Liability for Auto-Loan Accrued Interest under the Bayanihan Acts

Republic Act No. 11469 (“Bayanihan 1”) & Republic Act No. 11494 (“Bayanihan 2”)

1. Context and Legislative Purpose

When the Philippines imposed successive COVID-19 lockdowns in 2020, Congress passed two emergency measures—RA 11469 on 24 March 2020 (in force until 25 June 2020) and RA 11494 on 11 September 2020 (in force until 31 December 2020)—to cushion Filipinos from economic shock. Each statute contained a temporary, mandatory loan-payment grace period that squarely covered auto loans granted by banks, quasi-banks, financing companies, and lending companies.

The principal intent was cash-flow relief, not debt forgiveness. Thus, while instalments falling within the covered periods were deferred without penalties or “interest-on-interest,” the contractual (simple) interest continued to run and remained legally collectible—subject to strict conditions outlined below.

2. Statutory Text & Implementing Rules

Provision	Key Text Affecting Auto Loans	Core Implementing Issuances*
Bayanihan 1, § 4(aa)	“Thirty (30)-day grace period for all loans with principal and/or interest falling due during the period of the enhanced community quarantine … No additional interest, fees, or charges shall be applied on the deferred amount.”	• BSP Memorandum No. M-2020-008 (19 Mar 2020)
• BSP M-2020-013 & 016 (Q&A, accounting)
• SEC Memo Circular No. 11-2020 (non-bank lenders)
Bayanihan 2, § 4(uu)	“One-time 60-day grace period for loans falling due on or before 31 Dec 2020 … No interest on interest, penalties, or other charges shall accrue.”	• BSP M-2020-068 (21 Sept 2020)
• SEC Memo Circular No. 28-2020

*The Department of Trade & Industry’s Fair Trade Enforcement Office and local government units also issued inspection guidelines but liability ultimately rests with BSP/SEC-licensed entities.

3. Core Mechanics for Auto-Loan Interest

Who is covered? All auto-loan borrowers—whether individuals, sole proprietors, or corporates—whose instalments fell due within:
- • 17 March–31 May 2020 (ECQ/MECQ span) for Bayanihan 1; and
- • 15 September–31 December 2020 for Bayanihan 2.
Accrual vs. Collection. Simple (non-compounded) contractual interest accrues continuously under the original promissory note/motor-vehicle loan agreement. What Bayanihan suspends is collectibility on the original due date, not the accrual itself.
No “interest-on-interest.” Lenders cannot impose additional or penalty interest, service fees, or late-payment charges on the deferred amount. The prohibition covers:
- compounding the accrued interest;
- capitalizing it into principal; or
- front-loading “processing fees” for the re-amortized schedule.
Re-amortization choices. Implementing rules gave borrowers two options (borrower’s election, not the lender’s):
- (a) Lump-sum payment of the accumulated interest (and any principal due) on the next due date after the grace period; or
- (b) Staggered amortization of the accrued interest throughout the remaining life of the loan, without additional charges.
If the original maturity is inadequate, the lender must extend the term to accommodate amortisation on the same periodic-payment amount, again free of fees.
Accounting treatment (for lenders). BSP allowed recognition of interest income on an accrual basis, provided the lender sets aside appropriate loan-loss provisions under BSP Circular 1011 and does not record uncollected amounts as interest income until actually received when collectability is doubtful.

4. Borrower Liability for Accrued Interest

Stage	Borrower Liability	Statutory Limits
During Grace Period	None payable. Interest simply accrues.	No penalties, no compounding, no repossession on ground of non-payment alone.
Immediately After Grace	Borrower owes (i) deferred principal & (ii) simple interest for each deferred instalment.	Must be collected either in lump sum or staggered, at borrower’s option.
End of Loan Tenor	Any unpaid accrued interest becomes due. Lender may now enforce normal remedies (demand, repossess, sue).	Lender must have allowed choice of staggered payment; otherwise, demand is premature and unenforceable.

Bottom line: the borrower ultimately pays the accrued contractual interest, but never any interest on that interest or penalties attributable to the Bayanihan grace.

