For general information only and not a substitute for legal advice.

1) The Big Picture

There is no across-the-board statutory interest ceiling in the Philippines because the Usury Law (Act No. 2655) rate limits were effectively suspended by Central Bank Circular No. 905 (1982). Charging interest is not per se illegal simply because it’s “high.”
However: regulators and courts still police abusive pricing and practices. Key guardrails are:
- Securities and Exchange Commission (SEC) caps for certain small, short-term loans of lending/financing companies and their online lending platforms (OLPs).
- Mandatory price disclosure (Truth in Lending).
- Consumer-protection laws (harassment, unfair collection, data privacy).
- Courts can reduce or strike down “unconscionable” interest even if parties agreed to it.

Online lenders must therefore navigate (1) who they are (bank vs. lending/financing company), (2) which loan products they offer, and (3) the conduct rules that apply online.

2) Who Regulates What (Online Context)

Banks & their digital channels (apps, web, embedded lending): Regulated by the Bangko Sentral ng Pilipinas (BSP). No fixed ceiling, but strict disclosure and market-conduct rules apply.
Non-bank lenders (Lending Companies under R.A. 9474, Financing Companies under R.A. 8556, and their Online Lending Platforms):
- Must be SEC-registered and hold a Certificate of Authority.
- SEC sets rate caps for specified small-amount, short-tenor loans (commonly marketed through apps or web).
Payment channels (e-money issuers, payment gateways): Usually BSP-supervised for the payments aspect, separate from lending licensure.

3) Are Interest Rate Ceilings in Force?

3.1 General Loans

No general cap due to the Usury Law’s suspension.
Courts can intervene where the agreed rate is “unconscionable.” Philippine jurisprudence has repeatedly reduced interest rates (and penalty charges) that were shockingly high, relying on:
- Civil Code arts. 1229 (penal clauses may be equitably reduced) and 2227 (liquidated damages may be reduced if iniquitous or unconscionable).
- Supreme Court cases (e.g., Medel v. CA; Neri line of cases) holding that even absent a statutory cap, courts won’t enforce oppressive rates.

3.2 SEC Caps for Small, Short-Term, Online Loans

The SEC imposes specific pricing caps (nominal interest and total cost) for covered small-value, short-tenor loans of lending/financing companies and their OLPs.
Typical framework (as of 2024 practice):
- Nominal interest rate cap per month for loans up to a defined principal threshold (commonly ₱10,000) and short tenors (commonly up to 4 months).
- “Total cost of credit” cap per month (covers interest plus fees like service/processing/documentation), often higher than the nominal cap but inclusive of most charges.
- Penalty ceilings (e.g., late charges per month) also restricted.
Important: Exact caps, coverage (loan size, tenor), and definitions are set in SEC Memorandum Circulars. Lenders must verify current thresholds and formulas before pricing. Borrowers can check the lender’s disclosures and SEC materials to confirm the cap in force for their loan type.

4) What Must Be Disclosed (Truth in Lending)

R.A. 3765 (Truth in Lending Act) and BSP/SEC rules require clear, conspicuous, and prior disclosure of:
- Total cash price/principal, finance charges, net proceeds (if fees are netted), amortization schedule, due dates, all fees, and the Effective Interest Rate (EIR) or Annual Percentage Rate (APR).
- Whether interest is flat or declining-balance and the basis for computation.
- Add-on rates must not be used to mislead about true cost.
Online, this means the screen before you tap “accept” must already show all-in pricing, not just a teaser monthly rate.

5) What Counts as “Interest” Online?

Regulators look at economic substance:

Interest: price of credit (stated monthly/annual rate).
Finance charges / Total Cost of Credit: interest + fees (e.g., processing, service, documentation, convenience, platform, verification, disbursement), unless explicitly excluded by regulation.
Hidden deductions (net disbursement) still count toward total cost; lenders must compute the EIR on the actual cash the borrower receives.

Rule of thumb: If the borrower must pay it to get the loan, expect it to be treated as part of the cost of credit.

