The proliferation of online lending platforms and informal credit sources has led to a surge in predatory lending practices. Borrowers often find themselves trapped by astronomical interest rates, "hidden" fees, and coercive collection tactics. In the Philippines, the law provides several layers of protection for consumers against these unauthorized or exploitative financial practices.
1. The Legal Framework of Lending
In the Philippines, lending is a highly regulated activity. Entities must be registered and licensed to operate legally.
- Lending Company Regulation Act of 2007 (R.A. 9474): Requires lending companies to be organized as corporations and obtain a Certificate of Authority (CA) from the Securities and Exchange Commission (SEC).
- Financing Company Act of 1998 (R.A. 8556): Regulates companies that extend credit facilities to consumers and industrial, commercial, or agricultural enterprises.
- The Truth in Lending Act (R.A. 3765): This is a cornerstone of borrower protection. It mandates that lenders provide a Disclosure Statement before a transaction is consummated. This statement must clearly show the cash price, down payment, finance charges, and the Effective Interest Rate (EIR).
2. Unauthorized Loans: The "Illegal Lender" Problem
An "unauthorized loan" typically refers to credit extended by an entity without an SEC registration or a Certificate of Authority.
Legal Implications:
- Nullity of Contract: While the principal amount must generally be returned (to prevent "unjust enrichment"), the terms of the contract—especially excessive interests and penalties—may be declared void.
- Criminal Liability: Operating a lending business without the proper permits is a criminal offense under R.A. 9474, punishable by fines and imprisonment.
3. Challenging High Interest Rates: The Concept of "Unconscionability"
While the Usury Law was suspended in 1982 (meaning there is no longer a legal "ceiling" on interest rates in the Philippines), this does not give lenders carte blanche to charge any rate they wish.
The "Unconscionable" Doctrine: The Philippine Supreme Court has consistently ruled that interest rates that are "excessive, iniquitous, unconscionable, and exorbitant" are contrary to morals and public policy.
- Standard Rates: Historically, rates exceeding 12% to 24% per annum (or 1% to 2% per month) are often scrutinized. Rates reaching 5% to 10% per month (common in "5-6" schemes) are frequently struck down.
- Legal Remedy: If a court finds an interest rate unconscionable, it will declare the interest rate void. The court will then typically impose the prevailing legal interest rate (currently 6% per annum) instead.
4. Remedies Against Harassment and Unfair Collection
Predatory lenders often resort to "debt shaming"—contacting the borrower’s phone contacts, posting on social media, or using threats.
SEC Memorandum Circular No. 18 (Series of 2019): This specifically prohibits unfair debt collection practices, such as:
The use or threat of violence.
Using profane or abusive language.
Disclosing a borrower’s name or information publicly.
Contacting persons in the borrower's contact list without consent.
Data Privacy Act of 2012 (R.A. 10173): Unauthorized access to a borrower's phone contacts or the public disclosure of private data is a violation of privacy laws, punishable by the National Privacy Commission (NPC).
Cybercrime Prevention Act (R.A. 10175): Harassment via online platforms can be prosecuted as cyber-libel or online threats.
5. Summary of Procedural Steps for Borrowers
| Issue | Action/Remedy | Government Agency |
|---|---|---|
| No SEC Registration | File a formal complaint for violation of R.A. 9474. | SEC (Corporate Governance Dept) |
| Lack of Disclosure | File a complaint for violation of Truth in Lending Act. | SEC or Bangko Sentral ng Pilipinas (BSP) |
| Unconscionable Rates | Civil action to declare the interest rate void. | Regional/Metropolitan Trial Court |
| Harassment/Shaming | File a complaint for Unfair Collection Practices. | SEC and National Privacy Commission (NPC) |
| Cyber-Libel | Criminal complaint for libelous posts. | PNP-Anti-Cybercrime Group / NBI |
6. Conclusion
The suspension of the Usury Law is not a license for predatory behavior. Philippine jurisprudence protects borrowers by ensuring that even if a contract is signed, the courts can intervene if the terms are "shocking to the conscience." Borrowers facing unauthorized loans or harassment should document all communications, save copies of the loan agreement (or lack thereof), and escalate the matter to the SEC or the NPC to seek the nullification of illegal charges and the cessation of abusive practices.