Legal Interest Rate Limits for Online Lending Apps (Philippines)

Digital “instant cash” loans are now a staple of consumer finance. But interest, fees, and collection practices of online lending apps (OLAs) are tightly regulated. This article explains who regulates what, how rate caps apply, what charges are legal/illegal, how to compute compliance, and the remedies available to borrowers and regulators.

I. Legal framework at a glance

Usury Law & BSP Circular No. 905 (1982). Statutory interest ceilings were suspended, so—as a general rule—parties may stipulate interest. Courts, however, can strike down unconscionable rates and reduce them to reasonable levels.
Truth in Lending Act (R.A. 3765). Lenders must clearly disclose the finance charge and effective interest rate/APR before consummation of the loan.
Lending Company Regulation Act (R.A. 9474) and Financing Company Act (R.A. 8556), with SEC rules.
- SEC licenses and supervises lending/financing companies, including those that operate OLAs.
- SEC issues rate caps and conduct rules for small, short-tenor, unsecured consumer loans (typical OLA products).
- Unregistered OLAs are illegal; app stores have been asked to delist them.
BSP regulations (for banks, e-money issuers, and credit cards).
- BSP sets separate caps for credit cards and supervises banks/EMIs.
- If an OLA is actually a bank product (not common), BSP rules control; otherwise, SEC rules apply.
Consumer and borrower protection laws.
- Data Privacy Act (R.A. 10173): limits access to your phonebook, photos, and location; requires consent, transparency, and proportionality.
- SEC rules on debt collection: ban harassment, public shaming, doxxing, threats, contacting your entire contact list, and similar abusive practices.
- Civil Code & jurisprudence: courts may reduce or void unconscionable interest, penalties, and liquidated damages even if signed.
- Special laws (VAWC, Safe Spaces Act, Cybercrime): abusive collection can cross into criminal acts.

II. The core idea: caps now exist for typical OLA loans

While general usury ceilings are suspended, the SEC imposes specific rate caps on unsecured, short-term, small-value loans usually offered by OLAs (e.g., up to a set peso amount and tenor, commonly not more than a few months). In practice, these caps limit (a) the nominal interest per month, (b) the total cost of credit per month (interest plus fees), and (c) late penalties.

Why this matters: Even if you “agree” in-app, the OLA cannot legally charge beyond the caps for covered loans, and cannot hide charges in “processing,” “service,” “convenience,” or “doc” fees to sidestep the limit.

Typical structure of the caps for covered small digital loans (illustrative, to show how the rules work):

Monthly nominal interest cap (e.g., up to 6%/month).
Monthly total cost cap—the sum of interest and all non-government fees (e.g., up to 15%/month).
Late fees/penalties cap (e.g., up to 5%/month on past-due amount).
Tenor & amount thresholds—apply only to small, short-tenor, unsecured loans (e.g., ₱10,000 and below and tenor ≤ 3–4 months). Loans outside this scope revert to the “no fixed ceiling but must be reasonable” regime, subject to Truth-in-Lending and unfair terms scrutiny.

Note: Exact numbers and coverage thresholds are set by current SEC circulars; they have been announced specifically for OLAs/small loans and can be amended. The method of application below is stable and helps you test any set of official caps.

III. What counts toward the “total cost” cap?

Included: interest, service/processing/convenience fees, platform fees, verification fees, “fast release” fees, collection/door-to-door fees, and any other non-government charges.
Excluded: pass-through government fees/taxes (if any), provided they are properly receipted and not padded.

Bottom line: If the monthly total of interest + private fees exceeds the cap, the excess is illegal and uncollectible. Borrowers can recover/offset overcharges.

IV. How to compute compliance: step-by-step

Assume a covered small OLA loan.

Example 1: 30-day loan, ₱6,000 principal

App shows: 6% interest (₱360) + “processing fee” ₱400.
Total cost = 360 + 400 = ₱760.
Monthly total-cost cap check: If the cap is 15% of ₱6,000 = ₱900, the ₱760 is within cap.
If the app also adds a “verification fee” ₱300 → total cost ₱1,060, which exceeds a 15% cap (₱900). The ₱160 excess is illegal.

Example 2: Late payment

Past-due amount: ₱6,000 (principal) + ₱360 (interest) = ₱6,360.
If a 5%/month late penalty is allowed, max late fee for the first month of delay = 5% × ₱6,360 = ₱318.
No compounding of penalties unless expressly permitted and still reasonable; even then, caps still apply.

Annualization and APR:

For disclosure, many apps show a Monthly Rate. Under the Truth in Lending Act, the APR (annualized effective rate including fees) should be disclosed. A 6%/month nominal with front-loaded fees often translates to a much higher APR; that is lawful only if (a) within the monthly cap for covered loans and (b) properly disclosed.

V. “Covered” vs “not covered” loans

Covered loans: Small amount and short tenor, unsecured, typically the quick-cash OLA product. SEC caps apply.
Not covered: Larger ticket, longer tenor, secured loans by lending/financing companies that fall outside the SEC’s “OLA cap” definition. Here, no fixed numeric ceiling, but:
- Terms must be clear and disclosed (R.A. 3765).
- Rates and penalties must not be unconscionable; courts can reduce them.
- Abusive collection remains illegal.

