Is a “Guarantee Deposit” Legal in Online Lending?

SEC guidance and Philippine law—what borrowers and lenders need to know

TL;DR

Up-front “guarantee deposits” (money a borrower must pay before a loan is approved or released) are generally red flags in the Philippines.
For unregistered lenders, demanding any advance payment is a hallmark of illegal lending.
For licensed lending/financing companies, conditioning approval or release on a “guarantee deposit” risks violating the Truth in Lending Act, the Financial Consumer Protection Act, SEC rules on unfair practices, and the Civil Code against unconscionable stipulations.
Legitimate fees (e.g., processing, documentary stamp tax) may be collected, but they must be properly disclosed and are typically deducted from the loan proceeds, not demanded in cash before release.
Borrowers asked to pay a guarantee deposit should walk away and report; lenders should avoid the practice and use compliant risk-mitigation tools instead.

1) What exactly is a “guarantee deposit” in online lending?

In practice, online scammers and some non-compliant lenders label advance payments as “guarantee deposits,” “verification fees,” “collateral wallet top-ups,” “activation fees,” or “insurance.” The common thread: the borrower is asked to transfer money first (via e-wallet/bank) before the lender will approve or disburse the loan. The amount is often pitched as refundable after a period of “good repayment.”

This is fundamentally different from:

A security deposit in a lease (lawful in leases, not a loan), and
Deductions from loan proceeds (e.g., documentary stamp tax, processing fee) which occur after approval and at disbursement, with total cost disclosed.

2) The legal framework

a) Registration and licensing: who can lend?

Lending Company Regulation Act (LCRA, R.A. 9474) and Financing Company Act (FCA, R.A. 8556, as amended) require entities engaging in lending/financing to be registered with the SEC and, for online lending apps, to comply with SEC registration/approval of OLPs (online lending platforms).
If a platform demanding a “guarantee deposit” is not SEC-registered and authorized, its solicitation is illegal regardless of the label used.

b) Transparent pricing and no hidden charges

Truth in Lending Act (TILA, R.A. 3765)—as enforced by the SEC for lending/financing companies—requires full disclosure of the finance charge and effective interest rate before consummation.
“Guarantee deposits” that are conditions for approval or release often function as undisclosed finance charges or hidden fees, violating TILA and SEC disclosure rules.

c) Financial Consumer Protection Act (FCPA, R.A. 11765)

Prohibits unfair, deceptive, abusive, or oppressive acts or practices in offering credit.
Conditioning a loan on a refund-contingent “deposit” that the borrower might never recover can be deceptive or abusive, especially when tied to shifting conditions or opaque policies.

d) SEC rules on unfair collection and online lending conduct

SEC guidance for online lending platforms prohibits abusive practices and requires compliant disclosures, privacy safeguards, and responsible advertising/collections.
Even if a company is licensed, pressuring borrowers to pay cash up-front or threatening non-release unless a “guarantee deposit” is paid can be treated as unfair or oppressive.

e) Civil Code guardrails: unconscionable stipulations & public policy

The Civil Code voids contractual terms that are contrary to law, morals, good customs, public order, or public policy.
The Supreme Court has repeatedly struck down unconscionable charges in loan contracts. While many cases address interest, the same logic applies to disguised charges (e.g., a “deposit” that effectively inflates the cost of credit or coerces the borrower).

Bottom line: The combined effect of LCRA/FCA + TILA + FCPA + Civil Code makes up-front guarantee deposits highly vulnerable to being illegal, void, or administratively sanctionable.

3) Is it ever lawful to ask for money from the borrower?

Yes, but not as an up-front condition to approve/release the loan. Lawful, properly disclosed charges may include:

Documentary Stamp Tax (DST) on loan instruments (a tax under the NIRC),
Processing/origination fees,
Notarial fee (if applicable), and
Disbursement or convenience fees (e.g., cash-out through certain channels).

Good practice: These are disclosed ex-ante and deducted from the released proceeds—not collected as a prior “deposit.” If a lender insists on cash-in before granting the loan, that’s a serious red flag.

4) “Guarantee deposit” vs. “deposit-taking”

Some worry that holding a borrower’s “deposit” is deposit-taking (a BSP-regulated activity). In most cases, a borrower’s up-front payment to a lender isn’t deposit-taking in the banking sense (it’s not “from the public” for safekeeping with withdrawal on demand). But this doesn’t make it lawful: the SEC-regulated consumer-credit rules still render the practice deceptive/unfair and non-compliant with TILA/FCPA if used as a precondition to approval or release.

