The "5-6" lending system is a ubiquitous but often predatory credit practice in the Philippines, characterized by a 20% interest rate over a short period (typically a month). Under Philippine law, while the Usury Law is currently legally suspended (meaning there is technically no "ceiling" on interest rates agreed upon by parties), the Lending Company Regulation Act of 2007 (Republic Act No. 9474) and the Financing Company Act (R.A. No. 8556) strictly require all entities engaged in the business of lending to be registered and licensed.

Operating a lending business without the proper certificate of authority is a criminal offense. Below is a comprehensive guide on the legalities and the process of reporting these unregistered operators.

1. The Legal Status of "5-6" Lenders

Most "5-6" lenders operate in the informal economy without incorporation or permits. According to SEC Memorandum Circular No. 7, Series of 2011, no person shall engage in the business of lending without a valid Certificate of Authority (CA) issued by the Securities and Exchange Commission (SEC).

Criminal Liability: Under R.A. No. 9474, any person who shall engage in the business of lending without a CA may face a fine of ₱10,000 to ₱50,000 or imprisonment of six months to ten years, or both.
Unconscionable Interest: While the Usury Law is suspended, the Philippine Supreme Court has consistently ruled in cases like Medel v. Court of Appeals that interest rates that are "excessive, iniquitous, unconscionable, and exorbitant" (often cited as those exceeding 3% per month) are void for being contrary to morals.

2. Regulatory Authorities

Depending on the nature of the violation, different government agencies have jurisdiction:

Securities and Exchange Commission (SEC): The primary regulator. They handle cases involving companies or individuals lending to the public without a license.
Bangko Sentral ng Pilipinas (BSP): Regulates banks and pawnshops. If the lender is posing as a financial institution, the BSP’s Financial Consumer Protection Department is the relevant body.
National Privacy Commission (NPC): Relevant if the lender uses personal data (contacts, social media) to harass the borrower, violating the Data Privacy Act of 2012.
Philippine National Police (PNP) / National Bureau of Investigation (NBI): If the lender engages in threats, physical harassment, or "online shaming" (Cyber Libel).

3. Step-by-Step Reporting Process

A. Verification

Before filing a formal complaint, verify if the entity is registered. You can check the List of Recorded/Licensed Lending Companies on the official SEC website. If the individual or "company" is not on the list, they are operating illegally.

B. Filing a Complaint with the SEC

The SEC’s Enforcement and Investor Protection Department (EIPD) handles the crackdown on unregistered lenders.

Gather Evidence: Collect screenshots of loan offers, promissory notes, proof of payments, and any communication (SMS or Chat) showing the identity of the lender.
The Formal Complaint: Draft a letter-complaint or use the SEC’s official Complaint Form. It should include:

Full name and address of the complainant.
Full name and known address/contact info of the lender.
Specific details of the transaction (dates, amounts, interest rates).
The specific violation (e.g., "Engaging in lending activities without a Certificate of Authority").

Submission: Submit the complaint via email to epd@sec.gov.ph or personally at the SEC Headquarters in Makati or any SEC Extension Office.

C. Addressing Harassment and "Online Shaming"

Many unregistered lenders, especially those operating via apps, use illegal collection practices. Under SEC Memorandum Circular No. 18, Series of 2019, the following are prohibited:

Use of threats or profanity.
Contacting persons in the borrower’s contact list without consent.
Disclosing the borrower's name as a "delinquent" on social media.

If these occur, file a complaint for violation of the Cybercrime Prevention Act with the PNP Anti-Cybercrime Group (ACG) or the NBI Cybercrime Division.

4. Local Government Intervention

For small-scale neighborhood "5-6" lenders, the Barangay Conciliation process is a prerequisite for any court action.

Report the lender to the Lupong Tagapamayapa for violation of local business permit ordinances.
Lenders operating without a Mayor's Permit or Business Permit can be shut down by the local Business Permits and Licensing Office (BPLO).

5. Summary of Necessary Documentation

To ensure a successful prosecution or administrative action, maintain a file of the following:

Disclosure Statement: By law (R.A. 3765), lenders must provide a written statement showing the cash price, down payment, finance charges, and the effective interest rate. Failure to provide this is a separate violation.
Transaction Receipts: Even if handwritten, these serve as proof of the lending business.
Affidavits: Statements from other borrowers can strengthen a "Cease and Desist" order from the SEC.