VI. What courts say about “unconscionable” rates

Even with the usury suspension, the Supreme Court has consistently invalidated or reduced excessive interest/penalties (e.g., double-digit monthly rates, stacked penalties + interest-on-interest). Factors include:

disparity between principal and total charges,
short tenor with extreme per-day rates,
hidden fees and lack of clear disclosure,
one-sided penalty clauses.

Practical effect: If an OLA charges, say, “20% per month + 10% processing + 10% penalty,” a court or arbiter can slash the charges to reasonable levels and disallow the rest.

VII. Collection practices: what OLAs cannot do

Harassment and public shaming (group texts to your contacts, workplace shaming, posting on social media, threats of arrest, slurs).
Unconsented data scraping (phonebook, photos, SMS) beyond what is necessary and proportionate.
Contacting third parties with your debt details without a legal basis.
Threats of criminal cases for mere non-payment of a civil loan (unless there is estafa or another distinct crime, which is rare).

Violations expose the OLA (and its officers/agents) to:

SEC sanctions (fines, suspension/revocation of license),
Data Privacy Act penalties,
Civil damages, and in extreme cases criminal liability (e.g., grave threats, unjust vexation, cyber harassment).

VIII. Compliance checklist for OLAs (and how borrowers can use it)

Licensing & disclosure
- Display corporate name, SEC Company Reg. No., Certificate of Authority No., registered address, email/phone support.
- Pre-contract APR and fee disclosure; clear repayment schedule; right to prepay without hidden penalties (unless disclosed and lawful).
Rate caps adherence (for covered loans)
- Monthly nominal interest ≤ cap.
- Total cost (interest + all private fees) ≤ cap.
- Late penalty ≤ cap; no compounding beyond what is lawful and disclosed.
Data privacy
- Ask for only necessary permissions; no blanket access to contacts/photos/mic/location “just because.”
- Provide data subject rights (access, correction, deletion when appropriate).
Collections
- Contact only the borrower (or authorized contacts); maintain call time limits and language standards; keep audit trails.
Complaints handling
- Functioning helpdesk; dispute timelines; receipts for payments; corrections for misapplied fees.

IX. Borrower remedies & playbook

Demand correction/refund
- Write the lender invoking Truth in Lending (misdisclosure) and SEC cap breach (if covered). Attach screenshots/receipts and your computation.
Regulatory complaints
- SEC: over-charging, illegal fees, abusive collection, unlicensed lending.
- NPC: phonebook scraping, doxxing, unauthorized disclosure.
- DTI/CGSO or LGU Business Permits: deceptive practices and consumer complaints (ancillary).
- App stores: report policy violations for delisting.
Civil action / small claims
- Sue to void illegal charges, recover overpayments, and claim damages. Small claims rules speed up recovery for modest amounts.
Criminal complaints (when warranted)
- Harassment, threats, doxxing, or privacy crimes can be pursued with PNP-ACG/NBI Cybercrime.
Defensive posture
- If sued by the OLA, raise illegality of charges (caps, unconscionability, non-disclosure) and counterclaim for abusive collection.

X. Practical FAQs

1) Can an OLA deduct a “processing fee” upfront? Only if disclosed and the total cost (interest + all private fees) stays within the monthly cap for covered loans.

2) My loan was ₱5,000 for 14 days; they charged ₱700 fees plus 6% interest. Legal? Compute: 6% of 5,000 = ₱300 interest. Total cost = ₱1,000. If the monthly total-cost cap is 15% (₱750), ₱250 is illegal.

3) Are penalties in addition to the monthly cap? Penalties are separately capped (e.g., up to 5%/month on past-due). Lenders cannot disguise penalties as “new processing fees” during delinquency to evade caps.

4) They texted my boss and family. What now? Document screenshots, headers, and call logs; file with SEC (abusive collection) and NPC (privacy breach). You may also seek civil damages.

5) I repaid early. Can they keep the full interest? For short-term loans, charging full scheduled interest despite early repayment can be challenged as unconscionable/unfair, particularly when it breaches the total-cost limit for the period actually used.

XI. How courts and regulators typically fix illegal pricing

Void the excess interest/fees above the cap; apply payments to principal first.
Reduce unconscionable rates and penalties to reasonable levels.
Award legal interest (often 6% p.a.) on amounts to be refunded, plus damages/attorney’s fees in bad-faith cases.
Sanction the lender (administrative fines; suspension/revocation).

XII. Takeaways

For typical OLA small loans, SEC caps restrict monthly interest, total monthly cost, and late penalties—no gaming the rules via “fees.”
For non-covered loans, there’s no fixed ceiling, but Truth in Lending and unconscionability doctrines still police excessive charges.
Abusive collection and privacy violations are separately unlawful, with robust remedies.
Borrowers should compute and compare: if total cost exceeds the permitted ceiling for the period and principal, the excess is unenforceable and refundable.

Use these rules to audit any OLA quote: add up all interest and private fees for the month, compare to the cap, and challenge any excess—then keep proof of communications and payments for fast enforcement.