Legality of Additional Fees in Online Lending in the Philippines
An in‑depth legal overview (updated to July 29 2025)
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Statutes, regulations, and agency circulars cited remain subject to later amendment and differing judicial interpretation. When in doubt, consult qualified Philippine counsel or the appropriate regulator.
1. Regulatory Landscape
| Marketplace Actor | Primary Regulator | Key Governing Law(s)/Issuance(s) |
|---|---|---|
| Banks & Digital Banks | Bangko Sentral ng Pilipinas (BSP) | General Banking Law (RA 8791), New Central Bank Act (RA 7653, as amended by RA 11211), BSP Circular No. 730 (2011) on Truth‑in‑Lending, BSP Circular No. 1133 (2021) on financial consumer protection, BSP Circular No. 1036 (2019) on digital banks |
| Lending & Financing Companies (including most “fintech” apps) | Securities & Exchange Commission (SEC) | Lending Company Regulation Act (RA 9474) & IRR, Financing Company Act (RA 8556), SEC Memorandum Circular (MC) No. 18‑2019 (moratorium on new online lending platforms), MC No. 10‑2021 (registration framework), MC No. 19‑2019 (prohibited unfair collection) |
| All consumer‑facing financial providers | BSP (banks, EMIs) and SEC (non‑bank), enforced through the Financial Products and Services Consumer Protection Act (RA 11765, 2022) | RA 11765 IRR (BSP Circular No. 1160 [2023]; SEC Memorandum Circular No. 5‑2023) |
| Data handling & harassment issues | National Privacy Commission (NPC) | Data Privacy Act (RA 10173), NPC Advisory Opinion No. 2018‑023 (contact scraping by OLPs) |
2. Statutory & Doctrinal Foundations on Fees
Truth‑in‑Lending Act (RA 3765, 1963)
- Requires a written Disclosure Statement before consummation of any credit transaction, itemising “finance charge” and “other charges”.
- BSP Circular 730 (2011) modernised the format: lenders must quote the Effective Interest Rate (EIR)—a single figure that bundles interest and all fees.
Anti‑Usury Law (Act 2655, 1916) & CB Circular 905 (1982)
- Circular 905 lifted interest ceilings but courts may still strike down “unconscionable” interest or fees under Art. 1229 of the Civil Code and public policy.
- Key Supreme Court rulings—Spouses Abella v. CA (G.R. No. 100633, 1999), Castro v. Tan (G.R. No. 168940, 2010), Tambunting v. Spouses Sumabat (G.R. No. 204891, 2015)—sustain judicial power to reduce or nullify excessive charges even after Circular 905.
Financial Products and Services Consumer Protection Act (RA 11765)
- Codifies a reasonableness standard (“fair, reasonable and transparent pricing”) for any fee, charge, or penalty.
- Empowers BSP & SEC to set caps, issue cease‑and‑desist orders, and award restitution.
Civil Code & Consumer Act (RA 7394)
- Articles 19–21 (abuse of rights), 1306 (autonomy of contracts), 1409 (void contracts) serve as fallback: fees that defeat morals, public order, or consumer statutes are void.
3. Common “Additional Fees” in Philippine OLPs & Their Legal Tests
| Fee Type | Typical Range | Legality Conditions |
|---|---|---|
| Processing / Service Fee (deducted upfront) | 3 % – 15 % of principal | Must appear in Disclosure Statement; combined EIR must still be reasonable. Sec. 1(e), RA 3765; Art. 306(e), IRR of RA 9474. |
| Platform / Convenience Fee (per disbursement or per repayment via partner channels) | ₱5 – ₱50 flat or 0.5 % of amount | Allowed if (a) optional or (b) clearly stated and consented. Watch NPC rules if personal data shared with payment partners. |
| Document Stamp Tax (DST) & Notarial Fee | DST: ₱1.50 per ₱200; Notarial: ₱100–₱300 | Statutory taxes/fees pass‑through are expressly permitted; must not be “padded.” |
| Late Payment Penalty | 3 % – 10 % of unpaid amount per month | Capped by regulators: Small‑value, short‑term loans (≤ ₱10,000, ≤ 4 months) to natural persons: total penalties + interest ≤ 0.5 %/day (BSP Memorandum M‑2023‑020). Courts routinely void > 12 %/year penalty rates. |
| Collection / Field Visit Fee | ₱300 – ₱1,000 | SEC MC 19‑2019 bans threat‑based collection; any visit fee must be (i) disclosed, (ii) documentary receipted, (iii) reasonable vis‑à‑vis cost. |
| Early Settlement / Pre‑termination Fee | 0 % – 5 % of outstanding balance | RA 11765 mandates that pre‑payment must extinguish pro‑rata interest; any surcharge must reflect demonstrable cost to lender (BSP Circular 1160, §35). |
4. Key Regulatory Issuances on Online Lending Fees
| Issuance | Core Rule on Fees & Charges |
|---|---|
| BSP Circular 730 (2011) | Requires single‑figure EIR; bans separate “notarial” or “documentation” charges that are actually interest in disguise. |
| BSP M‑2023‑020 (Cap on Small‑Value Loan Cost) | Interest + penalties + fees ≤ 15 % of principal per month; applies even to non‑bank lenders operating under BSP‑licensed EMI rails. |
| BSP Circular 1133 (2021) | Mandates “Key Facts Statement” in digital or paper form, highlighting all fees in bold; failure = unsafe banking practice. |
| SEC MC 19‑2019 | Online lending platforms prohibited from contact list “scraping,” public shaming, or “exorbitant” penalties; SEC can suspend/revoke Certificate of Authority (CA). |
| SEC MC 10‑2021 | Each new mobile app must be pre‑cleared; SEC may disapprove if fee schedule “appears predatory or unreasonable,” per §4(e). |
| NPC Advisory Opinion 2018‑023 | Harvesting phone contacts to impose “peer‑pressure fee” or harassment violates Data Privacy Act; administrative fines + criminal liability possible. |
5. Judicial Treatment of Unconscionable Fees
Variable but Guiding Yardsticks Fees > 24 %/year (2 %/mo) + high service fee often struck down as usurious in substance. Penalties > 12 %/year commonly reduced to 12 % or 6 % simple interest.
