financial regulators (including the SEC and BSP within their jurisdictions) to enforce standards such as:

Transparency and clear disclosure,
Fair and equitable treatment,
Protection from misleading, deceptive, abusive, or unfair conduct,
Accessible complaints handling and redress mechanisms.

For “deduction fee” loans, the biggest compliance question is often: Was the borrower clearly told, before acceptance, the net proceeds, all fees, the total amount payable, and the effective cost?

3.3 Right to privacy and lawful data processing (Data Privacy Act)

Many abusive collection practices rely on data harvesting and mass messaging. The Data Privacy Act of 2012 (R.A. 10173) and enforcement by the National Privacy Commission (NPC) are central when apps:

Access contacts/photos/location beyond what is necessary,
Use contacts to shame or pressure the borrower,
Disclose the borrower’s debt to third parties without a lawful basis,
Fail to provide a clear privacy notice, or
Process data without valid consent or other lawful criteria.

Data privacy is not just “permissions.” Even if the app was granted access on a phone, processing must still follow principles of transparency, legitimate purpose, and proportionality.

3.4 Right to be free from harassment and unlawful collection behavior

While the Philippines does not have a single FDCPA-style statute for all lenders, collection conduct can violate:

SEC rules/circulars/advisories on online lending platforms and fair collection practices (for SEC-supervised lenders),
R.A. 11765 (abusive/unfair conduct),
Civil Code provisions on abuse of rights and damages (Arts. 19, 20, 21),
Revised Penal Code offenses depending on conduct (e.g., threats, coercion, defamation),
Cybercrime Prevention Act (R.A. 10175) when crimes are committed through ICT (e.g., cyberlibel in certain contexts, computer-related offenses),
Data privacy violations when collection is done through unlawful disclosure or misuse of personal data.

Lawful collection generally means: demands through proper channels, negotiated payment plans, civil actions when warranted—not threats, public shaming, doxxing, or contacting unrelated third parties to pressure payment.

4) Interest rates in the Philippines: no general cap, but not “anything goes”

4.1 Usury ceilings are largely suspended, but courts can strike “unconscionable” charges

The old Usury Law ceilings (Act No. 2655) have long been effectively suspended by monetary authority policy (commonly associated with CB Circular No. 905). As a result, many private loans do not have a strict numerical cap.

However, Philippine law still provides meaningful limits:

Courts can reduce unconscionable interest rates and penalties as contrary to morals/public policy and equity.
Penalty clauses may be reduced if iniquitous or unconscionable (Civil Code, Art. 1229).
Stipulated interest generally must be in writing to be demandable (Civil Code, Art. 1956). In online lending, “writing” can be satisfied by valid electronic records/acceptance under the E-Commerce Act (R.A. 8792), depending on proof.

4.2 “Fees” can be treated as disguised interest

Even if the contract calls it “service fee” or “processing fee,” if the charge is essentially the price of the money lent, it can be analyzed as part of the true cost of credit—especially for disclosure and unconscionability review.

5) Common problematic practices (and the rights they violate)

5.1 Upfront deductions without clear pre-loan disclosure

Red flags:

The app advertises “₱X loan” but shows the net proceeds only after acceptance,
Fees are buried in fine print or shown only after the borrower is effectively locked in,
The borrower cannot access a clear disclosure statement showing net proceeds, all charges, total amount payable, and due dates.

Legal hooks:

Truth in Lending disclosure standards (R.A. 3765)
Financial consumer protection standards (R.A. 11765)

5.2 Short tenors + large deductions + rollover pressure

This is a classic “debt trap” structure: a very short due date, a large upfront fee, and escalating charges for extensions.

Legal hooks:

Unconscionability analysis (Civil Code; jurisprudential principles)
Potential regulatory action if abusive/unfair

5.3 Excessive late fees, daily penalties, and compounding without clear agreement

Look for:

Daily “penalty interest” plus “collection fee” plus “processing fee” on late payments,
Compounding that was not clearly agreed to,
Fees triggered automatically even when payment channels fail.

