Legitimacy and High Interest Rates in Online Lending Apps in the Philippines

I. Introduction

The rapid proliferation of online lending applications in the Philippines since 2017 has revolutionized access to credit for millions of unbanked and underbanked Filipinos. Platforms offering “instant cash” loans with minimal requirements and disbursement within minutes filled a genuine market gap left by traditional banks’ cumbersome processes. However, this convenience came at a steep cost: astronomical interest rates, aggressive collection tactics, public shaming, and widespread operation by unregistered entities.

By 2025, the online lending industry remains sharply divided between legitimate, SEC-registered platforms and a persistent underground ecosystem of predatory apps. This article comprehensively examines the legal framework governing legitimacy, the current status of interest rate regulation, judicial treatment of unconscionable rates, prohibited collection practices, and the evolving enforcement landscape.

II. Regulatory Framework

A. Primary Regulators

1. Securities and Exchange Commission (SEC)

   • Under Republic Act No. 9474 (Lending Company Regulation Act of 2007) and its IRR, the SEC supervises and regulates all lending companies and financing companies, including those operating online.
   • SEC Memorandum Circular No. 18, series of 2019 (“Guidelines on the Regulation of Online Lending Platforms”) explicitly brought all entities engaged in lending through digital platforms under SEC jurisdiction, whether as operators or as financing companies.

2. Bangko Sentral ng Pilipinas (BSP)

   • Regulates only banks, quasi-banks, and their subsidiary/affiliate lending platforms (e.g., CIMB Fast Plus, SeaBank, Maya Easy Credit).

3. National Privacy Commission (NPC)

   • Enforces Republic Act No. 10173 (Data Privacy Act of 2012) against apps that misuse borrowers’ contact lists and photos.

4. Department of Information and Communications Technology (DICT) and National Telecommunications Commission (NTC)

   • Implement app blocking upon SEC/NBI request.

B. Registration Requirements for Online Lending Platforms (2025 Status)

To operate legally, an online lending platform must fall under one of these categories:

1. Registered as a Lending Company (LC) or Financing Company (FC) with the SEC

   • Minimum paid-up capital: ₱10 million (as increased by SEC MC No. 3, s. 2023)
   • Must have a physical office in the Philippines
   • At least 60% Filipino-owned (SEC Opinion No. 21-09, reiterated in 2024)

2. Registered as an Operator of Online Lending Platform (OLP Operator)

   • Introduced in 2019 for platforms that merely connect borrowers and SEC-registered lenders (marketplace model).
   • Capital requirement: ₱5 million
   • Must disclose the identity and SEC registration of all funding lenders

3. Bank or BSP-supervised entity subsidiaries

   • Exempt from SEC registration but subject to BSP Circular No. 1133 (2022) on digital banks and lending.

As of December 2025, the SEC maintains a public list of approximately 220 registered lending/financing companies authorized to operate online platforms. Notable legitimate apps include:

• Tala Philippines
• Digido (formerly Robocash)
• Cashalo (until its closure in 2023)
• UnaCash
• JuanHand
• Finaswif (Salad Finance)
• GCash GLoan/GCredit (operated by CIMB Bank)
• Maya Easy Credit

Any app not on the SEC list or not clearly operated by a BSP-supervised bank is operating illegally.

III. Legal Consequences of Unregistered Online Lending

1. Contracts are void ab initio
   The Supreme Court has consistently ruled (Chua v. Timan, G.R. No. 170452, 2008; Dizon v. Gaborro, G.R. No. 168445, 2010) that lending by unregistered entities violates RA 9474 and is contrary to public policy. The loan principal is not recoverable through judicial action.

2. Criminal liability

   • Violation of RA 9474: imprisonment of 1–5 years and fine of ₱500,000–₱5,000,000
   • Syndicated lending by unregistered entities may fall under Presidential Decree No. 1689 (syndicated estafa)

3. Administrative sanctions

   • Permanent cease-and-desist orders
   • App blocking by DICT/NTC (over 800 apps blocked since 2020)
   • Referral to Bureau of Immigration for foreign nationals (predominantly Chinese operators)

4. Borrower’s right to refund
   Borrowers who paid unregistered lenders may demand restitution of all payments (principal + interest + fees) under Article 1412 of the Civil Code (in pari delicto rule does not apply when public policy is involved – see Lemoine v. Balatbat, G.R. No. 197287, 2018, applied analogously).

IV. Interest Rates: Current Legal Regime

A. Suspension of Usury Law

Central Bank Circular No. 905-1982 (effective since January 1, 1983) suspended the Usury Law (Act No. 2655) and removed interest rate ceilings for all loans except those governed by special laws. Parties are free to stipulate interest rates.

B. Judicial Intervention Against Unconscionable Rates

Despite the suspension of the Usury Law, the Supreme Court retains equity jurisdiction under Articles 1229, 1306, and 1409 of the Civil Code to reduce or nullify grossly excessive interest rates that are “iniquitous, unconscionable, and exorbitant.”

