As the financial technology (FinTech) sector expands in the Philippines, the Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP) have intensified their oversight of Online Lending Platforms (OLPs). One of the most contentious issues for borrowers is the imposition of upfront notary fees.
While charging for the notarization of a loan contract is legally permissible, the manner and timing of these charges are strictly regulated under Philippine law.
1. The Truth in Lending Act (Republic Act No. 3765)
The cornerstone of all credit transactions in the Philippines is R.A. 3765. This law mandates full transparency in the cost of credit. Under this Act, any creditor is required to furnish the borrower with a Disclosure Statement before the consummation of the transaction.
This statement must clearly itemize:
- The cash price or amount to be loaned.
- All charges, including service charges, brokerage fees, and legal/notarial fees.
- The total finance charge.
- The effective annual interest rate.
Legal Implication: If an online lender demands a notary fee that was not explicitly stated in the Disclosure Statement prior to the loan's perfection, they are in direct violation of the Truth in Lending Act.
2. SEC Memorandum Circular No. 19, Series of 2019
To curb predatory lending practices, the SEC issued MC No. 19, which focuses on the "Disclosure Requirements on Loan Transactions of Financing Companies and Lending Companies."
The circular specifies that:
- Lenders must use the standard format for Disclosure Statements.
- All fees—including processing, notarial, and handling fees—must be transparent.
- Non-compliance can lead to heavy fines, suspension, or the revocation of the lender’s Certificate of Authority (CA).
3. The "Upfront Fee" Red Flag: Legitimacy vs. Scams
In the Philippine legal and banking context, there is a critical distinction between a deducted fee and an out-of-pocket upfront fee.
- Legitimate Practice: Most reputable lending companies and banks deduct the notarial and processing fees directly from the loan proceeds. For example, if you are borrowed ₱10,000 and the fees are ₱500, you receive ₱9,500.
- Suspicious Practice (The Scam Red Flag): If an online lender requires the borrower to send money (via GCash, Maya, or Bank Transfer) to "pay for the notary fee" or "system fee" before the loan is released, this is widely recognized by the SEC and the National Privacy Commission (NPC) as a hallmark of a Advance Fee Scam.
Legal Reality: No legitimate, SEC-registered online lending application will require you to pay a fee out of your own pocket to "unlock" or "notarize" a loan.
4. Excessive Fees and the Ceiling on Interest Rates
The BSP Monetary Board Circular No. 1133 (and subsequent SEC implementations) imposed a cap on interest rates and other fees for small-value loans (often referred to as "payday loans").
- Total Cost Cap: The combined interest and all other charges (including notarial fees) are subject to specific ceilings.
- If the "notary fee" is arbitrarily high (e.g., ₱1,000 for a ₱3,000 loan), it may be viewed as a disguised interest rate intended to circumvent the legally mandated caps.
5. Rights of the Borrower
Under the Consumer Act of the Philippines (R.A. 7394) and the Financial Products and Services Consumer Protection Act (R.A. 11765), borrowers are protected against "unconscionable" terms.
- Right to Information: You have the right to see the SEC Registration and the Certificate of Authority of the lender.
- Right to Fairness: You cannot be forced to pay "hidden" fees that were not part of the initial agreement.
- Right to Recourse: If a lender is charging illegal upfront fees, borrowers can file a formal complaint with the SEC’s Corporate Governance and Finance Department (CGFD).
Summary Table: Is the Notary Fee Legal?
| Scenario | Legality | Action |
|---|---|---|
| Fee is deducted from the loan proceeds and listed in the Disclosure Statement. | LEGAL | Proceed with caution/review interest. |
| Fee is demanded via GCash/Bank Transfer before any money is sent to you. | HIGHLY SUSPICIOUS | Likely a scam; do not pay. |
| Fee is not mentioned in the Disclosure Statement but charged later. | ILLEGAL | Violation of Truth in Lending Act. |
| The "Notary Fee" exceeds the total cost caps set by the BSP/SEC. | ILLEGAL | Report to the SEC. |
Conclusion
While it is legal for a company to pass on the cost of notarizing a loan contract to the borrower, it must be disclosed transparently and should ideally be deducted from the loan amount. Any online lending platform demanding upfront, out-of-pocket payments for "legal fees," "notarization," or "activation" is likely operating outside of Philippine law or is a fraudulent entity. Always verify the lender's name against the SEC's List of Licensed Lending Companies before making any payments.