6) Penalties, Default Interest, and Compounding

Penalties and default interest are permitted but regulated:
- SEC-covered small loans: penalty rates are capped (per month) and count toward total cost limits if/when applicable.
- Other loans: no fixed statutory ceiling, but courts reduce iniquitous penalties; compounded penalty-on-penalty charges are often struck down.
Acceleration clauses (making the whole balance due at once) are generally enforceable if clearly agreed, but penalty stacking (default interest and separate late fees and collection fees) is subject to equitable reduction if excessive.

7) Collection Conduct for Online Lenders

Unfair debt collection is prohibited. The SEC’s Unfair Debt Collection rules (e.g., MC 18-2019) ban harassment, threats, profane language, public shaming, and contact-list scraping/doxxing through apps.
Data Privacy Act (R.A. 10173): Even if the borrower granted permissions in-app, purpose limitation, proportionality, and consent rules apply. Using a borrower’s contacts or photos to shame them can trigger NPC enforcement and civil/criminal liability.
Financial Consumer Protection Act (R.A. 11765): Provides market-conduct standards, redress, and administrative sanctions across BSP/SEC/IC-supervised entities.
Third-party collectors must follow the same rules; lenders are accountable for their agents.

8) Licensing & Platform Rules (Online Lending Apps)

It is illegal to operate a lending/financing business without an SEC Certificate of Authority. Apps must disclose the licensed entity behind the platform.
OLPs fall under SEC oversight even if they merely “facilitate” loan offers—functional approach applies.
Cross-border apps servicing Philippine residents are still expected to comply with Philippine law; app-store takedowns and SEC advisories are common for violators.

9) How Courts Treat “Unconscionable” Interest

Even without a statutory cap, the Supreme Court has repeatedly:

Invalidated or reduced interest rates ranging from 3% to 7% per month (36%–84% p.a.) and beyond as unconscionable, especially when combined with hefty penalties.
Applied 6% p.a. legal interest (per Nacar v. Gallery Frames) as judicial interest for monetary awards or for recomputed obligations when contractual rates are voided or moderated.
Reduced penalty charges under Civil Code arts. 1229 and 2227.

Practical effect: If an online loan stacks high monthly interest + multiple fees + steep penalties, a court can pare it down significantly.

10) Practical Pricing Examples (How Caps and EIR Work)

Illustrative only. Verify exact SEC caps currently in force for covered small loans.

Scenario A (Covered small loan): Principal ₱5,000; tenor 60 days; nominal interest 6%/month; total cost cap 15%/month.
- If the lender charges 6%/month interest and a processing fee equivalent to 6%/month, total cost = 12%/month → within a 15%/month cap.
- If late by a month and penalty is 5%/month, the regulatory penalty cap must also be observed, and overall computations must still align with rules on how penalties interact with total cost.
Scenario B (General online installment not within caps): Principal ₱30,000; tenor 12 months; add-on 2%/month with 3% processing fee upfront deducted from proceeds.
- Lender must disclose EIR based on net proceeds (₱30,000 minus fee) and on declining balance vs add-on basis.
- Courts will scrutinize if combined charges shock the conscience, especially with default interest (e.g., +3%/month) plus late fees.

11) Advertising and On-Screen Disclosures

Teaser rates (e.g., “as low as 0.5%/day”) must not mislead; borrowers should see:
- APR/EIR, all fees, sample amortization, cool-off/cancellation policy (if offered).
- Identity of the licensed entity, SEC Company Registration No. and Certificate of Authority No., and contact channels for complaints.