Key Supreme Court rulings establishing the unconscionability threshold:

Case	Interest Rate	Court Ruling
Medel v. CA (1999)	5.5% per month (66% p.a.)	Reduced to 12% p.a.
Solangon v. Salazar (2001)	6% per month	Void for being unconscionable
Ruiz v. CA (2003)	10% per month	Reduced
Castro v. Tan (2009)	5% per month	Upheld (borderline)
Dio v. St. Ferdinand (2016)	3%–5% per month	Upheld if voluntarily agreed
BDO v. Saclolo (2022)	4.5% per month on credit card	Upheld
Spouses Almeda v. Bathala (2023)	5% per month	Reduced to 1% per month

Current judicial threshold (2023–2025):

• Rates exceeding 3% per month (36% p.a.) are presumptively unconscionable for unsecured consumer loans.
• Rates of 1%–2% per day (365%–730% p.a.), common in predatory apps, are routinely declared void in their entirety.

C. Truth in Lending Act (RA 3765) Disclosure Requirements

All lenders must disclose the Effective Interest Rate (EIR) using the BSP-prescribed formula. Failure to disclose renders the interest stipulation void (Development Bank of the Philippines v. Arcilla, G.R. No. 161397, 2005).

Many predatory apps display only the daily rate (e.g., “0.8% per day”) while burying processing fees (10%–20%), penalty fees (5%–10% per day of delay), and service charges that push the true EIR above 300%–1,000% annually.

V. Prohibited Collection Practices

1. Public shaming and harassment

   • Sending messages/photos to contacts: violates RA 10173 (Data Privacy Act) and RA 10175 (Cybercrime Prevention Act)
   • Penalty: imprisonment up to 7 years + fines up to ₱4 million (NPC v. PondoKo, 2023)

2. Threatening criminal prosecution for non-payment of a civil debt

   • Constitutes grave coercion or unjust vexation

3. Use of altered obscene photos

   • Violates RA 9995 (Anti-Photo and Video Voyeurism Act) and RA 11313 (Safe Spaces Act)

4. Collection calls outside 8:00 a.m.–7:00 p.m.

   • Prohibited by SEC MC No. 18-2019

Legitimate platforms now use only in-app reminders, SMS from official numbers, and licensed third-party collection agencies compliant with the Financial Products and Services Consumer Protection Act (RA 11765, 2022).

VI. Recent Developments (2023–2025)

1. SEC Memorandum Circular No. 3, s. 2023

   • Increased minimum capital to ₱10 million
   • Required all OLPs to submit monthly reports on interest rates and complaints

2. Republic Act No. 11934 (SIM Registration Act)

   • Indirectly aided enforcement by requiring SIM registration, making anonymous harassment more difficult

3. Inter-agency task force (SEC, NBI, PNP-CIDG, DICT)

   • Raided over 120 illegal lending offices in 2024–2025, mostly in Pampanga and Metro Manila
   • Deported over 400 Chinese nationals

4. Supreme Court decision in People v. Liu (G.R. No. 255788, prom. 2025)

   • Convicted operators of “CashBus” and “QuickPera” for syndicated estafa and violation of RA 9474

5. Proposed Internet Transactions Act amendments (pending in 17th Congress as of 2025)

   • Seeks to impose criminal liability on app store providers (Google, Apple) that continue to host unregistered lending apps

VII. Practical Advice for Borrowers (2025)

1. Verify legitimacy on the SEC website (www.sec.gov.ph → Lists/Registrations → Registered Lending Companies).
2. Never grant access to contacts, gallery, or SMS.
3. If harassed, immediately file complaints with:
   • NPC (privacycommission.gov.ph)
   • SEC Enforcement and Investor Protection Department
   • NBI Cybercrime Division
4. You may stop paying unregistered lenders and demand refund of all payments with legal basis.
5. For legitimate lenders with excessive rates, file a complaint with SEC or sue for reduction of interest under the Civil Code.

VIII. Conclusion

While the Philippines has one of the most progressive regulatory frameworks for fintech lending in Southeast Asia, enforcement gaps and technological anonymity allowed predatory apps to flourish for years. By December 2025, sustained government crackdowns, higher capital requirements, judicial intolerance for unconscionable rates, and improved consumer awareness have significantly reduced the prevalence of illegal online lending.

The surviving legitimate platforms now operate under strict transparency and fairness standards, offering rates typically between 0.5%–2.5% per month with full EIR disclosure. The era of 1%–10% daily interest rates and public shaming has largely ended — not because the market voluntarily reformed, but because the Philippine state finally treated predatory online lending as the organized cybercrime syndicate that it always was.

Borrowers must remain vigilant, but the legal tools to protect themselves have never been stronger.