Loan-Deposit Fraud and the Non-Release of Loan Proceeds in the Philippines: A Comprehensive Legal Analysis

Date of writing: 19 June 2025 (This material is for information only and is not a substitute for individual legal advice.)

Abstract

“Loan-deposit fraud” describes the practice of inducing would-be borrowers to pay an up-front “deposit,” “processing fee,” or similar charge on the promise that the creditor will thereafter release a loan that, in fact, is never delivered. When an advance fee is paid but the loan proceeds are withheld—or when a lender unreasonably refuses to disburse an already-approved loan—the situation also fits the broader problem of the non-release of loan proceeds. This article surveys every significant Philippine statute, regulation, and Supreme Court ruling that governs or is commonly invoked in such cases, outlines the typical modus operandi, explains available criminal, civil, and administrative remedies, and proposes policy reforms.

I. Conceptual Framework

Term	Working definition
Loan-deposit fraud / advance-fee scam	Any scheme in which the supposed lender demands a monetary deposit or fee before loan proceeds are released, with intent not to release the loan at all.
Non-release of loan	(a) Failure or refusal by a legitimate lender to deliver loan proceeds after perfection of the loan contract or (b) the situation produced by loan-deposit fraud.
Victim	Person who paid the advance fee or who contracted for a loan that remains undelivered.
Perpetrator	Individual, group, lending company, or online platform that commits the fraud or withholds release.

II. Governing Law

Civil Code of the Philippines
- Arts. 1315–1365 (perfection of contracts)
- Arts. 1163–1170 (obligations to deliver and liability for fraud or negligence)
- Arts. 1380–1390 (voidable contracts when consent is vitiated by fraud)
- Arts. 19–21 (abuse of rights; acts contra bonos mores)
Revised Penal Code (RPC)
- Art. 315 (Estafa) — advance-fee schemes typically constitute estafa “by means of deceit.”
- Art. 318 (Other deceit) — covers lesser-value scams when estafa elements are incomplete.
Presidential Decree 1689 (Syndicated Estafa) Estafa becomes syndicated (punishable by reclusion perpetua) when committed by a group of ≥5 persons or by a lending corporation to defraud the public.
Batas Pambansa 22 (BP 22) If the deposit or processing fee is taken through a post-dated check that later bounces, the issuer may face BP 22 charges.
Republic Act 9474 (Lending Company Regulation Act of 2007)
- Requires all non-bank lenders to secure a Certificate of Authority (CA) from the SEC.
- SEC Memorandum Circular 19-2019 limits processing fees and forbids deceptive practices.
Bangko Sentral ng Pilipinas (BSP) Oversight
- Manual of Regulations for Banks (MORB) §X305 and related circulars oblige banks to release approved loans within the agreed period, absent lawful cause.
- BSP Circular 1048 (2020) and Circular 1160 (2023) incorporate the Financial Consumer Protection Framework now codified in RA 11765.
Republic Act 3765 (Truth in Lending Act) & BSP Circular 730 (2001) Lenders must disclose all finance charges. Concealing an undisclosed mandatory “deposit” violates these rules and triggers administrative sanctions.
Republic Act 11765 (Financial Products and Services Consumer Protection Act, 2022)
- Empowers BSP, SEC, and the Insurance Commission to order restitution and impose fines.
- Recognises “abusive collection or lending practices” as prohibited conduct (§4[b]).
Republic Act 7394 (Consumer Act) — catch-all against deceptive sales acts.
Republic Act 10175 (Cybercrime Prevention Act) Advance-fee scams executed online constitute estafa “through information and communications technologies,” raising penalties one degree.
Anti-Money Laundering Act (AMLA) as amended by RA 10927 Proceeds of loan-deposit fraud are predicate crimes, allowing asset freeze and civil forfeiture.
Data Privacy Act 2012 Unlawful harvesting of borrowers’ contact lists by rogue mobile-lending apps adds criminal exposure.