5) How the SEC typically views “guarantee deposits” in OLPs

While phrasing and circular numbers evolve, SEC public advisories over the years have consistently warned that legitimate lenders do not require advance payments (often called guarantee deposits) to approve or release a loan. Recurring SEC themes include:

If you’re asked to pay first, don’t proceed.
Report the app/platform—especially if it is not on the SEC’s list of registered lending/financing companies or approved online lending platforms.
Even licensed firms can be sanctioned if they impose deceptive or abusive conditions.

6) Practical implications

For borrowers

Never send money up-front. No credible lender needs a “guarantee deposit” to verify identity or process a loan.
Check registration. Verify that the entity is an SEC-registered lending/financing company and that its online app/platform is approved.
Get disclosures. Ask for the total cost of credit (finance charge and effective interest rate) before you agree.
Keep evidence. Screenshots, chats, payment proofs, and app pages help in reporting.

If you already paid:

Demand immediate refund in writing.
Report to the SEC (Company Registration and Monitoring Department / Enforcement and Investor Protection Department) with your evidence.
If there’s harassment or doxxing, also report to the NTC and NPC for data/privacy violations, and to law enforcement if there are threats.

For licensed lenders/financing companies

Don’t require up-front deposits for approval or release. It’s a litigation and enforcement magnet.
Disclose all charges clearly under TILA; compute and present effective interest rate.
Deduct lawful fees from proceeds rather than requiring cash-in.
Use compliant risk controls instead of deposits: KYC, credit scoring, verifiable income checks, permissible collateral, post-approval payment instruments (e.g., auto-debit arrangements), and responsible collection policies.
Audit your ads and scripts. No language should suggest or imply a pay-to-approve scheme (even “refundable” deposits).
Govern your OLPs. Ensure app flows cannot prompt for any up-front payment as a condition for approval/release.

7) Common lender arguments—and why they fail

Argument	Why it fails
“It’s refundable, so not a fee.”	If the borrower must pay it to get approved or funded, it’s a condition that distorts the cost of credit and risks TILA/FCPA violations. Refundability is often illusory.
“It’s for identity verification.”	KYC/verification costs are part of overheads or disclosed fees; they don’t justify advance cash-in from borrowers.
“It ensures repayment discipline.”	The law prefers transparent pricing and lawful security (collateral/guarantor), not coercive deposits.
“Our terms say the borrower agrees.”	Consent does not cure illegality. Unconscionable or unlawful stipulations are void despite consent.

8) Enforcement exposure for non-compliant lenders

Administrative: Fines, suspension/revocation of authority, OLP takedowns, and orders to cease the unlawful practice.
Restitution: Return of ill-gotten amounts; correction of disclosures.
Civil: Contract terms can be voided; borrowers can claim damages for abusive practices.
Criminal: For unregistered lending, falsities, or harassment/threats tied to collection.

9) Borrower templates (use as needed)

A. Demand for refund (email/chat)

I applied for a loan through your platform. Your staff/app required a “guarantee deposit” before approval/release. I do not consent to any up-front payment as a loan condition. This practice is contrary to Philippine consumer-credit laws and SEC rules. I demand an immediate refund of ₱[amount] within 3 banking days. Failing which, I will file a report with the SEC and other authorities and reserve all legal remedies.

B. SEC complaint checklist

Name of the app/platform and corporate entity (if any)
Proof of solicitation (screenshots, ads, messages)
Proof of payment request and payment (receipts, e-wallet logs)
Any refusal to release loan without the “deposit”
Contact details and timeline of events

10) Compliance checklist for lenders (quick audit)

Entity is SEC-registered as a lending/financing company; OLP is duly approved.
No up-front deposits/fees required before approval or release.
All charges are fully disclosed ex-ante under TILA; effective interest rate is shown.
Fees (DST, processing, notarial, disbursement) are lawful, reasonable, and deducted from proceeds.
App and scripts do not prompt for borrower cash-in.
Collections and communications comply with SEC rules (no harassment/doxxing/shaming).
Clear refund/complaint mechanisms and recordkeeping.
Periodic compliance training for marketing, agents, and collection teams.

11) Key takeaways

A “guarantee deposit” that a borrower must pay up-front to be approved or to get funds released is not a standard or lawful feature of consumer loans in the Philippines.
Expect heightened SEC scrutiny—and potential sanctions—when such deposits are used.
Borrowers should decline and report; lenders should eliminate the practice and align with disclosure-first, no-surprises credit design.

This article provides general information and is not a substitute for legal advice. If you’re dealing with a specific case, consider consulting Philippine counsel to assess the facts and applicable rules in detail.