Updated for the contemporary Philippine legal framework. This article explains how interest rate caps work (and don’t work), which government bodies regulate online lenders, what must be disclosed to borrowers, and how courts treat “unconscionable” rates and fees. It also covers enforcement, penalties, and practical compliance checklists.

1) The Regulatory Map

Securities and Exchange Commission (SEC). Regulates lending companies (R.A. 9474) and financing companies (R.A. 8556, as amended). The SEC licenses these entities, issues rules for online lending platforms (OLPs), sets caps for certain small-value loans, and enforces debt-collection and disclosure rules against non-bank lenders.
Bangko Sentral ng Pilipinas (BSP). Oversees banks and credit card issuers (bank and certain non-bank), including caps on credit-card finance charges. BSP also implements the Truth in Lending Act (R.A. 3765) through disclosure rules (e.g., Effective Interest Rate/EIR).
National Privacy Commission (NPC). Polices data privacy practices of apps and collectors (contact scraping, harassment, doxxing).
Department of Trade and Industry (DTI). Handles deceptive or unfair trade practices for consumer transactions not squarely within SEC/BSP.
Courts. Even where rates are “deregulated,” courts can strike down unconscionable interest or penalties under the Civil Code and jurisprudence.

Key scope point: “Online lending apps” that extend consumer credit in the Philippines almost always operate through an SEC-licensed lending or financing company. Banks that offer loan apps are instead regulated by the BSP (and follow separate caps for credit cards).

2) General Rule vs. Specific Caps

A. General Rule: Usury ceilings are suspended

The old Usury Law ceilings are not in force (suspended since the 1980s). As a result, interest is generally a matter of agreement unless a regulator imposes a product-specific cap (e.g., credit cards) or a court finds a particular rate/fee unconscionable.

B. Specific, Product-Level Caps That Matter to Apps

SEC caps for small-value, short-term consumer loans (non-bank lenders). SEC rules impose ceilings on loans of relatively low principal and short tenor extended by lending/financing companies and their OLPs. In practice, these are the exact loans many apps offer (payday-style or “nano” loans). The typical structure is:
- a monthly nominal interest rate ceiling (e.g., a single-digit percent per month);
- a monthly total cost ceiling (a cap on EIR/APR-equivalent or “all-in” cost, including interest and permissible fees); and
- a penalty cap for late or defaulting amounts (commonly a single-digit percent per month on amounts in arrears). These caps apply on top of disclosure, debt-collection, and data-privacy rules below.
Practical effect: You cannot “work around” the cap by renaming interest as a “service,” “processing,” “convenience,” “fast approval,” or “access” fee. If it is part of the cost of credit, it counts toward the ceiling.
BSP caps for credit-card finance charges (banks and card issuers). Separate BSP circulars cap credit-card finance charges and certain fees (e.g., a monthly cap on finance charge on unpaid balances, an add-on limit for installments, and a maximum cash-advance/processing fee). These do not govern non-card app loans issued by SEC-licensed lending/financing companies, but they illustrate how Philippine regulators actively cap consumer credit costs.

Takeaway: For most non-bank loan apps, look first to the SEC small-loan caps. For bank card apps, look to BSP card caps.

3) “Unconscionable” Interest and Penalties (Even Without a Cap)

Even where no product-specific ceiling applies, Philippine courts can reduce or nullify usurious-in-fact charges:

Rates such as 3–5% per month (or higher) have repeatedly been labeled “unconscionable” in jurisprudence depending on context.
Penalty interest and liquidated damages may be reduced if iniquitous or excessive (Civil Code arts. 1229, 2227).
Courts often retain the principal, reduce interest to a reasonable level (sometimes legal interest), and strike down compounding or pyramiding practices where abusive.

Compliance implication: A lender technically under a cap can still lose in court if its overall pricing or penalty design is oppressive in context (borrower profile, bargaining power, transparency, and repayment mechanics).

4) Mandatory Pricing Disclosure (Truth in Lending)

The Truth in Lending Act (R.A. 3765) and implementing rules require lenders to disclose the true cost of credit before consummation:

State Effective Interest Rate (EIR) / APR using the prescribed computation basis.
Present all finance charges: interest, service/processing fees, platform/technology fees, documentary stamp tax (if applicable), collection fees, and other charges required for the credit.
Provide the borrower a clear disclosure statement (digital is acceptable if compliant) and loan contract with full breakdown.
Keep records; ensure the advertised rate matches the computed EIR. Marketing with teaser “per day” rates that hide fees is a red flag.

Tip: Build pricing screens that show (i) principal, (ii) tenor, (iii) nominal rate, (iv) itemized fees, (v) EIR/APR, and (vi) total repayment—before the user clicks “accept.”

5) What Counts as a “Finance Charge”

If the borrower must pay it to get or keep the loan, assume it is a finance charge:

Included: interest, service/processing/technology/convenience fees, underwriting or “assessment” fees tied to granting the loan, disbursement charges (wallet cash-out, unless an optional third-party choice), collection fees built into the product, mandatory in-app insurance tied to the loan.
Excluded (typical): truly optional ancillary products, third-party pass-throughs the borrower can freely avoid, government taxes and official fees where the lender does not mark up or require a specific channel.

All included components count toward the SEC total cost ceiling (where applicable) and the EIR/APR.