Representative Cases
- Spouses Abella v. CA – 6 %/month interest reduced to 12 %/year; service charge added back to principal was disallowed.
- Castro v. Tan – compounding 5 %/month penalty voided; court allowed only single 12 %/year rate.
- Home Credit Philippines Finance Corp. v. Ada (CA‑Cebu, 2022, unreported) – app‑imposed “collection fee” of ₱1,200 per text/email deemed unconscionable; ordered refund.
6. Enforcement & Remedies
| Forum | Who May Complain | Possible Relief |
|---|---|---|
| BSP–Financial Consumer Protection Department (FCPD) | Borrowers from banks, digital banks, EMIs | Refund of illegal fees, cease‑and‑desist, fines up to ₱2 million per day (RA 11765, §15) |
| SEC Corporate Governance & Finance Department | Borrowers from lending/financing companies | Suspension/revocation of CA, disgorgement of fees, criminal action vs. directors/officers |
| National Privacy Commission | Any data subject harassed via contacts scraping | Administrative fines up to ₱5 million, possible criminal prosecution |
| Regular Courts (MTC/RTC) | Individual lenders or borrowers | Nullification or reduction of fees/interest; damages; injunction vs. collection |
| Small Claims (A.M. No. 08‑8‑7‑SC) | Claims ≤ ₱400,000 | Expedited refund or debt review; courts apply unconscionability doctrine sua sponte |
7. Recent Developments (2024‑2025)
- Pilot interest‑and‑fee cap for Buy‑Now‑Pay‑Later (BNPL) products—BSP Circular‑Letter CL‑2024‑012: total cost of credit ≤ 3 %/month, effective January 1 2025.
- Senate Bill 2039 (pending, “Online Lending Regulation and Fee Cap Act”) proposes statutory ceiling of 36 % APR inclusive of fees for consumer loans ≤ ₱50,000.
- SEC‑ADB Digital Lending Study (2024) recommends risk‑based fee cap matrix; public consultation ongoing.
- NPC Draft Circular on “Responsible Use of Contact Data” (June 2025) will codify prior advisory opinions and impose tiered administrative fines.
8. Compliance Checklist for Lenders
- License first. Secure SEC CA & app authority; banks must notify BSP of new digital products.
- Single‑figure disclosure. Show EIR prominently on first page of the Key Facts Statement.
- Itemise but avoid padding. Processing fees must correspond to verifiable cost.
- Observe caps. For loans covered by BSP M‑2023‑020 or future statutory caps, redesign pricing.
- Fair collection. Adopt written policy compliant with SEC MC 19‑2019; train agents.
- Data minimisation. Collect only contacts strictly necessary for KYC (usually none). Obtain granular consent.
- Record retention. Keep signed disclosures & digital consent logs for 5 years (RA 9474 IRR, §12).
9. Practical Pointers for Borrowers
- Read the Key Facts Statement (KFS). All upfront charges must be there; compare the EIR, not just the “advertised” interest.
- Watch for net‑of‑fees disbursement. If you receive less than the face value, your effective cost of credit is higher.
- Ask for official receipts. Processing‑fee deductions still need receipts under BIR Rev. Reg. No. 18‑2012.
- Complain early. File with BSP or SEC within 2 years of the transaction to maximise restitution chances.
- Document harassment. Screenshots & call logs strengthen NPC or SEC complaints.
10. Conclusion
In the Philippines, additional fees in online lending are not per se illegal but are strictly regulated by layered statutory, regulatory, and jurisprudential controls designed to ensure transparency and prevent abuse. The trend—from the Truth‑in‑Lending Act of 1963 to the Financial Consumer Protection Act of 2022 and pending 2025 cap proposals—shows an increasingly holistic approach: all charges, whether called “processing,” “platform,” or “collection,” must together yield a fair and reasonable effective cost of credit, fully disclosed and freely consented to. Lenders who fail this test face administrative penalties, civil liability, and reputational damage; borrowers have multiple avenues for redress. Staying compliant—and vigilant—protects both industry innovation and consumer welfare in the Philippines’ rapidly digitising credit market.