General information only—this is not legal advice.

Short answer

Banks: Requiring a borrower to maintain or “hold out” an existing deposit account as collateral can be lawful if properly documented. Requiring the borrower to hand over new money in cash before loan release is atypical and should be scrutinized; fees are normally deducted from proceeds, not collected in cash in advance.
Lending/financing companies (non-banks): As a rule, they cannot engage in deposit-taking like banks do. A scheme that asks borrowers for a refundable “deposit” before release risks being treated as unauthorized deposit-taking or an unfair/deceptive practice. Legitimate charges (processing, notarial, appraisal, documentary stamps, insurance premiums) are allowed if properly disclosed, but again these are ordinarily netted from the loan, not paid upfront.
Cooperatives/microfinance: They may lawfully require membership capital build-up or compulsory savings under their by-laws. Some require a maintaining balance to qualify for loans. That’s different from a lender’s ad-hoc “deposit” demand.

Why the answer depends on the type of lender

1) Banks (regulated by the BSP)

Deposit-taking authority. Banks may accept deposits and may structure certain loans with a hold-out on deposits (the borrower’s own deposit remains in the borrower’s account but is assigned/earmarked as collateral). This is common with time deposits or payroll accounts and is generally lawful if:
- The pledge/assignment is in writing,
- Set-off/compensation terms are clear,
- The consumer disclosures (interest, fees, net proceeds) are complete.
Upfront cash demands are unusual. While banks can charge fees, standard practice is to deduct fees from the loan proceeds at release. Requiring cash before release raises consumer-protection issues unless there’s a specific, transparent reason (e.g., a third-party appraisal fee that can’t be advanced by the bank).

2) Lending and financing companies (regulated by the SEC)

No deposit-taking. These entities generally cannot accept “deposits” or other repayable funds from the public—that activity is reserved for banks/quasi-banks. If a lending app or company asks you to send money first with a promise to return it after loan approval, that’s a red flag for unauthorized deposit-taking or an advance-fee scam.
Fees must be lawful and disclosed. They may charge processing, service, verification, notarial or similar fees, and they must disclose them under the Truth in Lending principles. However, legitimate operators typically net these fees from the release instead of collecting cash in advance. If the “deposit” is simply a fee by another name—or if paying it does not lead to an actual service—it may be an unfair, deceptive, or abusive act.
Disguised interest. Very high “fees” can be treated in substance as interest. Philippine jurisprudence allows courts to strike down unconscionable interest/charges even if the Usury Law ceilings are no longer in force. Excessive “deposits/fees” can render terms void or reducible.

3) Cooperatives & microfinance (regulated by CDA / specialized frameworks)

Compulsory savings or share capital. Many cooperatives require members to build up share capital or maintain savings as part of membership. Conditioning a loan on those by-law-mandated balances is generally lawful within the cooperative framework. This is not the same as a lender inventing a refundable “deposit” before release.

What exactly counts as a “deposit”?

Hold-out deposit (bank): Your existing deposit (e.g., time deposit) is frozen/assigned as collateral. Funds stay in your account; no new money changes hands. Lawful if documented.
Security deposit paid to the lender (promised refund at maturity): Risky for non-banks (may be unauthorized deposit-taking). For banks, atypical; equivalent protections can be achieved via hold-out or standard collateral without forcing you to pay cash first.
Processing/appraisal/notarial/insurance fees: Lawful if reasonable and fully disclosed. Standard practice is deduction from proceeds, not cash collection in advance.
Down payment to a seller (e.g., car/house): Lawful but distinct from your loan. It’s paid to the seller, not the lender, and isn’t a lender “deposit.”

How consumer-protection rules apply

Truth-in-Lending: Lenders must disclose the effective interest rate and all finance charges before you agree. A demand for a “deposit” that is really a fee must be clearly itemized.
Unfair/Deceptive/Abusive Acts: Requiring a surprise upfront payment—especially by e-wallet top-ups, gift cards, or personal transfers—to “unlock” a loan often signals UDAAP concerns. If a lender refuses to issue a proper disclosure and receipt, or won’t allow fees to be netted from proceeds, that’s a major red flag.
Anti-tying & reasonableness: Forcing you to open unrelated products or to park funds with no rational link to risk mitigation can be challenged as unreasonable or tying. A legitimate hold-out is narrowly tailored collateral; a blanket “cash deposit first” is not.

Practical scenarios

Bank salary loan asks you to keep ₱10,000 in your payroll account as collateral. Likely a hold-out. This can be lawful if documented and disclosed.
Registered lending company asks you to GCash ₱2,500 “security deposit” before they send the loan. High risk/likely improper. Non-banks shouldn’t be taking “deposits”; fees should be disclosed and netted from proceeds. This looks like an advance-fee scheme.
Online app says pay ₱999 “activation deposit,” refundable after approval. Red flag. If approval never happens, that’s classic advance-fee fraud. Even if it does, the practice is suspect.
Cooperative requires ₱1,000 maintaining savings to qualify. Generally permissible under cooperative rules/by-laws—different from a lender’s ad-hoc deposit.

If you’re a borrower: a quick due-diligence checklist

Identify the regulator.
- Banks/pawnshops/money service: Bangko Sentral ng Pilipinas (BSP)
- Lending/financing companies: Securities and Exchange Commission (SEC)
- Cooperatives: Cooperative Development Authority (CDA)
Never send cash before release. Ask that any legitimate fees be deducted from the proceeds.
Demand disclosures. Get the effective interest rate, all fees, and the net take-home in writing before you commit.
Watch for refund promises. “Refundable deposit after approval” is a scam pattern.
Hold-out vs. cash deposit. A hold-out uses money already in your bank account with a written assignment. A request to pay the lender first is different—and risky.
Receipts and contracts. Pay only through official channels, get official receipts, and keep copies of loan contracts and promissory notes.

If you’re a lender: compliance pointers

Avoid “deposit” language unless you are a bank structuring a lawful hold-out. For non-banks, don’t accept or label funds as refundable deposits.
Disclose and net fees. Itemize all charges and net them from proceeds by default.
Mind effective interest. Don’t bury charges as “deposits”—courts can treat them as interest and strike them down if unconscionable.
Use proper collateral. For credit risk, rely on standard security (real/personal property, chattel mortgage, assignment) rather than collecting cash upfront.
Consumer-protection controls. Train staff and configure apps to avoid advance-fee patterns and to comply with disclosure, consent, and complaint-handling requirements.

Bottom line

A bank may require a hold-out on an existing deposit as collateral—lawful if transparent and documented.
A non-bank lender demanding a refundable “deposit” before release is problematic and may cross into unauthorized deposit-taking or unfair/deceptive practice.
Legitimate fees are fine if clearly disclosed—and are best deducted from the proceeds, not collected in advance.
When in doubt, walk away from any lender that asks you to send money first and verify the lender’s registration and regulator before proceeding.