Is Failure to Pay a 10% “5–6” Loan Estafa?

Criminal vs. Civil Liability in the Philippines

Executive summary

Non-payment of a loan—even a “5–6” loan charging 10% per month—does not automatically constitute estafa.
Estafa (Article 315, Revised Penal Code) requires deceit or abuse of confidence, not mere inability or refusal to pay.
A borrower may incur criminal liability only if fraud accompanied the obtaining of the loan (e.g., false pretenses) or if the borrower issued a bouncing check (possible BP 22 and/or estafa by postdating a worthless check).
Otherwise, the case is civil: the lender sues to collect the principal, agreed interest (subject to judicial reduction if unconscionable), penalties, and legal interest.
Charging “5–6”/10% monthly is not a crime per se, because usury ceilings are suspended, but courts may strike down or reduce unconscionable rates.

What exactly is a “5–6” loan?

In Philippine parlance, “5–6” is informal, short-term moneylending with very high monthly interest and fast release, usually unsecured or lightly secured (e.g., promissory note, ATM or ID “collateral,” co-maker). While classic “5–6” implies 20% (borrow 5, pay 6), many street loans today quote 10% per month (still 120% per year).

Legality of the rate: The Usury Law ceilings were suspended decades ago, so parties can agree on almost any rate. But courts will intervene when the rate is unconscionable (e.g., multiple-percent per month, excessive penalties, compounding on compounding).

When is failure to pay not estafa?

General rule: Breach of a loan agreement is a civil matter. If a borrower simply fails to pay on due date, without fraudulent design at the time of contracting, the lender’s remedy is collection, not imprisonment.

Key ideas:

Dolo causante vs. dolo subsequens. Estafa requires deceit that induced the lender to part with money (dolo causante). Fraud that occurs after the loan (e.g., later refusal to pay) is typically not criminal.
Debt ≠ crime. The Constitution disfavors imprisonment for non-payment of debt. Criminal liability attaches only upon statutory grounds (e.g., estafa elements or BP 22).

When can criminal liability arise?

1) Estafa by false pretenses or fraudulent acts (Art. 315(2))

Examples (illustrative, not exhaustive):

Borrower uses a fictitious name/identity, forged IDs or falsified income/ownership to secure the loan.
Borrower pretends to have property or employment known to be false to obtain the loan.
Borrower pledges or sells property not owned, or already encumbered, while concealing that fact, to induce the lender to part with money.
Borrower obtains a loan upon guarantees or representations known to be false at the time (e.g., “my company approved my bonus, I’ll pay tomorrow,” when no such bonus exists and the lie is calculated to obtain the loan).

Elements the prosecution must generally prove: (1) the borrower made a false pretense or fraudulent act prior to or at the time of the loan; (2) the lender relied on it; (3) the lender suffered damage (e.g., unpaid principal/interest). Mere non-payment without such deceit is not estafa.

2) Estafa by postdating or issuing a worthless check (Art. 315(2)(d))

If the borrower issues a check to obtain or secure the loan knowing it will bounce, this may be estafa and also a BP 22 violation. Estafa here still requires deceit and damage.

3) Bouncing Checks Law (BP 22)

Separate from estafa, BP 22 penalizes the making, drawing, and issuance of a check that is later dishonored for insufficiency/closed account. It is a malum prohibitum offense; deceit is not an element.

It applies only when a check is issued.
Payment after dishonor may mitigate but does not automatically extinguish criminal liability (though settlements sometimes lead to withdrawal/affidavits of desistance).
If no check is involved, BP 22 is not in play.

4) Abuse of confidence / misappropriation (Art. 315(1)(b))

This form of estafa punishes misappropriation of property delivered in trust (e.g., agent, depositary). A loan transfers ownership of money to the borrower, so misappropriation estafa typically does not apply to ordinary loans.

Civil liability and how courts treat high interest

1) Enforcement of the loan

In a civil action, lenders may recover:

Principal
Contractual interest, if stipulated (subject to reduction if unconscionable)
Penalty charges/liquidated damages (also subject to reduction if iniquitous)
Attorney’s fees and costs, if provided by law or contract, or awarded in equity
Legal interest (6% p.a.) may apply in lieu of or on top of the agreed rate from default or judgment, depending on pleadings and judicial findings.

2) Unconscionable interest can be reduced

Philippine courts have repeatedly struck down or pared back eye-watering rates (e.g., 3%–10% per month, steep penalties, compounding). Courts look at:

Rate magnitude (monthly × 12)
Vulnerability and bargaining power of the borrower
Total effective cost (interest + penalties + add-ons)
Compounding provisions (interest on interest)
Nature and risk of the loan and whether the rate shocks the conscience

Practical upshot: A 10% per month clause is not automatically void, but is highly susceptible to judicial reduction to a reasonable rate. Courts may also delete or reduce penalties and disallow compounding that leads to oppressive results.

