1) The core issue: “Release fees” after approval

In the Philippines, charging a fee in connection with a loan is not automatically illegal. What determines legality is (a) who is charging it, (b) what the fee is for, (c) whether it is properly disclosed and documented, (d) whether it is reasonable, and (e) whether the lender actually releases the loan.

The most common disputes arise when a borrower is told their loan is “approved,” but the lender demands a separate payment—often called a release fee, facilitation fee, processing fee, insurance fee, attorney’s fee, verification fee, or clearance fee—before disbursing the loan proceeds.

That situation falls into three broad categories:

Potentially lawful fees: legitimate charges that are part of the loan transaction and are properly disclosed (often deducted from proceeds rather than paid out-of-pocket).
Unlawful/void or refundable charges: fees that are undisclosed, misrepresented, excessive, or not supported by a lawful basis.
Fraud/scam indicators: “approved loan” messages used to extract upfront payments with no real intent or capacity to lend.

2) Who is a “lending company” and why it matters

Different regulators and rules may apply depending on the lender’s nature:

Banks and quasi-banks: primarily regulated by the Bangko Sentral ng Pilipinas (BSP).
Non-bank lending companies: generally governed by the Lending Company Regulation Act of 2007 (RA 9474) and regulated by the Securities and Exchange Commission (SEC).
Financing companies: generally under the Financing Company Act (RA 8556) and SEC regulation.
Cooperatives: typically regulated by the Cooperative Development Authority (CDA).
Pawnshops, money service businesses, etc.: may have their own regulatory frameworks.

This matters because a person or entity collecting loan-related fees without proper authority (e.g., operating without SEC registration/authority, or masquerading as a lending company) raises immediate legality concerns and may point to criminal liability.

3) Key Philippine legal frameworks that shape “release fee” legality

A) Freedom to contract—limited by law and public policy

The Civil Code allows parties to set terms and charges (principle of autonomy), but not if they violate law, morals, good customs, public order, or public policy. A fee may be struck down if it’s unconscionable, deceptive, or contrary to consumer protection standards.

B) Truth in Lending Act (RA 3765): disclosure of the true cost of credit

RA 3765 requires creditors to disclose credit terms so borrowers understand the true cost of borrowing. In practice, this means:

Fees that function as part of the cost of credit should be clearly disclosed.
Borrowers should not be tricked by low “interest” while being loaded with “fees” that effectively increase the cost of credit.

C) Financial Consumer Protection Act (RA 11765)

RA 11765 strengthens financial consumer rights and prohibits:

Unfair, deceptive, or abusive conduct,
Misrepresentation of loan terms or charges,
Hidden or confusing fee structures,
Improper handling of consumer complaints.

This is highly relevant when “release fees” are demanded through pressure, misrepresentation, or unclear terms.

D) Lending Company Regulation Act (RA 9474) / Financing Company Act (RA 8556)

For non-bank lenders, these laws (and SEC issuances) typically require registration/authority and impose rules on operations, advertising, and consumer-facing conduct. Collecting fees tied to lending activity while operating unlawfully can trigger administrative and criminal exposure.

E) The “Usury Law” landscape and unconscionable charges

While strict interest ceilings under the old Usury Law regime have long been effectively relaxed through Central Bank/BSP policy, Philippine courts can still invalidate or reduce unconscionable interest, penalties, and charges. A lender cannot evade scrutiny by calling excessive costs “fees” instead of “interest.”

F) Criminal law: estafa and related offenses (when fees are taken and no loan is released)

If an “approved loan” is used as bait to obtain money through deceit, criminal liability can arise—commonly estafa under the Revised Penal Code, and potentially cyber-related offenses if committed through online means.

4) Are “fees to release an approved loan” legal?

Short answer (in Philippine practice): Sometimes—depending on structure and conduct.

A fee is more likely to be lawful if all of the following are true:

The lender is legitimate and authorized
- Proper SEC registration/authority (for lending/financing companies) or BSP authority (for banks).
The fee has a real basis
- It corresponds to an actual service/cost: e.g., documentary stamp tax (DST), notarial charges, registration fees for collateral, credit investigation fee if genuinely performed, etc.
The fee is clearly disclosed in writing before the borrower commits
- Ideally in a disclosure statement, loan contract, schedule of charges, and amortization/repayment schedule.
The fee is not deceptive in timing or presentation
- “Approved na—pay first to release” is a red flag unless the borrower has been told from the start and the charge is legitimate and documented.
The total cost of credit remains fair and not unconscionable
- Even disclosed fees can be reduced or questioned if oppressive.
The loan is actually disbursed as agreed
- If the borrower pays and the lender does not release without a valid contractual reason, the lender can be exposed to civil and possibly criminal claims.

