In the Philippines, the relationship between creditors and debtors is governed by the principle of autonomy of contracts. However, this autonomy is not absolute. When interest rates become "unconscionable" or debt collection efforts turn into "harassment," the law steps in to protect the borrower.
1. Excessive and Unconscionable Interest Rates
While the Usury Law (Act No. 2655) was effectively suspended in 1982 by Central Bank Circular No. 905—lifting the "ceiling" on interest rates—this does not give creditors a license to charge whatever they want.
The "Unconscionable" Doctrine
The Philippine Supreme Court has consistently ruled in landmark cases (e.g., Medel vs. Court of Appeals, Lara’s Gifts & Decors vs. PNB) that interest rates that are "iniquitous, unconscionable, and contrary to morals" are void.
- The Threshold: Generally, interest rates of 3% per month (36% per annum) or higher are frequently flagged by courts as excessive, though the specific circumstances of the case always matter.
- Legal Consequence: If a court finds an interest rate unconscionable, it does not void the entire loan. Instead, the court usually strikes down the stipulated interest and replaces it with the prevailing legal interest rate (currently 6% per annum per BSP Circular No. 799).
Legal Remedies for Borrowers
- Petition for Reformation of Instrument: Under the Civil Code, if the contract fails to express the true intent due to inequity, the debtor can ask the court to reform the document.
- Consignation: If a creditor refuses to accept a "fair" payment because they are demanding the illegal interest, the debtor can deposit the correct amount with the court to stop the accrual of further penalties.
- Declaratory Relief: A borrower can file a petition asking the court to declare the specific interest clause void before a breach even occurs.
2. Protection Against Unfair Debt Collection Practices
Debt collection is a legitimate business activity, but it must be conducted with respect for human dignity and privacy.
The Role of the Bangko Sentral ng Pilipinas (BSP)
For banks and credit card companies, BSP Circular No. 454 and the Manual of Regulations for Banks (MORB) prohibit "unfair collection practices." Prohibited acts include:
- Using or threatening to use physical violence.
- Using profane or obscene language.
- Disclosing the borrower’s name to the public (shaming).
- Contacting the debtor at unreasonable hours (typically before 6:00 AM or after 10:00 PM), unless agreed upon.
The Cybercrime Prevention Act (RA 10175)
In the age of Online Lending Apps (OLAs), many collectors resort to "contact list harvesting" and "social media shaming." These acts may constitute:
- Cyber-Libel: Publicly posting a debtor’s information to malign their reputation.
- Harassment/Unjust Vexation: Under the Revised Penal Code, though prosecuted under the lens of the Cybercrime law for increased penalties.
Data Privacy Act of 2012 (RA 10173)
The National Privacy Commission (NPC) has been aggressive in shutting down lending apps that violate borrower privacy. Debt collectors cannot legally access your phone's contacts or gallery to harass your friends and family.
3. The Financial Products and Services Consumer Protection Act (RA 11765)
Enacted in 2022, this law provides a more robust shield for financial consumers. It grants regulators (like the BSP and SEC) the power to:
- Adjudicate: They can now order the reimbursement of money/interest found to be excessive.
- Sanction: They can impose heavy fines and revoke the licenses of financing companies that engage in "predatory" behavior.
Summary of Remedies Table
| Issue | Primary Legal Basis | Recommended Action |
|---|---|---|
| High Interest | Art. 1306, Civil Code; Jurisprudence | File for "nullity of interest" to reduce rate to 6%. |
| Physical Threats | Revised Penal Code (Grave Threats) | File a criminal complaint with the PNP or NBI. |
| Online Shaming | RA 10173 (Data Privacy); RA 10175 | Report to the National Privacy Commission (NPC). |
| Bank Harassment | BSP Circular 454 | File a formal complaint with the BSP Consumer Affairs. |
Conclusion on Liability
It is important to note that poverty is not a defense for non-payment of debt, and the "No imprisonment for non-payment of debt" clause in the Constitution only applies to the principal debt itself. However, the law ensures that while the debt remains, the debtor’s rights to fair treatment and reasonable rates remain intact.