12) Enforcement, Complaints, and Remedies

SEC (for lending/financing companies and OLPs):
- File complaints for over-the-cap pricing, unlicensed lending, or unfair collection.
- Sanctions include fines, suspension/revocation of the Certificate of Authority, order to refund, and criminal cases under lending statutes.
BSP (for banks and their digital lending):
- Financial Consumer Protection channels for mis-selling, nondisclosure, abusive collection; administrative sanctions.
National Privacy Commission (NPC):
- Complaints for data privacy violations (e.g., scraping contacts, shaming). NPC can order cease-and-desist, deletion, and penalties.
Courts & Small Claims:
- Borrowers or lenders may sue. The Small Claims threshold has been raised over time (currently ₱1,000,000), streamlining recovery without lawyers and enabling judicial reduction of unconscionable charges.

13) Compliance Checklist (Online Lenders)

License: SEC registration + Certificate of Authority; correct activity scope.
Product scoping: Identify which loans are subject to SEC caps; price accordingly.
Pricing model: Compute and disclose EIR/APR; avoid drip pricing.
Contracts: Plain-language T&Cs; clear basis for interest, fees, penalties; no unfair or one-sided clauses.
UX & screens: Pre-acceptance full cost disclosure; amortization table accessible; receipt and repayment schedule provided.
Collections: No harassment, no contact-list shaming; documented call scripts; complaint handling process.
Data privacy: DPO appointment, privacy notice, minimal permissions, retention limits, third-party agreements.
Governance: Board-approved product, pricing, and conduct policies; internal audits; vendor oversight (for OLPs, scoring, collection partners).
Record-keeping: Audit trail of disclosures, consents, and pricing computations.
Monitoring: Track complaints, regulatory updates, and jurisprudence; adjust caps and practices promptly.

14) Borrower Tips (Quick Guide)

Check the license: Confirm the lender is an SEC-authorized lending/financing company (or a bank).
Look for the EIR/APR: Don’t rely on “per day” or “flat” rates.
Add up the fees: Anything deducted from proceeds still costs you.
Beware of penalties: Repeated late fees plus high default interest snowball quickly.
Keep evidence: Screenshots, e-mails, app notices, and receipts.
Know your rights: Harassment and contact-list shaming are not allowed.

15) Frequently Asked Questions

Q1: Can an online lender legally charge 24% per month? There’s no universal statutory cap, but SEC caps may prohibit such pricing for covered small loans. Even outside those caps, courts can void or reduce rates they deem unconscionable.

Q2: Is “0% interest” legal if the app charges a big processing fee? Yes—if fully disclosed—but regulators treat the fee as part of total cost. A “0% interest” ad with heavy fees can still breach caps for covered products or be deemed misleading.

Q3: Can a lender text my contacts if I’m late? No. That conduct risks SEC sanctions and Data Privacy violations.

Q4: What happens if the rate is unconscionable? A court can reduce interest and penalties and substitute 6% p.a. judicial interest where appropriate.

Q5: Are payday-style apps legal? They can be, if the operator has the proper SEC authority, complies with caps and disclosures, and avoids abusive practices.

16) Key Laws & Instruments to Know (Non-exhaustive)

Act No. 2655 (Usury Law) — ceilings suspended by CB Circular No. 905 (1982).
R.A. 3765 (Truth in Lending Act) and implementing rules (BSP/SEC).
R.A. 9474 (Lending Company Regulation Act); R.A. 8556 (Financing Company Act).
R.A. 11765 (Financial Consumer Protection Act).
R.A. 10173 (Data Privacy Act) and NPC circulars/advisories.
SEC Memorandum Circulars on interest/total-cost caps for small loans and unfair debt collection.
Key jurisprudence on unconscionable interest (e.g., Medel v. CA; Nacar v. Gallery Frames for legal interest).

17) Bottom Line

Online loans are lawful, but pricing and conduct are tightly regulated, especially for small, short-term loans via apps.
There is no blanket cap, yet SEC caps can apply to particular products, and courts will not enforce oppressive rates or penalties.
Full, upfront disclosure and fair collection are non-negotiable—both for legal compliance and enforceability.

Need to go deeper?

If you’re structuring a specific product (principal, tenor, fees) or reviewing an app’s screens and contract language, share the exact terms and I’ll map them against the applicable caps, disclosure rules, and jurisprudence—and flag any red-lines.