III. Jurisprudence Snapshot

Case	G.R. No. / Date	Key doctrine
People v. Gozo	10618-R, 29 Oct 1958	Estafa may be committed even if the offender promises a future service he never intends to fulfill, provided deceit is present at the very start.
People v. Balasa	L-25975, 29 Aug 1969	Advance-fee gold-mine scam classified as estafa; “deposit” need not be large.
People v. Montalban	G.R. 197700, 17 Jun 2015	Online estafa through fraudulent loan promises falls under Art. 315 (2)(a) plus RA 8792 (E-Commerce Act).
Spouses Africano v. Citystate Savings Bank	G.R. 173031, 29 Jan 2013	Bank liable for damages when it unreasonably delayed release of a fully-approved housing loan, breaching Art. 1159 and causing loss of a purchase opportunity.
Spouses Abayab v. Citibank	G.R. 196379, 18 Jan 2021	Non-release of a standby credit line despite fulfilled conditions precedent constitutes breach; moral and exemplary damages may be awarded on proof of bad faith.

(While not exhaustive, these decisions illustrate the prevailing principles on deceit, breach, and damages.)

IV. Typical Modus Operandi

Processing-fee bait – Borrower applies online; pseudo-lender requires ₱3,000-₱10,000 “processing” or “notarial” fee by GCash or bank transfer. Once sent, the lender vanishes.
Deposit-to-unlock – Scammer claims the loan is “ready” but “Central Bank rules” require a refundable “good-faith deposit” equal to 5 % of principal. No such BSP rule exists.
Branch-based withholding – Legitimate lending shop approves loan but withholds release until borrower buys insurance or puts up a “security deposit.” Often a disguised finance charge.
Loan-morph app – Mobile-lending applications advertising “5-minute cash” impose mandatory e-wallet prepayments disguised as “first-month amortisation,” yet never transfer the principal.
Non-release after mortgage – Borrower executes real-estate mortgage and pays appraisal costs, but bank refuses to release because of shifting internal policies, trapping collateral.

V. Criminal Liability Analysis

A. Estafa under Art. 315 (2)(a)

Elements:

A false pretense or fraudulent representation as to a fictitious power, imaginary business, or non-existent liability.
Such false pretense was made prior to or simultaneously with the commission of the fraud.
The offended party parted with money or property by reason of the false pretense.
The offender acted with intent to defraud.

Advance-fee schemes satisfy all four. Penalty scales with the amount defrauded (Art. 315 last par.). When ≥5 perpetrators or a lending company is involved and the amount defrauded exceeds ₱100,000, PD 1689 applies.

B. Other relevant crimes

Act	Statute	Range of penalties
Issuing a bouncing check for the deposit	BP 22	30 days-1 year or fine.
Online execution	RA 10175	Penalty 1 degree higher than estafa.
Illegal lending without CA	RA 9474 §12	Fine ₱10,000-₱50,000 + 6 mos-1 year.
Non-cooperation with SEC order under RA 11765	Up to ₱2 million + cease and desist, revocation.

VI. Civil Liability and Remedies

Breach of contract – Per Art. 1159, contracts have the force of law; failure to release loan constitutes negative inmalperformance. Remedies:
- Specific performance (compel release) when money is determinate (Spouses Africano).
- Rescission or annulment (Arts. 1191, 1381) plus restitution of fees paid.
- Damages:
  - Actual – lost opportunity costs (e.g., forfeited house purchase).
  - Moral – anguish from public embarrassment or credit reputational harm.
  - Exemplary – to deter abusive lenders.
Quasi-delict – If no perfected loan exists but negligence caused loss (Art. 2176).
Solidary liability of corporate officers – RA 11765 §25 allows piercing corporate veil for fraudulent lending.

Small claims (A.M. 08-8-7-SC, as amended) may be used for ≤₱400,000 refund actions—cost-effective for victims.

