Laws Against Loan Sharks in the Philippines

Executive summary

“Loan sharks” are unlicensed or abusive lenders who charge excessive interest, hide fees, or use harassment to collect. Philippine law does not set a universal interest‐rate cap for private loans (the Usury Law’s ceilings were lifted), but courts routinely strike down unconscionable interest and penalties, regulators can shut down unregistered lenders, and abusive collection is punishable under multiple statutes. Borrowers can void illegal terms, reduce excessive charges, recover damages, and complain to the proper agencies.

Legal framework at a glance

Core statutes and issuances

Usury Law (Act No. 2655) – Interest ceilings were suspended by Central Bank Circular No. 905 (1982). Result: parties may agree on interest subject to the Civil Code’s limits (public policy, equity, unconscionability) and judicial review.
Civil Code – Freedom to contract (Art. 1306) is limited by law, morals, good customs. Courts may reduce or strike interest and penalty charges that are iniquitous or unconscionable (Arts. 1229, 2227).
Truth in Lending Act (R.A. 3765) – Requires clear disclosure of the finance charge and effective interest rate before consummation; non-compliance can lead to civil and administrative liability.
Financing Company Act (R.A. 8556) and Lending Company Regulation Act (R.A. 9474) – SEC regulation of financing/lending companies; require corporate form, SEC registration and licensing, minimum capitalization, proper records, and compliant disclosures. Unregistered lending is illegal.
Financial Products and Services Consumer Protection Act (R.A. 11765, 2022) – Strengthens powers of BSP/SEC/IC to stop abusive practices, impose sanctions, order restitution, and conduct on-site/online supervision.
Data Privacy Act (R.A. 10173) – Prohibits unlawful processing or disclosure of personal data. “Debt shaming” (e.g., blasting borrower’s contacts) can trigger administrative fines and civil/criminal liability.
Revised Penal Code (RPC) – Applies to harassment, threats, coercion, unjust vexation, libel/cyberlibel, estafa, and other crimes frequently implicated in predatory collection.
Credit Card Industry Regulation Law (R.A. 10870) and BSP circulars – Ban abusive collection by banks/credit-card issuers (useful by analogy for standards of fair debt collection).
Special sector rules – Pawnshops and money service businesses are BSP-supervised; microfinance NGOs and cooperatives have their own regimes. These are not a license for shark-type practices.

Practical upshot: There’s no fixed cap, but there is a hard stop on abuse—through registration requirements, disclosure duties, data-privacy limits, consumer-protection powers, criminal laws, and the judiciary’s power to invalidate or reduce oppressive rates/penalties.

What counts as “loan sharking” in Philippine law?

There is no single codified offense named “loan sharking.” Instead, the conduct is captured by a bundle of violations:

Operating without registration/license
- Lending/financing without SEC authority (or outside one’s license) is unlawful. Local business permits do not substitute for SEC registration.
Unfair or deceptive terms
- Hidden charges, add-on “processing” or “service” fees that disguise true interest; misstated APR; rolling refinances that trap borrowers.
Unconscionable interest/penalties
- Courts void or reduce grossly excessive rates (often monthly rates that translate to triple-digit APR), compounded interest without agreement, or penalty charges that pile on top of high interest.
Abusive collection
- Harassment, doxxing, public shaming, contacting employers or unrelated contacts, nighttime visits, false threats of criminal cases for mere non-payment, unauthorized access or disclosure of contact lists.
Illegal data practices
- Extracting phonebook/contact access via apps without proper consent, using data for shaming, or retaining data longer than necessary.
Criminal overlays
- Grave threats/coercion, unjust vexation, libel/cyberlibel, alarm and scandal, estafa (if deceit or misappropriation is present), and related offenses.

Interest, penalties, and “unconscionability”

No statutory ceiling applies to private loans since 1982, but courts police the margins. Philippine jurisprudence has repeatedly:
- Reduced interest where the rate “shocks the conscience” (e.g., high double- to triple-digit APRs, or compounding without clear assent).
- Nullified penalty charges layered atop already-high interest, or cut them to a reasonable level.
- Prohibited unilateral interest increases without the borrower’s explicit assent.
Compounding (interest on interest) is allowed only if explicitly stipulated; even then, courts may moderate if oppressive.
Penalty vs. interest – Both can be reduced; penalties are especially susceptible to equitable reduction under Art. 1229.
Effective Interest Rate (EIR) matters. A nominal “2% per month + 5% fee + daily penalties” can covertly become a triple-digit APR; nondisclosure violates R.A. 3765 and consumer-protection standards.

Licensing and compliance checklist (lenders)

A compliant lending/financing company should:

Be a corporation with required paid-in capital and SEC license (distinct from municipal permits).
Use clear, written contracts stating the finance charge/EIR, all fees, payment schedule, default charges, and prepayment rules.
Keep books/records and submit required regulatory reports.
Maintain consumer-protection policies: fair collection, complaint handling, data-privacy compliance, suitability, and transparency.
For online lending apps (OLAs): register platforms, disclose data practices, obtain valid consent, do not access contact lists for collection, and implement secure data handling.

Red flags suggesting a loan shark:

No SEC company name/license in the contract or app.
“Bring 1 valid ID; 5 minutes approval” with no contract or only a screenshot/DM.
Mandatory phonebook access or selfie videos with threats to share publicly.
Daily penalties, “compulsory tips,” or opaque processing fees.
Collection via shaming posts, mass texts to contacts, or workplace calls.

