For years, the Philippine lending landscape was often described as a "wild west" due to the suspension of the Usury Law. However, in response to the proliferation of predatory Online Lending Applications (OLAs), the Philippine government has instituted strict ceilings on interest rates and service fees.
The legality of a high interest rate is no longer a matter of "whatever the borrower signs." It is strictly governed by the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC).
The Regulatory Ceiling: BSP Circular No. 1133
As of January 2022, the BSP implemented Circular No. 1133, which provides the definitive legal caps on interest rates and fees for "unsecured, short-term cash loans" offered by lending and financing companies, including their online platforms.
| Fee Type | Legal Maximum Limit |
|---|---|
| Nominal Interest Rate | 6% per month (approximately 0.2% per day) |
| Effective Interest Rate (EIR) | 15% per month (includes all interests, commissions, and charges) |
| Late Payment Penalties | 1% per month on the outstanding amount |
| Total Service Fees | ₱2,000 or 10% of the principal (whichever is lower) |
Note: These specific caps apply to loans with a term of up to four months and a principal amount not exceeding ₱25,000. Rates exceeding these limits are considered illegal and a violation of BSP regulations.
The "Unconscionable" Doctrine
Even for loans that exceed ₱25,000 or have longer terms (which may fall outside the specific caps of Circular 1133), lenders do not have absolute freedom. The Philippine Supreme Court has consistently applied the "Unconscionable Doctrine."
In landmark cases such as Lara’s Gifts & Decors, Inc. vs. PNB, the Court ruled that interest rates that are "excessive, iniquitous, unconscionable, and exorbitant" are void. Historically, the Court has often struck down rates of 3% per month (36% per annum) or higher in traditional contracts, declaring them "contrary to morals." For OLAs charging triple-digit annual percentages, these contracts are legally vulnerable.
Transparency and the Truth in Lending Act
Under Republic Act No. 3765 (Truth in Lending Act), every OLA is legally obligated to provide a Disclosure Statement before the loan is consummated. This document must clearly state:
- The cash price or amount of the loan.
- The down payment or fees to be paid.
- The total amount to be financed.
- The finance charges (interest, service fees, etc.).
- The Effective Interest Rate (EIR).
Failure to provide this disclosure is a criminal offense and can lead to the suspension or revocation of the company’s Certificate of Authority to Operate.
Prohibited Collection Practices
The legality of the interest rate is often tied to the legality of the collection method. Under SEC Memorandum Circular No. 18 (2019), the following acts are prohibited:
- The use or threat of use of violence or other criminal means to harm the person, reputation, or property of any person.
- The use of threats to take any action that cannot legally be taken (e.g., "We will put you in jail for debt"—which is unconstitutional).
- The use of profanity or abusive language.
- Data Privacy Violations: Accessing a borrower's contact list to "shame" them by contacting friends or family regarding the debt.
Remedies for Borrowers
If an OLA is charging rates above the BSP cap or employing illegal collection tactics, the borrower has several legal avenues:
- SEC Enforcement and Investor Protection Department (EIPD): The primary body for reporting OLAs that lack a "Certificate of Authority" or violate interest rate caps.
- National Privacy Commission (NPC): For cases involving "debt shaming" or unauthorized access to phone contacts/social media.
- BSP Consumer Protection and Market Conduct Office: For violations specifically regarding Circular 1133.
Summary
While the Philippines does not have a general Usury Law ceiling for all transactions, online lending is specifically regulated. Any interest rate exceeding 6% nominal per month or 15% EIR per month for small short-term loans is illegal. Furthermore, any rate that a court deems "unconscionable" is void from the beginning (void ab initio), meaning the borrower may only be legally required to pay the principal and a legal rate of interest (typically 6% per annum).