VII. Administrative and Quasi-Judicial Avenues

Forum	Jurisdiction / Power	Typical Outcome
SEC Enforcement and Investor Protection Department (EIPD)	Unlicensed lending, deceptive practices, PD 902-A §5	Cease & desist, CA revocation, fines, publication of blacklists.
BSP Consumer Assistance Mechanism	Banks, e-money issuers, quasi-banks	Mandated response within 7 days; restitution or corrective action.
DTI Fair Trade Enforcement Bureau	Non-bank retail lenders falsely marketing loans as “no collateral” but charging deposits	Administrative fines, closure.
National Privacy Commission	Unlawful use of borrower data by rogue apps	Compliance orders, damages.

Victims should attach proof of payment, screenshots, chat logs, loan application forms, and IDs.

VIII. Procedural Guide for Victims

Gather evidence – Official receipts, bank transfer screenshots, call recordings (allowed under People v. Datuin for own right or concerned interest).
Demand letter – Required under Art. 1169 to put lender in default; also useful for BP 22.
File a complaint-affidavit
- Venue: Office of the City/Provincial Prosecutor where deposit was made or where deceit occurred.
- Attach demand letter and proof of deceit.
Urgent relief – Apply for an asset preservation order under AMLA or freeze order via the Anti-Money Laundering Council if large scale.
Parallel administrative complaint with SEC/BSP; agencies now share data under the Financial Sector Forum MoU (2023).

IX. Defences Commonly Raised—and Their Weaknesses

Defence	Assessment
“The fee was optional.”	Rebut by showing lender refused to proceed without it.
“Loan approval was conditional.”	If all conditions precedent were satisfied, refusal is breach.
“Borrower voluntarily paid; no deceit.”	Early misrepresentation of BSP or ‘insurance’ requirement proves deceit existed at inception.
“Deposit was to cover appraisal and is non-refundable.”	Valid only if (a) disclosed before fee is paid, (b) used solely for appraisal, (c) adequately receipted. Otherwise, unlawful finance charge.

X. Compliance Checklist for Legitimate Lenders

Obtain CA from SEC (for non-banks) and display certificate.
Provide Loan Disclosure Statement under RA 3765.
Issue Official Receipt for every fee; clarify refundable vs non-refundable.
Release proceeds within the period agreed; extensions require written consent.
Keep data-privacy notices and avoid intrusive collection practices.

XI. Policy Challenges and Recommendations

Challenge	Proposed reform
Proliferation of fly-by-night online lending apps	Mandatory API linkage with SEC database before an app can be listed on Google Play / App Store (subject of the 2024 BSP-DICT joint draft circular).
Low prosecution success due to small individual amounts	Expand Project SAKLOLO of the Department of Justice to bundle victims for syndicated estafa filing.
Cross-border digital wallets	Negotiate BSP-MAS (Singapore) and BSP-Bank Negara (Malaysia) MOUs for real-time reporting of suspicious wallets tied to Philippine-based scams.
Victim reluctance	Integrate one-click scam reporting inside GCash/Maya apps with automatic affidavit templates.

XII. Conclusion

Loan-deposit fraud and the unjustified non-release of loan proceeds undermine confidence in the Philippine credit market, siphon billions of pesos from low-income borrowers, and violate a latticework of civil, criminal, and administrative norms—from the Civil Code to the newest Financial Consumer Protection Act. Victims need not remain helpless: estafa prosecutions, breach-of-contract suits, SEC cease-and-desist orders, and BSP consumer-redress mechanisms all provide concrete avenues for recovery and deterrence. Yet effective enforcement also demands robust digital-age policy responses, such as fintech-app gatekeeping, real-time wallet monitoring, and collective prosecution models. Until these are fully in place, every prospective borrower should treat any up-front “deposit” requirement with extreme skepticism, verify the lender’s SEC or BSP authority, and insist on written, transparent disclosures before handing over a single peso.

Prepared by: [Your Name], Philippine lawyer and policy researcher Member, Integrated Bar of the Philippines — Rizal Chapter