The explosion of mobile lending applications in the Philippines since 2018 has given millions of Filipinos instant access to credit, often within minutes and without collateral. Many of these apps, however, operate completely outside the law. They are neither registered with the Securities and Exchange Commission (SEC) nor authorized to engage in lending as a business. This article exhaustively discusses the legal status of loans obtained from such unregistered platforms and the borrower's true obligations—or complete lack thereof—under Philippine law.

I. Legal Requirement of Registration and Authority to Lend

Republic Act No. 9474 (Lending Company Regulation Act of 2007) and its Implementing Rules and Regulations expressly require any person or entity that engages in the business of lending money to register as a corporation with the SEC and obtain a Certificate of Authority (CA) to operate as a lending company or financing company.

Section 4 of RA 9474 states:

“No lending company shall conduct business unless granted a Certificate of Authority to operate as a lending company by the SEC.”

The law applies with equal force to online or app-based lending platforms. The SEC has repeatedly clarified that operating a lending business through a mobile application without the required CA is illegal.

Any entity that grants loans repeatedly or as a business (not isolated personal loans) but lacks SEC registration and CA is operating illegally. Full stop.

II. Legal Status of the Loan Contract: Null and Void Ab Initio

A contract entered into by an entity that has no legal authority to engage in the activity that is the subject matter of the contract is void from the beginning.

Article 1409(1) of the Civil Code provides that contracts whose cause, object, or purpose is contrary to law are inexistent and void from the inception.

The Supreme Court has consistently ruled that contracts executed by entities without the required franchise or authority are void (Gonzales v. Climax Mining Ltd., G.R. No. 161957, 2008; Islamic Directorate of the Philippines v. Court of Appeals, G.R. No. 117897, 1997).

Therefore, a loan agreement executed by an unregistered online lending app is null and void ab initio. It creates no rights and imposes no obligations on either party. It is as if the contract never existed.

III. There Is No Legal Obligation to Pay Principal, Interest, Penalties, or Fees

Because the contract is void, there is no juridical tie between the borrower and the lender. Consequently:

The borrower has no legal obligation to repay the principal amount received.
The borrower has no legal obligation to pay any interest, service fees, penalty fees, or any other charges.
Non-payment cannot be used as basis for any civil action for collection or sum of money.
Non-payment does not constitute estafa or any other crime, as repeatedly confirmed by Department of Justice opinions (e.g., DOJ Opinion Nos. 26, s. 2022; 13, s. 2023, and others).

The SEC itself has publicly and repeatedly declared:

“Since these entities are not registered with the SEC and have no authority to lend, borrowers are not legally obligated to pay them.”

This position has been echoed by the Bangko Sentral ng Pilipinas, the National Privacy Commission, the Philippine National Police, and the National Bureau of Investigation in joint operations against illegal lending apps.

IV. The Unjust Enrichment and In Pari Delicto Arguments Examined and Rejected in This Context

Some commentators raise Article 22 (unjust enrichment) or Article 2142 (quasi-contract) of the Civil Code and argue that the borrower must at least return the principal.

This argument fails in the specific context of illegal lending for the following reasons:

In pari delicto rule applies with greater force against the illegal lender. The lender is the party violating RA 9474 and committing a crime punishable by fine and imprisonment (Section 13, RA 9474). The borrower commits no crime by borrowing. The law does not penalize borrowers for transacting with illegal lenders; it penalizes only the lenders.
Public policy strongly favors non-enforcement. The Supreme Court has long held that when public policy is involved, the in pari delicto rule is relaxed or not applied at all if doing so would further the illegal activity or defeat the protective purpose of the law (Vda. de Chua v. CA, G.R. No. 116835, 1995; Arroyo v. CA, G.R. No. 96602, 1991).

Allowing illegal lenders to recover even just the principal would encourage the very predatory activity the law seeks to eradicate.
Government agencies have uniformly adopted the position that borrowers need not return anything precisely to discourage illegal lending and protect consumers.

In practice, no Philippine court has ever ordered a borrower to repay principal to an unregistered online lending app when the illegality of the lender was raised as a defense.

V. Illegal Collection Practices Constitute Separate Crimes

Unregistered apps almost universally resort to harassment because they cannot use legal processes. These practices include:

Mass messaging or calling the borrower's contacts
Public shaming on social media
Threatening messages (“We will visit your house,” “We will file a case,” etc.)
Posting photos with derogatory overlays (“scammer,” “wanted,” etc.)

These acts are punishable under multiple laws:

RA 10175 (Cybercrime Prevention Act) – online libel, cyber-threats, computer-related identity theft
RA 10173 (Data Privacy Act) – unauthorized processing of personal information (punishable by imprisonment up to 7 years and fines up to ₱4 million)
Revised Penal Code Articles 282 (grave threats), 283 (light threats), 287 (light coercion), 358 (slander), 290 (unjust vexation)
RA 9262 (Violence Against Women and Children) when applicable

Borrowers who experience harassment should immediately:

Screenshot everything (never delete evidence)
File complaints simultaneously with:
- SEC Enforcement and Investor Protection Department
- National Privacy Commission (privacy.gov.ph)
- PNP Anti-Cybercrime Group
- NBI Cybercrime Division
File criminal complaints in the prosecutor’s office for violation of the above laws

Collectors (usually local agents) have been arrested and criminally charged in multiple operations (e.g., “Oplan Tambay” raids in 2023–2025).

VI. Practical Consequences for Borrowers Who Stop Paying

The app cannot file a legitimate collection case in court. Any case filed will be dismissed upon proof that the lender is unregistered.
Credit score impact is minimal or nonexistent because unregistered lenders are not members of the Credit Information Corporation (CIC) and cannot legally report to credit bureaus.
The borrower may continue receiving harassment for weeks or months, but this eventually stops once the app realizes the borrower knows their rights and has reported them.
Many borrowers who assert “the contract is void, I am not paying” find that the harassment ceases faster because the collectors move on to easier targets.

VII. What Borrowers Should Do If They Have Outstanding Loans with Unregistered Apps

Verify the lender’s status on the SEC website (sec.gov.ph → Lists → Registered Lending Companies and Financing Companies). If not listed, the lender is illegal.
Stop paying immediately. You are under no legal obligation.
Block all numbers and accounts associated with the lender.
Save all evidence of harassment.
File complaints with SEC, NPC, PNP-ACG, and NBI.
If you wish, for moral or practical reasons, you may voluntarily return only the exact principal amount you received (not a single peso more) via bank transfer and demand a receipt/waiver, but you are not legally required to do even this.
Never agree to “settlement amounts” that include interest or penalties.

VIII. Current State (as of December 2025)

Over 500 illegal lending apps have been removed from Google Play Store and Apple App Store upon SEC request since 2022.
The SEC continues to issue Cease and Desist Orders almost weekly.
Joint SEC-NPC-PNP-NBI operations have led to multiple arrests of local operators and collectors.
Proposed legislation (House Bill No. 9459 and Senate counterparts) seeks even harsher penalties and explicit provisions declaring such contracts void and unenforceable.

Conclusion

Under Philippine law, loans obtained from unregistered online lending applications are null and void from the beginning. Borrowers have absolutely no legal obligation to repay any amount—principal, interest, penalties, or fees. Non-payment carries no civil or criminal liability. The government's clear and consistent policy is to protect consumers by rendering such predatory contracts completely unenforceable.

Do not pay illegal lenders. Report them. Assert your rights. The law is squarely on your side.