6) Debt Collection: What Apps and Collectors May Not Do

SEC rules prohibit unfair collection practices, especially common in OLPs:

Harassment and shaming: threats, profanity, contacting employer/contacts to shame, posting defamatory content, mass texting outside reasonable hours.
Unauthorized contact scraping or excessive, unconsented data use—also a data privacy violation (NPC).
False threats: jail, police cases for purely civil nonpayment, work blacklisting, immigration blocks.
Excessive or undisclosed fees added during collection.

Violations expose lenders/collectors to SEC administrative sanctions, possible NPC penalties, and civil/criminal liabilities (e.g., libel, grave threats, unjust vexation).

7) Advertising & App Store Conduct

No deceptive claims (e.g., “0%” while hiding mandatory fees).
Representatives and affiliates are covered—marketing partners’ misrepresentations can be attributed to the lender.
App permissions must be proportionate and consent-based; require only what is necessary. Provide a clear privacy notice and allow revocation consistent with lawful processing.

8) Licensing & Platform Requirements

Only SEC-licensed lending/financing companies may operate an OLP that extends loans to the public.
The app and any website/OLP must be reported/registered with the SEC (name, URLs, developer info), and changes must be updated.
Using a shell or foreign entity without the license to actually lend to Philippine residents is a violation even if servers or developers sit offshore.

9) Penalties and Remedies

Administrative (SEC): fines, suspension or revocation of license, take-downs/bans of apps and domains, blacklisting of officers/directors, public advisories.
Civil: damages, attorney’s fees, return of excessive/unlawful charges, reformation of loan terms, voiding of abusive clauses.
Criminal (where applicable): violations of special laws (e.g., lending laws, data privacy, cybercrime), falsification, libel, threats.
App store removal and payment channel offboarding (due to regulatory requests or policy breaches).

10) Practical Compliance Checklist for Online Lending Apps

Product & Pricing

Map every peso the borrower pays; classify as finance charge vs. optional.
Confirm your product falls under SEC small-loan caps (typical for payday-style loans); configure:
- Monthly nominal interest ≤ the SEC cap.
- Total cost per month (EIR-like, including fees) ≤ the SEC cap.
- Penalty rate on past-due ≤ the SEC cap; no compounding on penalties unless expressly allowed.
Display EIR/APR and total repayment prominently before acceptance; send a durable copy.

Collections & Conduct

Adopt a Collections Code aligned with SEC/NPC rules.
Limit contact attempts, hours, and channels; prohibit shaming scripts.
Log all borrower consent for data use; allow opt-outs where legally required.

Data & App Permissions

Request only necessary permissions; avoid automatic contact scraping.
Maintain a privacy management program (DPIAs, vendor due diligence, breach response).

Governance & Reporting

Maintain SEC license in good standing. Register each app/OLP and keep filings current.
Train staff and outsource partners; contracts must flow down compliance requirements.
Implement complaints handling and regulatory reporting workflows.

Documentation

Standard form contracts vetted for unconscionable clauses (e.g., outsized liquidated damages, one-sided offsets, blanket waivers).
Accurate rate tables, fee matrices, and calculator logic consistent across marketing, UX, and backend.

11) Borrower Protections & Red Flags (At a Glance)

Red flags: hidden fees that spike EIR, daily rates that mask a high monthly cost, auto-contacting friends/employers, threats of criminal cases for mere nonpayment, sudden “renewal fees” to roll over a loan, penalties that compound on penalties.
What borrowers can do: file complaints with SEC (for non-bank app lenders), NPC (privacy abuses), DTI (misleading ads), or seek legal counsel for court relief.

12) Frequently Asked Questions

Q: Are interest rates fully deregulated for app loans? A: Not for typical small-value app loans—SEC caps apply. Even beyond caps, courts can reduce unconscionable rates and penalties.

Q: Can an app charge a “service” fee outside the cap? A: If the fee is a condition to get or keep the loan, it is a finance charge and counts toward total cost ceilings and EIR/APR.

Q: Is compounding allowed? A: Interest-on-principal compounding may be allowed if disclosed; penalties on penalties and pyramiding are routinely struck down as unconscionable.

Q: Does the credit-card cap apply to non-card loan apps? A: No. Credit-card caps are a BSP regime. App loans from SEC-licensed lenders follow SEC small-loan rules and general law.

13) Action Steps (Operators & Founders)

Determine product scope (principal and tenor) to see if your loans fall within the SEC small-loan cap bucket.
Back-solve pricing from the cap down: set interest, fees, and penalties so the EIR/total cost is compliant across all possible repayment timings.
Refactor UX to make EIR and total repayment unmistakable pre-acceptance; record consent and delivery of disclosures.
Triage data practices: remove contact scraping and shaming vectors; hard-limit collection times and scripts.
Audit agreements for unconscionable clauses and align with jurisprudence; train staff and vendors.
Document everything (pricing logic, EIR calculator, complaints ledger) for quick response to SEC/NPC inquiries.

14) Bottom Line

Caps do exist for the bread-and-butter loans offered by many online lending apps (non-bank, small, short-term)—and they cover interest, total cost, and penalties.
Truth-in-lending disclosures and fair collection rules are mandatory.
Courts will strike down oppressive rates and penalties even if they look facially “deregulated.”
Sustainable app lending in the Philippines means engineering the product to the cap, including every fee, and respecting borrower rights end-to-end.

Important Note

This article provides a comprehensive overview for informational and compliance-planning purposes and is not legal advice. For a live product or investigation, consult Philippine counsel to confirm the exact numerical caps and latest circulars applicable to your loan size/tenor and entity type, then align your product and contracts accordingly.