Legal Interest-Rate Limits for Online Lending Apps in the Philippines All you need to know, as of 3 July 2025
1. Why this matters
The explosion of mobile “instant-cash” and “salary-loan” apps has put interest-rate regulation back in the spotlight. Borrowers complain of triple-digit annualised rates, while providers insist that no general usury ceiling exists. The true answer is somewhere in between: the Usury Law’s statutory caps were lifted in 1982, but a patchwork of sector-specific ceilings, statutory disclosure duties, and court-imposed unconscionability tests now limits what an online lending platform may legally charge.
2. Historical backdrop
| Period | Key instrument | Effect on interest ceilings |
|---|---|---|
| 1916-1982 | Usury Law (Act No. 2655), amended by R.A. 863; ceilings ranged from 6 % to 12 % p.a. | Statutory cap strictly enforced. |
| 1 Jan 1983-present | Central Bank (CB) Circular 905 (1982) | Lifted all ceilings under the Usury Law; parties may stipulate any rate subject only to “unconscionability” review by courts. |
| 2013-present | Nacar v. Gallery Frames (G.R. No. 189871, 13 Aug 2013) and progeny | Courts routinely reduce or strike down rates above ±24 % p.a. as “unconscionable”, or reduce 3 %–5 % per month to 12 % per annum. |
3. Core statutes governing digital-lending businesses
| Statute / issuance | Main take-aways for online lenders |
|---|---|
| R.A. 9474 (Lending Company Regulation Act, 2007) | Requires SEC licence for any entity “in the business of granting loans”—this covers app-based lenders. Must maintain minimum ₱1 million paid-up capital and submit regular reports. |
| R.A. 8556 (Financing Company Act, 1998) | Parallel regime for “financing companies” that extend credit to the public. Many fintech lenders register under this statute. |
| R.A. 3765 (Truth in Lending Act, 1963) + BSP Circular 830 (2014) | Mandates clear disclosure of the Effective Interest Rate (EIR), all charges, and the total cash price before contract signing or app confirmation. Failure is an administrative offence. |
| BSP Charter (R.A. 7653 as amended by R.A. 11211) & BSP Consumer Protection Framework (Circular 1160, 2023) | Empower the Monetary Board to fix ceilings per product line “in the public interest”. |
| Data Privacy Act 2012 & NPC Circular 16-01 | Limits contact-list scraping and harassment by collection agents; violators risk fines and app-store takedown. |
| Financial Products and Services Consumer Protection Act (R.A. 11765, 2022) | Gives the BSP and SEC explicit power to suspend or cap fees “to prevent consumer injury”. Expect more granular caps in the near future. |
4. Current, product-specific interest ceilings
Credit-card transactions (BSP Memorandum No. M-2022-021, continued by M-2024-012)
- Interest / finance charge: 2 % per month (≈24 % p.a.) maximum on outstanding balances.
- Installment add-on: 1 % per month cap.
- Penalty fee: ₱1,000 or equivalent cap.
Salary-Based General-Purpose Consumer Loans (SBGCL) offered by lending/financing companies (SEC Memorandum Circular 18-2019)
- Nominal interest: ≤ 2.5 % per month.
- EIR: ≤ 3 % per month (≈36 % p.a.).
- Processing fee: ≤ 5 % of principal, one-time.
- Penalty: ≤ 1 % per month on unpaid amount.
Pawnshop loans (BSP Circular 794 s. 2013)
- No numeric cap, but all interest and service fees must be disclosed upfront; BSP may suspend licences for “excessive” charges.
Microfinance & developmental loans (BSP Circulars 272, 936, 1133)
- Encourages pricing that keeps EIR ≤ 3 %-4 % per month, but treated as prudential guideline, not a hard ceiling.
Buy-Now-Pay-Later (BNPL) products
- Not yet subject to a formal ceiling, but the SEC has announced (Press Briefing, 12 May 2025) that a draft circular will align BNPL charges with the SBGCL 3 %-per-month EIR limit.