5. Lender Liability & Penalties for Non-Compliance

Administrative:
- Banks/quasi-banks. BSP may impose fines up to ₱ 30,000 per day, order restitution, and require suspension of responsible officers (New BSP Charter, RA 7653 as amended).
- Financing & lending companies. SEC may fine up to ₱ 1 million plus ₱ 10,000 per day of continuing violation; repeated offenses risk revocation of license.
Criminal: Both Bayanihan laws carry a catch-all penal clause—up to 2 months’ imprisonment or ₱ 10,000 fine (court’s discretion) for “private individuals” who violate the Act. There is no reported conviction so far, but the threat alone pushed lenders to comply.
Civil: A borrower may sue for specific performance and damages under Art. 1167 and 1170 of the Civil Code, or file a financial consumer complaint with BSP/SEC. Courts have granted injunctions against repossession where the lender ignored the statutory grace.

6. Practical Enforcement Issues for Auto Loans

Issue	How It Played Out
Repossession during ECQ	Prohibited: “No enforcement of legal remedies” to collect loans falling within the grace. Most sheriffs and private foreclosure teams suspended operations due to mobility bans.
Chattel-Mortgage Registration	Extensions of maturity did not require a new Chattel Mortgage registration; memoranda clarify the original mortgage continues to secure the extended obligation.
Insurance & LTO renewal	Borrower still had to renew CTPL/comprehensive cover and LTO registration; the grace did not suspend these. Some lenders advanced premiums to avoid lapses, the cost of which is reimbursable (with no interest).
Post-Bayanihan restructurings	After 1 Jan 2021, any further concessions (e.g., another moratorium due to job loss) became purely contractual restructurings under normal BSP rules; Bayanihan‐specific penalties no longer applied.
Interaction with RA 11765 (2022)	The Financial Consumer Protection Act now supplies an ongoing administrative remedy for borrowers facing unfair collection, but it does not retroactively alter Bayanihan liabilities.

7. Frequently Misunderstood Points

“The government waived interest.” Incorrect. Government merely deferred collection; you still owe contractual interest.
“Accrued interest was automatically capitalised.” Prohibited without the borrower’s written consent. Capitalising without consent = invalid and exposes the lender to penalties.
“A borrower who defaults after the grace gets a fresh 60 days.” The 60-day relief was one-time per loan. Subsequent defaults are governed by the original contract.
“Only personal loans were covered.” The law explicitly covered all loan types—personal, housing, auto, commercial—except those under the BSP-supervised repurchase agreement window and inter-bank call-loans.

8. Guidance for Stakeholders

Borrowers

Review your re-amortization schedule and ensure any accrued interest is spread evenly.
If your lender imposed penalty interest or capitalised the deferred interest, send a demand letter invoking §§ 4(aa)/(uu) Bayanihan Acts and the relevant BSP/SEC circular.
Keep receipts—payment disputes often arise years later at repossession or deficiency-claim stage.

Lenders & Dealers

Retain board-approved policies showing compliance; BSP onsite examiners ask for these.
Provide a clear disclosure (Truth-in-Lending Act, RA 3765) of any extended maturity and the exact peso-amount of the deferred interest.
For dealer-arranged financing, coordinate with partner banks to make sure the revised disclosure statement mirrors what the bank will collect.

Lawyers & Compliance Officers

Check whether the motor-vehicle loan falls under consumer credit (≤ ₱ 5 million). If so, SEC’s harsher daily fine schedule may apply to a non-bank.
In litigation, rely on judicial notice of ECQ periods and cite BSP/SEC memoranda to prove mandatory grace; no expert testimony required.

9. Looking Forward

Although the Bayanihan Acts have lapsed, their legacy provisions continue to shape fair-collection standards and are often cited by courts when evaluating lender conduct during emergencies (e.g., typhoons, city-wide lockdowns). For auto loans, the key doctrine that survives is:

Accrued interest remains a contractual debt of the borrower, but lenders may not charge any cost for the mere fact of its deferment, nor accelerate payment in a manner that defeats the statutory grace.

Future emergency legislation will likely replicate this framework, so understanding the Bayanihan model is critical for both consumer-finance design and crisis-response protocols.

10. Summary Cheat-Sheet

Question	Short Answer
Does interest stop running?	No—it keeps accruing, simple only.
Who ultimately pays accrued interest?	Borrower, either lump-sum or staggered.
Can the lender add late fees?	Absolutely not for Bayanihan-covered dues.
What if the lender ignored the grace?	Borrower may sue; BSP/SEC fines; criminal penalties possible.
Are existing chattel mortgages affected?	Mortgage continues; no need for re-registration.
Can interest be capitalised?	Only with borrower’s express written consent after full disclosure.

Prepared 17 June 2025 | Philippine jurisdiction