Abusive collection and data privacy

Harassment is illegal. Threats, coercion, and public shaming can trigger criminal liability (RPC) and civil damages.
Debt shaming and doxxing are data-privacy violations; borrowers can demand erasure, file complaints, and seek damages.
Even where a debt is valid, a lender or its agent cannot:
- Contact unrelated third parties to pressure payment;
- Disclose personal or loan information without a lawful basis;
- Use profanity, slurs, or threats;
- Call at odd hours or make excessive calls;
- Impersonate public officers or lawyers.

Digital/online lending apps (OLAs)

Must be SEC-registered entities with approved online platforms and compliant privacy notices.
Prohibited practices include scraping contact lists, auto-dialer harassment, fake legal notices, and using “consent” buried in fine print.
The SEC has repeatedly ordered takedowns/closure of rogue OLAs and filed criminal complaints.
Borrowers can additionally seek relief from the National Privacy Commission for privacy breaches and from NBI/PNP cybercrime units for online harassment or threats.

Borrower remedies and defenses

Civil remedies

Invalidate or reduce unconscionable interest and penalties; courts may fix a reasonable rate and recompute the balance.
Rescission or reformation of contracts with deception or hidden charges.
Damages (moral, exemplary, attorney’s fees) for abusive collection or privacy breaches.
Restitution of overpayments/illegal fees.
Injunctions/TROs to stop continuing harassment or unlawful data processing.

Criminal and administrative routes

File criminal complaints (e.g., grave threats, coercion, libel/cyberlibel, estafa) before the prosecutor.
Complain to the SEC (unlicensed lending; abusive OLA practices).
Complain to the NPC (Data Privacy Act violations).
Report to BSP if the lender is a bank/credit-card issuer/pawnshop.
Police/NBI for harassment, intimidation, or cybercrime.

Practical defenses in collection suits

Demand strict proof of the loan (original documents, proper assignment, authority of collection agents).
Challenge interest calculations and penalties; ask the court to reduce or strike them.
Invoke Truth in Lending non-disclosure.
Raise lack of standing where the plaintiff failed to prove valid assignment.
Assert payment, novation, or prescription (take note of the 10-year period for actions upon a written contract; other periods may apply depending on the claim).

Evidence and documentation tips

Keep contracts, receipts, transaction histories, screenshots of app permissions, call/message logs, and copies of abusive texts/posts.
Do not secretly audio-record private conversations—Philippine Anti-Wiretapping Act generally forbids recording without consent. Use written communications (texts, chats, emails) and public posts as evidence instead.
Preserve device logs and obtain a notarized certification or subpoena when needed for platform records.

How to report (by lender type)

Situation	Primary forum
Unregistered lending/financing company or OLA	SEC (Enforcement & Investor Protection)
Bank, credit-card issuer, pawnshop, MSB	BSP Consumer Assistance
Data shaming/leaks, unlawful contact scraping	National Privacy Commission (NPC)
Threats, coercion, cyber harassment, libel	PNP/NBI; file with Office of the City/Provincial Prosecutor
Court relief for illegal interest/fees	RTC/MTCC (civil action; small claims for qualified amounts)

Frequently litigated issues (and how courts tend to rule)

Is 3–5% per month automatically illegal? No fixed cutoffs. But rates in that range (36–60% p.a.) have often been reduced, especially where there are additional penalties/fees or compounding without clear consent.
Can lenders add penalties on top of high interest? Yes, if agreed—but courts slash penalties that are punitive or duplicative.
Is compounding allowed? Only if expressly stipulated; otherwise, simple interest applies.
Can non-payment be criminal? Mere non-payment of a civil loan is not a crime. Criminal liability arises from separate acts (e.g., estafa by deceit, issuing bouncing checks, threats, or libel), which must be proved independently.
Can a lender contact my employer or relatives? Generally no—disclosing your debt to unrelated third parties or using them to pressure you is abusive and may violate data privacy and consumer-protection rules.

Drafting and compliance pointers (for lenders and MSMEs)

Quote effective interest rate (EIR) and total cost of credit prominently; avoid junk fees.
Obtain informed, specific, time-bound consent for any data processing; never access or use a borrower’s contacts for collection.
Adopt written collection conduct standards (no third-party disclosures; no harassment; reasonable call windows; documented demand letters).
Use plain-language contracts; provide pre-contractual disclosures and cooling-off information where applicable.
Train staff and agents; ensure agency agreements impose the same conduct standards (principals can be liable for agents’ abuses).

Quick action plan for borrowers facing a loan shark

Stop the bleeding: Document terms; avoid new “rollovers” that add fees.
Compute the real balance: Reconstruct using reasonable interest; exclude illegal penalties/fees.
Send a written dispute citing disclosure gaps/unconscionability; demand a corrected statement.
Preserve evidence of harassment or privacy misuse.
File targeted complaints (SEC/NPC/BSP/NBI/PNP) and consider a civil case to void or reduce charges and claim damages.
Seek legal aid (PAO for qualified indigent litigants; IBP chapters; law school legal aid clinics).

Key takeaways

There is no universal interest cap, but the legal system does not tolerate predatory terms and practices.
Registration and disclosure are mandatory for commercial lenders; unregistered lending is illegal.
Abusive collection and data shaming are punishable.
Borrowers have multiple remedies—regulatory, criminal, and civil—to shut down abuse and cut illegal charges.

Disclaimer

This article provides general information on Philippine law and is not legal advice. Facts matter. For specific cases, consult a Philippine lawyer or accredited counselor who can evaluate documents and evidence.