5) Common loan-related fees: which ones can be legitimate?

Below are charges commonly seen in Philippine loan transactions, and how legality is typically evaluated.

A) Processing / service / handling fees

Potentially legitimate if:

agreed upfront,
reasonable,
clearly disclosed,
and reflected as part of the total cost of credit.

Problematic if:

introduced only after “approval,”
not found in the signed documents,
or used to disguise excessive cost.

Best practice: If charged, it is often deducted from proceeds rather than paid out-of-pocket (though deduction still affects net proceeds and must be disclosed).

B) Documentary Stamp Tax (DST)

Loans are generally subject to DST under the National Internal Revenue Code framework. DST is a tax, not a “lender’s profit,” and is commonly passed on to borrowers by agreement.

Legality hinges on:

correct computation,
proper documentation/receipts,
and transparency that it’s DST.

A “DST” charge that is inflated or unsupported becomes suspect.

C) Notarial fees and documentation charges

Loan documents, real estate mortgages, chattel mortgages, and other instruments may need notarization or registration.

Legitimate if:

tied to actual notarization/registration,
supported by documentation/receipts,
not padded.

D) Appraisal fees / collateral registration fees

Common in secured loans (e.g., real estate, vehicle loans). Usually legitimate if actually performed.

E) Credit investigation / background verification fees

May be legitimate if the lender truly performs the service and it’s disclosed.

Red flag: a “verification fee” demanded via e-wallet to a personal account with no paperwork.

F) Insurance premiums (credit life, mortgage redemption insurance, etc.)

These can be legitimate in certain loan products, but issues arise when:

insurance is forced without proper policy documentation,
the premium is excessive,
the borrower is not given clear insurer/policy details.

G) “Release,” “facilitation,” “clearance,” or “guarantee” fees

These are the most controversial.

They can be lawful only if they are truly part of the agreed pricing/charges and properly documented, but in practice they are often associated with scams or deceptive conduct—especially if demanded urgently after approval and paid to a personal account.

6) The legal significance of “approval”

Borrowers often assume “approved” means the lender is already obligated to release funds. In reality, lenders sometimes treat approval as conditional (subject to submission of documents, signing, collateral perfection, verification, compliance checks, etc.).

A) Conditional approval vs perfected loan contract

A lender may lawfully impose conditions precedent to release (e.g., submit original title, sign loan documents, register mortgage). If those conditions are clearly stated, the lender may refuse release if unmet.

B) But “approval” cannot be used to bait-and-switch

Even if approval is conditional, a lender may violate consumer protection standards if it:

announces “approved” to induce reliance,
hides additional charges until the last moment,
or demands fees that were never part of the disclosed agreement.

7) Disclosure rules: the make-or-break factor

A recurring legal theme is full and understandable disclosure.

A borrower should be able to see, before being bound, the answers to:

Loan amount (gross): the approved principal.
Net proceeds: how much the borrower actually receives after deductions.
All fees/charges: itemized.
Interest rate and method: nominal vs effective.
Total amount to be repaid and schedule.
Penalties (late payment, default interest) and how computed.
Collection costs / attorney’s fees provisions (and limits, if any).
Pre-termination / prepayment charges, if applicable.

If a “release fee” appears only in chat messages, calls, or a last-minute demand—and not in the written disclosures/contracts—it becomes highly challengeable.

8) When “release fees” become unlawful (or void/refundable)

A) Hidden charges / non-disclosure

Fees not properly disclosed may be treated as unenforceable and subject to refund, and can trigger regulatory issues.

B) Misrepresentation and deceptive practices

Examples:

“No fees, guaranteed approval” advertising, then charging a “release fee.”
“Processing fee is refundable” but never refunded.
“Insurance is required” with no policy issued.

These can fall under unfair/deceptive practices principles and financial consumer protection norms.

