The Philippine lending landscape is governed primarily by the Lending Company Regulation Act of 2007 (R.A. No. 9474) and the Financing Company Act of 1998 (R.A. No. 8556). Under these laws, no person or entity shall engage in the business of lending or financing without a valid Certificate of Authority (CA) issued by the Securities and Exchange Commission (SEC).
When the SEC revokes the license of a financing or lending company—often due to unfair debt collection practices, high interest rates exceeding the caps set by the Bangko Sentral ng Pilipinas (BSP), or failure to comply with reporting requirements—the legal relationship between the borrower and the lender enters a complex territory.
1. The Validity of the Principal Debt
A common misconception is that a revoked license automatically "wipes out" the debt. Under Philippine civil law, the principle of unjust enrichment (Article 22 of the Civil Code) generally applies. Even if a lender’s license is revoked, the borrower usually still has a legal obligation to repay the principal amount borrowed.
The revocation of a license is an administrative penalty against the corporation’s right to do business; it does not necessarily nullify the underlying private contract of the loan insofar as the actual money received by the borrower is concerned.
2. Enforceability of Interest and Penalties
While the principal may remain due, the enforceability of interest, penalties, and charges is where the lender faces significant legal hurdles.
- Unauthorized Business: A company with a revoked license is no longer authorized to engage in the "business" of lending. Any interest or charges stipulated in the contract may be deemed void or unenforceable because the entity had no legal standing to offer those terms as a regulated financial institution.
- BSP Circular No. 1133: This circular imposes ceilings on interest rates and other fees for small-value loans. If a revoked company was charging "unconscionable" rates (often the reason for revocation), Philippine courts have the power to reduce these rates to the legal rate or strike them down entirely.
3. Impact on Collection and Harassment
The most immediate legal implication for borrowers involves debt collection. Companies with revoked licenses often lose their "Good Standing," and their methods are scrutinized heavily.
- SEC Memorandum Circular No. 18 (Series of 2019): This prohibits unfair debt collection practices, such as the use of threats, profanity, or contacting people in the borrower's contact list without consent.
- Cease and Desist Orders (CDO): When a license is revoked, the SEC usually issues a CDO. This order legally compels the company to stop all lending activities, including the active solicitation and processing of new loans. While they may still collect existing debts, they must do so within the strict confines of the law.
4. Judicial Recourse for Borrowers
If a borrower is being harassed by a company with a revoked license, several legal avenues are available:
| Legal Action | Description |
|---|---|
| SEC Complaint | Filing a formal complaint with the Corporate Governance and Finance Department (CGFD) of the SEC for violations of the Lending Company Regulation Act. |
| Data Privacy Act (R.A. 10173) | If the lender accessed contacts or posted shaming information on social media, a complaint can be filed with the National Privacy Commission (NPC). |
| Cybercrime Prevention Act | For online threats or "cyber-shaming," borrowers can seek assistance from the PNP Anti-Cybercrime Group or the NBI. |
5. Corporate Liquidation and Assignment of Credit
When a financing company’s license is revoked, it often undergoes liquidation. During this process:
- The company may assign its "receivables" (the debts owed to them) to another entity or a third-party collection agency.
- The borrower must be properly notified of such an assignment.
- The new creditor cannot impose harsher terms than what was originally—and legally—agreed upon.
Summary Note: While the obligation to pay back the principal amount typically remains, the revocation of a lender's license serves as a significant legal defense for borrowers against excessive interest and abusive collection tactics. The entity's loss of legal personality to engage in lending activities weakens their position in court should they attempt to sue for the full "inflated" amount of the loan.