5. Judicial policing of “unconscionable” interest
Even where no explicit ceiling applies, Philippine courts strike down rates that “shock the conscience” under Article 1229 of the Civil Code. Key rulings:
| Case | Facts | Held unconscionable |
|---|---|---|
| Spouses Abella v. Spouses Aboitiz (G.R. 225544, 15 Aug 2018) | 5 % per month (60 % p.a.) on a ₱4 M loan | Reduced to 12 % p.a. |
| Chua v. Timan (G.R. 190617, 28 Jan 2015) | 6 % per month on real-estate mortgage | Reduced to 12 % p.a. |
| Sps. Castro v. Tan (G.R. 195004, 1 Feb 2023) | 10 % per month on promissory notes | Interest clause void; legal interest 6 % p.a. applied. |
Practical tip: Once a rate exceeds roughly 24 %-36 % p.a., expect a serious risk of court reduction or nullification.
6. Enforcement trends against online lending apps
- SEC and NPC joint blitz (2019-2024). 116 apps ordered delisted for (i) operating without a licence; (ii) charging undisclosed fees; or (iii) harassing borrowers via “shame” messaging.
- Administrative fines. SEC may fine up to ₱1 million + ₱10,000 per day of continuing violation (R.A. 9474 § 17).
- Criminal liability. Unlicensed lending is punishable by a ₱10,000-₱50,000 fine and/or 6 months-10 years imprisonment.
- BSP FinTech Sandbox. Digital lenders within the sandbox must submit an EIR computation sheet and consumer-testing results before product launch.
7. Disclosure & computation of rates
Under BSP Circular 830 (Truth-in-Lending implementing rules) an online lender must:
- Display Total Cash Price, Finance Charge, Net Proceeds, and EIR (p.a.) on the same screen before the borrower taps “Agree”.
- Use the BSP-prescribed EIR formula, which annualises the internal rate of return of cash flows. “Flat” or “add-on” methods are not EIR and cannot be advertised as such.
- Provide an amortisation schedule downloadable in-app or via email.
Failure constitutes a per-instance offence; BSP and SEC can impose both fines and restitution.
8. Forthcoming reforms (legislative pipeline)
| Proposal (19th Congress) | Status | Substance |
|---|---|---|
| House Bill 4898 / Senate Bill 306 (“Usury Law Restoration Act”) | Pending committee report | Restores a 15 % p.a. ceiling for loans ≤ ₱200,000, adjustable by BSP every 3 years. |
| House Bill 7960 (“Digital Lending Regulation Act”) | Second reading (House) | Converts SEC MC 18-2019 into statute; sets 30 % p.a. EIR cap for all consumer micro-loans (≤ ₱50,000, ≤ 12 months). |
| BSP draft Circular on BNPL | Public comments closed 31 Mar 2025 | Mirrors credit-card caps: 2 % per month maximum on revolving BNPL balances; 1 % on instalments. |
9. Practical compliance checklist for online lending apps
Licence & disclosure
- SEC lending or financing company licence number displayed on app store listing and splash page.
- Truth-in-Lending table shown before acceptance.
Rate audit
- If product is salary-based or BNPL, apply the relevant numeric cap (see § 4).
- For other personal loans, keep headline EIR ≤ 36 % p.a. to minimise “unconscionability” risk.
Fee structure
- Processing fee ≤ 5 %; collect only once.
- Late-payment penalty ≤ 1 % per month on overdue amount, not on entire balance.
Collection practices
- No contact-list blasting, threats, or social-media shaming (NPC rules).
- Provide at least 3 written notices before reporting to credit bureaus.
Record-keeping & reporting
- Submit quarterly Lending Company Information Sheet to SEC.
- Keep raw loan ledgers for 5 years for BSP inspection.
10. Key take-aways
- No across-the-board usury ceiling exists today, but online lending apps are far from free to charge anything they like.
- Statutory caps apply to credit cards, salary-deduction loans, and soon BNPL.
- Outside those niches, courts police unconscionable rates, typically anything beyond the mid-30 % per-annum range.
- Full EIR disclosure is mandatory, and abusive collection can get an app delisted even if its interest rate is lawful.
- Pending bills signal a political appetite to hard-cap consumer-loan rates; prudent fintech players should future-proof their models now.
This article reflects laws, regulations, and jurisprudence effective up to 3 July 2025. Always check subsequent BSP or SEC issuances before relying on specific numeric caps.