C) Unconscionable total cost

Even if disclosed, the combined effect of interest, service fees, penalties, and deductions can be attacked if oppressive. Courts may reduce penalties and, in some situations, temper excessive charges.

D) Collection of fees without intent/capacity to lend (advance-fee scam)

If the lender never releases funds and the “approval” is fictitious, the fee collection can amount to fraud/estafa, and the operation may also violate lending/financing regulatory requirements.

9) Civil, administrative, and criminal consequences

A) Civil liability (refunds, damages)

Borrowers may pursue:

refund of unlawful fees,
damages if deception or bad faith is proven,
relief under civil law doctrines like undue payment (when money is paid without valid obligation) and general obligations/contract remedies.

B) Administrative/regulatory action

Depending on the entity:

SEC can investigate and sanction lending/financing companies (including suspension/revocation of authority, fines, and other penalties).
BSP can act against banks and supervised institutions, including consumer protection enforcement.

C) Criminal liability (where facts fit)

Estafa may apply where deceit is used to obtain money (e.g., “release fee” collected but loan never disbursed).
If done online, additional legal consequences may apply under cyber-related frameworks depending on facts (platform, method, evidence).

10) Practical guidance for borrowers (Philippines)

A) Before paying anything

Verify the lender’s legitimacy
- Check if it’s a real SEC-registered lending/financing company (or a legitimate bank/cooperative).
Demand written disclosure
- Request a full itemized schedule of charges and net proceeds.
Never rely on chats alone
- Insist that all fees appear in the loan documents/disclosures.
Be cautious with out-of-pocket “release fees”
- Especially if paid via e-wallet to a personal name, or if they refuse receipts.
Compare gross vs net
- If “approved for ₱100,000” but you only receive ₱60,000 after deductions, your effective cost may be enormous.

B) Red flags strongly associated with scams or abusive practices

“Approved” within minutes, then urgent demand for a fee to “unlock” release.
Payment requested to a personal account, not the company.
No office address, no SEC/BSP details, no official email domain.
Vague fee labels: “clearance,” “activation,” “ATM release,” “anti-money laundering fee.”
Refusal to give a signed contract/disclosure statement.

C) If you already paid and the loan was not released

Preserve evidence: screenshots, receipts, account details, names, call logs.
Make a written demand for refund/release.
Consider regulatory complaints and legal action depending on the lender type and the facts.

11) Compliance checklist for lending companies (best practice)

A lending company that wants “fees” to survive scrutiny should ensure:

Authority and registration are in order (SEC/appropriate regulator).
Clear pre-contract disclosure of all charges and effective cost.
Documentation: invoices/receipts for third-party costs (notary, registry, appraisal).
No bait-and-switch: fees must not appear only after “approval.”
Fairness controls: internal caps and reasonableness review of aggregate charges.
Proper handling of insurance: real policy issuance, clear opt-in/terms where required.
Complaint handling and consumer-friendly explanations.

12) FAQs

Is it legal to deduct fees from the loan proceeds rather than ask the borrower to pay upfront?

Often yes, but deductions reduce the net proceeds and must be fully disclosed. A borrower should know exactly how much they will actually receive.

Is it legal to require payment before release?

It can be legal when it is a legitimate, documented, disclosed charge or a true third-party cost (and not a disguised profit extraction). In practice, however, out-of-pocket release fees are high risk and often associated with abusive conduct or scams.

Can a lender charge “processing fee + service fee + release fee” all together?

Multiple fees are not automatically illegal, but the more layered the fees, the more important:

clear written basis,
reasonableness,
and transparency of the effective cost of credit.

If the loan is “approved,” can the lender still refuse to release?

Only if the approval is conditional and the borrower did not meet stated conditions (e.g., missing documents, collateral not perfected). But the lender should not use conditions as a pretext to collect fees without disbursing.

13) Bottom line

In the Philippine context, fees tied to releasing an “approved” loan are legal only when they are legitimate, disclosed, documented, and reasonable—and when the lender actually performs and disburses as promised. When “approval” is used to pressure borrowers into paying last-minute fees, especially without proper documentation or with no subsequent release, the situation can shift from a questionable contract practice into regulatory violations, civil liability, and potentially criminal fraud.

If you want, share a sample “approved loan” message or a fee breakdown you received (remove personal identifiers), and I’ll classify each fee as likely legitimate vs likely challengeable and explain why under Philippine legal principles.