1. The short answer in Philippine law

There is no single across-the-board “illegal interest rate” number today. The old statutory ceilings under the Usury Law were suspended, so parties generally have freedom to set interest rates.

However, 20% per month (about 240% per year) is very likely to be struck down by courts as unconscionable in most ordinary loan settings, and may be illegal for specific regulated lenders (like SEC-regulated lending/financing companies) because of modern rate caps and consumer-protection rules.

So the practical answer is:

As a private loan between individuals: not automatically “criminal usury,” but high risk of being voided or reduced by courts for being unconscionable.
If charged by a regulated lender (lending company/financing company/OLA, bank, pawnshop, etc.): it may be administratively illegal if it exceeds applicable regulatory caps or violates disclosure rules.

2. What happened to the Usury Law?

2.1 The Usury Law still exists…

The Usury Law (Act No. 2655) once set maximum interest rates. Charging above those ceilings could be “usurious.”

2.2 …but its ceilings were suspended

In 1982, the Central Bank issued Circular No. 905, which lifted/suspended interest ceilings on loans. This means:

Interest ceilings are no longer fixed by the Usury Law for most loans.
Parties can agree on any interest rate, subject to other laws and fairness controls.

Important: Circular 905 did not repeal the Usury Law; it suspended the ceilings. So “usury” as a crime tied to ceilings is mostly dormant unless ceilings are reinstated. But courts still police abusive rates through Civil Code standards and jurisprudence.

3. Freedom to stipulate interest—plus strict requirements

3.1 Freedom of contract, but not absolute

Under the Civil Code, parties may stipulate loan interest (Art. 1306), as long as it is not contrary to law, morals, good customs, public order, or public policy.

3.2 Interest must be in writing

Civil Code Art. 1956:

No interest shall be due unless it has been expressly stipulated in writing.

If the interest rate is not written and signed, the lender can’t collect interest, even if it was verbally agreed.

3.3 Legal interest when there is no valid stipulation

When interest is absent or voided, courts apply the legal interest rate, generally:

6% per annum for loans/forbearance of money and judgments (per Supreme Court guidelines beginning from Nacar v. Gallery Frames, 2013).

4. “Usurious” vs. “Unconscionable” in today’s PH setting

4.1 Usurious (classic concept)

Historically: interest above a statutory ceiling.

Since ceilings are suspended, a rate is not automatically void just because it is high.

4.2 Unconscionable (modern controlling concept)

Even without ceilings, the Supreme Court repeatedly holds that:

Interest must not be iniquitous, unconscionable, or exorbitant.
Courts may strike down or reduce shocking rates as void for being contrary to morals/public policy.

Bottom line: In practice, “unconscionable interest” is the main legal weapon against abusive rates.

5. How courts treat very high interest rates

5.1 The Supreme Court’s consistent approach

Across many cases, the Court has declared extremely high monthly rates void or reduced them. Patterns in rulings:

Rates around 5%–6% per month (60%–72% per year) have often been reduced.
Double-digit monthly rates (10%–20% per month) are almost always deemed shocking and unconscionable, unless supported by very unusual commercial context.

Courts commonly reduce such rates to:

12% per annum (older cases, when that was the legal benchmark), or
6% per annum (modern cases post-Nacar),
or another “reasonable” rate depending on equities.

5.2 Effect of unconscionability

When interest is unconscionable:

The interest stipulation is void.
Borrower still owes the principal.
Excess interest paid may be applied to principal or even refunded.
Courts may impose legal interest instead from proper dates.

5.3 Penalties and compounded charges

Even if the nominal interest looks “lower,” lenders sometimes add:

penalty interest,
liquidated damages,
service/processing fees,
compounding clauses.

Courts examine the total effective burden. They also reduce penalties that are unfair under Civil Code Art. 1229.

