In the Philippines, the rise of Fintech and Online Lending Platforms (OLPs) has made credit more accessible. However, this convenience often comes with a dark side: predatory lending. Many companies charge exorbitant interest rates and hidden fees that far exceed the limits set by the Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP).
If you find yourself trapped in a loan with unconscionable interest rates, here is a comprehensive legal breakdown of your rights and the actions you can take.
1. The Legal Framework: Understanding the Caps
Historically, the Philippines suspended the Usury Law, leading to a period of "deregulated" interest rates. However, due to widespread debt traps, the BSP Monetary Board (Circular No. 1133, Series of 2021) and SEC Memorandum Circular No. 3 (2022) reinstated specific caps on small-value loans (specifically "covered loans" which are typically unsecured loans not exceeding ₱10,000).
| Fee Type | Maximum Authorized Rate |
|---|---|
| Nominal Interest Rate | Max 6% per month (~0.2% per day) |
| Effective Interest Rate (EIR) | Max 15% per month (includes all fees) |
| Late Payment Penalties | Max 1% per month on the outstanding amount |
| Total Cost cap | Fees/interest cannot exceed 100% of the principal |
Important Note: Even if a loan exceeds ₱10,000, Philippine jurisprudence (Supreme Court rulings) consistently holds that interest rates of 3% per month or higher are "unconscionable, iniquitous, and contrary to morals" if they are not freely and fairly agreed upon or if they lead to debt slavery.
2. Common Violations by Lending Companies
Borrowers should look out for these "red flag" practices:
- Hidden Charges: Deducting "processing fees" or "service fees" upfront that result in you receiving significantly less than the approved loan amount.
- Compounding Penalties: Charging interest on the interest already accrued.
- Harassment: Using threats, shaming, or contacting people in your phone’s contact list (a violation of the Data Privacy Act and SEC rules on Fair Debt Collection).
- No Disclosure Statement: Failing to provide a clear breakdown of all charges before the loan is signed (Truth in Lending Act).
3. What Borrowers Can Do
If you believe you are being overcharged, do not simply disappear. Take these proactive legal steps:
A. Demand a Corrected Disclosure Statement
Under the Truth in Lending Act (R.A. 3765), a lender must disclose the full cost of credit. If the rates exceed SEC caps, write a formal letter (or email) to the lending company citing SEC M.C. No. 3 (2022) and demand that your balance be adjusted to reflect the legal limits.
B. File a Formal Complaint with the SEC
The SEC’s Corporate Governance and Finance Department (CGFD) actively monitors OLPs. You can file a complaint through the SEC online portal or via email (cgfd_flcd@sec.gov.ph).
- Include: Your loan contract, the disclosure statement, proof of payments, and screenshots of any harassment.
C. Report to the Bangko Sentral ng Pilipinas (BSP)
If the lender is a bank-affiliated finance company, the BSP's Consumer Protection Department can intervene. Use their "BOB" (BSP Online Buddy) chatbot or email consumeraffairs@bsp.gov.ph.
D. Invoke the "Unconscionable Interest" Doctrine
In the Philippines, the Supreme Court has the power to reduce interest rates even if you signed the contract. If a case is filed against you for non-payment, you can pray to the court to declare the interest rates void ab initio (void from the beginning). Usually, the court will reduce the interest to the prevailing legal rate (currently 6% per annum).
4. Criminal and Administrative Liability for Lenders
Lending companies found violating these caps face severe penalties:
- Administrative Fines: Ranging from ₱50,000 to ₱2,000,000.
- Suspension/Revocation: The SEC can revoke their Certificate of Authority (CA) to operate.
- Criminal Prosecution: Under the Lending Company Regulation Act of 2007, officers of the company can face imprisonment and fines.
Summary Checklist for Borrowers
- Check the CA Number: Ensure the company is registered with the SEC and has a valid Certificate of Authority.
- Calculate the EIR: If your daily rate is higher than 0.2%, it is likely illegal.
- Document Everything: Save all communication and payment receipts.
- Refuse to be Bullied: Debt is a civil liability, not a criminal one. You cannot be jailed for non-payment of a debt (unless fraud or estafa is involved).
Would you like me to draft a formal demand letter that you can send to a lending company to contest illegal interest rates?