3) Novation and settlements

Novation (e.g., substituting obligations, restructuring) generally does not extinguish criminal liability for estafa already committed; it may affect civil liability.
In purely civil loans, novation/restructuring simply updates payment terms.

Regulatory and compliance angles

Lending/financing companies are regulated (e.g., corporate form, registration, reporting, disclosure). Operating an unregistered lending business can lead to administrative/criminal exposure—for the lender, not the borrower.
Debt collection practices of regulated entities are subject to rules against harassment, threats, doxxing, obscene language, and public shaming. Violations can lead to sanctions.
Informal “5–6” lenders who are not registered may still enforce loans civilly (courts do not reward unjust enrichment), but they risk regulatory actions for operating illegally.

Practical scenarios

A. Plain non-payment of a 10%/month “5–6” loan

Criminal? No, absent deceit or a bad check.
Remedy: Civil collection. Court may reduce interest/penalties if oppressive.

B. Borrower lied to get the loan (fake employment, forged IDs)

Criminal? Potentially yes, estafa by false pretenses (deceit at inception).
Also civil: Lender may still sue to collect.

C. Borrower issued a check that bounced

Criminal? BP 22 (regardless of deceit) and possibly estafa (Art. 315(2)(d)) if deceit is proven.
Defenses: Lack of notice, check not for value (e.g., issued for a past debt), or timely funding within the statutory grace period (fact-specific).

D. ATM “collateral,” ID “sangla,” or co-maker

Criminal? Typically no, unless forgery/falsity was used at the start.
Civil: Enforce the promise to pay; courts scrutinize penalties and add-ons.

Drafting and litigation tips

For lenders

Document the loan clearly: amount, due dates, interest (monthly and annual equivalents), penalties (cap them), and no compounding unless reasonable and explicit.
Avoid oppressive terms; courts may pare them down and frown on abusive collection.
If using checks, keep records of issuance and notice of dishonor.
Register if you’re in the business of lending; comply with disclosure and collection rules.

For borrowers

Keep all receipts, chats, and messages; these prove payments and terms.
If sued, raise unconscionability (excessive interest/penalties), no meeting of minds on hidden fees, or lack of consideration if applicable.
Do not issue checks you cannot fund. If a check bounces, act quickly upon notice.
Consider structured settlements; courts often welcome reasonable payment plans.

Key distinctions at a glance

Issue	Civil Loan Breach	Estafa (Art. 315)	BP 22
Core wrong	Non-payment of debt	Deceit/abuse of confidence causing damage	Issuance of dishonored check
Need to prove deceit?	No	Yes (at/before contracting)	No
Applies without a check?	Yes	Yes	No
Penalty driver	Money judgment + interest/penalties (subject to reduction)	Imprisonment/fine (scaled to amount) + civil liability	Imprisonment/fine + civil liability
Can later payment erase liability?	N/A	Generally no (may mitigate)	Generally no (may mitigate or lead to settlement)

FAQs

Is charging 10% per month illegal? Not per se. Usury ceilings are suspended. But courts may reduce such rates if unconscionable, especially with heavy penalties or compounding.

If I can’t pay, can I be jailed? Not for mere non-payment. Jail time arises only if you commit a crime (e.g., estafa with deceit or BP 22 due to a bouncing check).

The lender threatened to shame me online. Is that allowed? No. Abusive collection (threats, public shaming, contacting your contacts) can violate regulations and other laws. Keep evidence and seek help.

What if the lender is unregistered? They may face regulatory sanctions, but your underlying debt can still be enforceable. Courts can still order you to pay what is fairly due, with excessive charges reduced.

What is the better forum to collect small amounts? The Small Claims procedure (no-lawyer, streamlined) applies up to the current threshold set by the Supreme Court. Check the latest cap before filing.

Bottom line

Failure to pay a 10% “5–6” loan is ordinarily a civil matter, not estafa.
Estafa needs deceit at the time of borrowing (or a worthless check used to obtain the loan).
Civil courts can and often do trim excessive interest and penalties while ensuring repayment of what’s just.
Borrowers should avoid issuing checks they can’t fund; lenders should eschew oppressive terms and comply with regulations.

This article is for general information only and is not a substitute for legal advice on specific facts. If you have a live case, consult counsel to assess evidence of deceit, check-related exposure, and strategies for interest reduction or settlement.