6. Tests used to decide if interest is unconscionable

Courts look at the whole situation, not just a number. Factors include:

Market context: How far above prevailing commercial rates is it?
Risk profile: Was it truly high-risk, unsecured, emergency lending—or ordinary borrowing?
Bargaining power: Was there inequality, desperation, lack of options, or adhesion-type contract?
Sophistication of parties: Consumer vs. business borrower; financial literacy.
Loan size and term: Short-term small loans with huge rates are especially suspect.
Presence of security: If collateral exists, excessive rates are harder to justify.
Good faith and transparency: Hidden charges or confusing computations weigh against lenders.

“Unconscionable” is essentially what shocks the conscience of the court.

7. Special rules for regulated lenders

Even though the Usury Law ceilings are suspended, regulators can still set caps for specific industries.

7.1 Lending companies & financing companies (SEC-regulated)

These entities are governed by:

Lending Company Regulation Act (RA 9474)
Financing Company Act (RA 8556)
SEC’s implementing rules and circulars, including caps on interest, fees, and penalties for certain products (especially short-term consumer and online loans).

So for SEC-regulated lenders, a 20% monthly interest rate may violate SEC rate ceilings and trigger:

fines,
suspension/revocation of license,
orders to refund/adjust,
and other enforcement measures.

7.2 Online Lending Apps (OLAs)

OLAs are typically lending/financing companies. Regulators focus on:

effective interest + fees,
abusive collection practices,
lack of proper disclosures.

A 20% monthly interest charge is a common red flag for SEC enforcement.

7.3 Banks, quasi-banks, and BSP-supervised credit

Banks have more pricing freedom but are still subject to:

BSP consumer-protection rules,
Truth in Lending Act disclosures, and
unconscionability review by courts.

7.4 Pawnshops and microfinance

Pawnshops and microfinance products have their own regulatory frameworks and often have rate structures approved or constrained by regulators. High monthly rates can be challenged if they exceed allowed charges or become unconscionable in effect.

8. Disclosure law: even “legal” interest can be unenforceable if hidden

8.1 Truth in Lending Act (RA 3765)

Lenders must clearly disclose finance charges and effective interest. Failure can lead to:

unenforceability of charges,
damages/penalties,
administrative sanctions (for regulated lenders).

So a lender charging 20% monthly but not properly disclosing it risks losing the right to collect it.

9. So… is 20% monthly interest legal?

9.1 For ordinary private loans

Not automatically illegal due to the suspension of usury ceilings. But very vulnerable to being voided or reduced in court.

If sued, a lender charging 20% monthly should expect:

the interest clause to be struck down as unconscionable,
the loan to be re-computed at a much lower “reasonable/legal” rate,
and possible reallocation of payments.

9.2 For SEC/BSP-regulated lenders

Often illegal in practice because it likely breaches:

specific rate caps or total-cost ceilings,
consumer-protection standards,
TILA disclosure rules.

10. Remedies and practical steps

10.1 If you are a borrower facing 20% monthly interest

You can argue:

Unconscionability / void interest
- ask court to reduce it to reasonable/legal interest.
Invalid for lack of written stipulation (if not properly documented).
Violation of disclosure rules (if lender is regulated or if computations were hidden).
Excess payments should go to principal / refund.

Evidence to gather:

loan agreement/promissory note,
statements of account and receipts,
proof of actual amounts received vs. amounts demanded,
lender’s SEC/BSP registration status (if any),
communications showing pressure or hidden charges.

10.2 If you are a lender considering high monthly rates

To reduce legal risk:

Keep interest commercially defensible and aligned with risk.
Use clear written contracts and exact computations.
Avoid hidden add-ons that inflate effective rates.
If regulated, check applicable caps and TILA templates.
Consider using a moderate nominal interest + reasonable penalties instead of a shocking headline rate.

11. Key takeaways

Usury ceilings are suspended, so high interest is not per se criminal usury.
Unconscionable interest is void. Courts freely reduce or strike down shocking rates.
20% monthly interest is almost always unconscionable for standard loans.
Regulated lenders may face strict caps, making 20% monthly outright illegal administratively.
Interest must be written and properly disclosed or it cannot be collected.

If you want, tell me the exact loan setup (private person? lending app? business loan? secured/unsecured? what was signed?) and I can map these rules to that fact pattern in a careful, step-by-step way.