Legal hooks:

Courts can reduce penalties (Civil Code Art. 1229)
Contract interpretation and disclosure issues

5.4 Harassment, threats, and public shaming

Typical patterns reported in online lending:

Threats of harm, arrest, or humiliation,
Mass messaging to contacts,
Posting the borrower’s photo/name as a “scammer,”
Repeated calls/messages designed to intimidate.

Legal hooks:

Data Privacy Act (unlawful disclosure; excessive processing)
Civil damages (Arts. 19, 20, 21)
Criminal statutes depending on the conduct (threats/coercion/defamation), including online variants where applicable

5.5 Accessing contacts/photos/location as a condition to lend

Apps may demand broad permissions that are not reasonably necessary for lending.

Legal hooks:

Data Privacy Act principles of proportionality and legitimate purpose
NPC complaints and enforcement

6) What a borrower can do: practical remedies and where to complain

6.1 Verify if the lender/app is legitimate (regulatory standing)

Check whether the provider is a registered lending/financing company and whether it is recognized/registered as operating as an online lending platform under SEC requirements.
If it is a bank/BSP-supervised entity, use BSP consumer assistance channels.

A lender operating without proper authority is a major enforcement trigger.

6.2 Demand proper disclosures and an accounting

A borrower may request:

A copy of the loan contract/terms accepted,
A disclosure statement showing: net proceeds, all fees, schedule, total payable,
An itemized statement of account (principal, interest, fees, penalties, payments applied).

This is critical both for dispute resolution and evidence.

6.3 Regulatory complaints (administrative)

Depending on the provider and the issue:

SEC: unregistered lenders/OLPs, abusive/harassing collection practices, misleading lending terms, licensing violations.
NPC: misuse of personal data, unauthorized disclosure to contacts, excessive permissions, lack of valid consent/notice, data security issues.
BSP: for banks/BSP-supervised lenders—unfair practices, disclosure issues, complaints handling failures under BSP’s consumer protection framework.

Administrative complaints can lead to orders to stop unlawful practices, penalties, and license consequences.

6.4 Criminal and civil remedies (when conduct crosses legal lines)

Possible routes depending on facts:

Criminal complaints for threats/coercion/defamation-type conduct, or other applicable offenses, especially when accompanied by evidence (screenshots, recordings where lawful, witness statements).
Civil actions to dispute unconscionable charges, recover overpayments, or claim damages for abusive conduct (often anchored on Civil Code provisions and contract law).
Where money claims fit the threshold and rules, small claims may be a practical venue for certain recovery cases (subject to procedural eligibility and the nature of the claim).

6.5 Evidence to preserve (often outcome-determinative)

Screenshots of ads and promised terms,
The app’s disclosed loan summary (face amount, deductions, due dates),
The acceptance flow showing what was displayed before “I agree,”
The privacy notice and permission requests,
All collection messages/call logs,
Any messages sent to third parties (contacts) and proof of disclosure,
Payment receipts, reference numbers, e-wallet/bank confirmations.

7) Key legal principles to remember

Upfront “deductions” don’t reduce the lender’s obligations to disclose the true cost of credit; many fees are treated as finance charges for disclosure purposes.
No general interest cap does not mean unlimited charges are enforceable; Philippine courts can reduce unconscionable interest and penalties.
Debt collection must be lawful—threats, harassment, and public shaming can trigger regulatory, civil, and criminal exposure.
Personal data misuse is a major enforcement area; contacting your phonebook or broadcasting your debt can violate data privacy principles and obligations.
The best legal leverage typically comes from documentation: what was disclosed before acceptance, what was deducted, and how collection was conducted.

8) Bottom line

High “deduction fees” by online loan apps raise two core legal questions in the Philippines: (a) transparency (were the net proceeds, total cost, and effective charges properly disclosed) and (b) fairness/lawfulness (are the charges and collection methods abusive, unconscionable, or illegal). The main protection tools are the Truth in Lending Act (R.A. 3765), financial consumer protection law (R.A. 11765), SEC regulation of lending/financing companies, the Civil Code’s unconscionability and damages principles, and the Data Privacy Act (R.A. 10173) when apps weaponize personal data.