The "Buy-Now-Pay-Later" (BNPL) phenomenon has revolutionized consumer credit in the Philippines, offering a seamless alternative to traditional credit cards. However, the convenience of deferred payments often masks the stringent legal and financial consequences of missing a due date. In the Philippine jurisdiction, these consequences are governed by a blend of the Civil Code, BSP (Bangko Sentral ng Pilipinas) regulations, and the Truth in Lending Act.

1. The Legal Basis for Penalties and Interest

In a BNPL transaction, when a borrower fails to pay an installment on time, they incur "mora" or legal delay. Under Article 1169 of the Civil Code, obligors incur in delay from the time the obligee judicially or extrajudicially demands fulfillment. Most BNPL contracts, however, contain a "waiver of demand," meaning penalties apply automatically the moment the deadline passes.

Conventional Interest vs. Penalty Charges

Monetary Interest: This is the cost of borrowing money (the "rent" for the money).
Penalty/Compensatory Interest: This serves as a form of liquidated damages intended to punish the breach of contract and compensate the lender for the delay.

2. Regulatory Ceilings and "Unconscionable" Rates

While the Philippines suspended the Usury Law (via Central Bank Circular No. 905), giving lenders and borrowers the freedom to agree on interest rates, this freedom is not absolute.

The Supreme Court of the Philippines has consistently ruled that interest rates and penalty charges that are "excessive, iniquitous, unconscionable, and exorbitant" are void.

The Judicial Standard: Generally, combined interest and penalty rates exceeding 3% per month (36% per annum) are often flagged by courts as unconscionable.
BSP Circular No. 1133: For credit card issuers and similar credit extensions, the BSP has imposed specific caps (currently 3% per month for interest). While many BNPL providers operate as Financing Companies or Lending Companies (regulated by the SEC), they often mirror these benchmarks to avoid legal scrutiny.

3. The Truth in Lending Act (RA 3765)

One of the most critical protections for BNPL users is the Truth in Lending Act. This law requires providers to achieve full transparency. Before a transaction is consummated, the lender must provide a Disclosure Statement that clearly outlines:

The cash price of the service/product.
The down payment (if any).
The amount to be financed.
The finance charges (broken down into interest and fees).
The specific late payment penalties and how they are calculated.

Legal Consequence: Failure to disclose these late fees in writing before the loan is granted can result in the provider being unable to legally collect those specific charges, and they may be subject to administrative fines.

4. Common Penalty Structures in PH BNPL

BNPL providers in the Philippines (such as Atome, Billease, or Shopee’s SPayLater) typically employ one of two penalty structures:

Fixed Late Fees: A flat amount (e.g., ₱50 to ₱500) charged per missed installment.
Percentage-Based Fees: A percentage (often 1% to 5%) of the outstanding overdue balance, applied monthly or daily.

5. Collection Practices and Consumer Protection

Late payments often trigger the collection process. Under BSP Circular No. 454 and the Financial Products and Services Consumer Protection Act (RA 11765), collection agents are prohibited from using:

Unfair collection practices (harassment, threats, or intimidation).
Publicly shaming the debtor (posting on social media).
Misrepresenting themselves as lawyers or court officials.

Summary Table: BNPL Obligations

Feature	Legal/Regulatory Context
Authority	SEC (Lending Companies) or BSP (Banks/Financing)
Disclosure	Must be provided before the loan is taken (RA 3765)
Max Interest	No fixed ceiling, but subject to "Unconscionability" (3% monthly benchmark)
Demand	Usually waived in contracts (Delay starts immediately)

Would you like me to draft a sample demand letter or a formal complaint template to the SEC regarding excessive BNPL charges?