Settlement Terms for Online Lending-App Debts in the Philippines (A 2025 Legal Practitioners’ Guide)
1 | Regulatory and Statutory Bedrock
| Source of authority | Key take-aways for settlement drafting |
|---|---|
| Republic Act No. 9474 (Lending Company Regulation Act) & RA 8556 (Financing Company Act) | All online-lending apps (OLPs) must operate through a lending or financing company that holds a Certificate of Authority from the SEC. Any “settlement agreement” is merely an amendment to the original loan contract and must observe the Acts’ disclosure and reporting duties. (RESPICIO & CO.) |
| Truth in Lending Act (RA 3765) | Settlement offers must itemise (i) remaining principal, (ii) finance charges already paid, (iii) finance charges and penalties waived or rebated, and (iv) the effective cost of settling on the agreed date. (Lawphil) |
| Financial Consumer Protection Act (RA 11765, 2022) | Borrowers enjoy (a) a right to pre-payment without penalty unless expressly disclosed, (b) mandatory in-house complaint handling, and (c) regulator-led adjudication if talks fail. (Lawphil) |
| BSP Circular 1133-2021 + SEC Memorandum Circular 3-2022 | For unsecured personal loans ≤ ₱10 000 and tenor ≤ 4 months: |
| – Nominal rate cap: 6 % p.m. (≈ 0 .2 % per day) | |
| – Effective IR cap: 15 % p.m. (all fees included) | |
| – Late-payment & non-payment penalties: ≤ 5 % p.m. of amount due | |
| – Total-cost cap: 100 % of principal, lifetime | |
| These ceilings continue to apply during settlement. (Bangko Sentral ng Pilipinas, Law and Policy Reform Program, Respicio & Co.) | |
| SEC Memorandum Circular 18-2019 | Outlaws abusive collection (threats, public shaming, contacting a borrower’s phone contacts, use of obscene language). Any settlement clause that conditions a discount on consenting to such practices is void. (Law and Policy Reform Program) |
| Data Privacy Act (RA 10173) | Lenders may process only the minimum personal data needed to enforce the settlement and must delete or anonymise contacts lists once the account is closed. |
| Pandemic grace-period rules (SEC MC 28-2020) | Settlements must credit any mandatory grace accrued during the pandemic lockdowns in 2020–21. |
2 | Core Monetary Elements of a Settlement
Settlement Pay-off Amount Principal still outstanding − mandatory rebates − interest/penalties waived = Net figure payable on or before the cut-off date. Caps in §1 apply.
Discount or Condonation
- Permitted, but the discount must be expressed both in pesos and as a % of the outstanding balance to satisfy RA 3765.
Interest Rebate for Early Payment
- For amortising loans, unused interest must be prorated and refunded/waived.
Processing or Negotiation Fee
- Cumulative non-interest charges may not exceed 5 % of the original principal for covered loans. (Respicio & Co.)
Penalty Alignment Clause
- If settlement is on instalments, apply either the statutory 5 % late-fee ceiling or lower contractual penalty, whichever is less.
3 | Standard Clauses Seen in Philippine OLP Settlement Agreements
| Clause | Practical drafting notes |
|---|---|
| Statement of Account Attachment | Attach a ledger certified by the lender’s treasurer or compliance officer. |
| Rebate / Waiver Schedule | Specify which charges are waived immediately and which are waived upon final payment. |
| Mode of Payment | Require payment only through SEC-registered payment channels; prohibit direct deposits to collectors’ personal accounts (common scam). |
| Certification of Full Payment (CFP) | Obliges lender to issue CFP and request delisting from credit bureaus (CIC) within 7 working days after last payment. |
| Data Erasure Undertaking | Commits lender and its third-party collectors to delete borrower data, per NPC Advisory 20-01. |
| Release & Quitclaim | Mutual release covering the original loan and any collection-harassment claims, except willful or fraudulent acts. |
4 | Negotiation & Dispute-Resolution Pathway
Internal Complaints
- RA 11765 obliges OLPs to decide within 15 BD of a written request for restructuring or settlement.
Regulator-led Mediation
- SEC’s Fin-C Desk (Financial Consumer Concerns) may summon parties to mediation.
Small-Claims Court (A.M. 08-8-7-SC, as amended 2022)
- Money claims ≤ ₱400 000 may be pursued without lawyers; settlement agreements can be judicially confirmed.
Arbitration or Regular Civil Action
- If the contract has an arbitration clause, parties may proceed under the Alternative Dispute Resolution Act.
Administrative Relief
- Breach of MC 18 harassment rules can trigger SEC show-cause orders and licence cancellation (e.g., Surity Cash revocation, March 2025). (Inquirer Business)
5 | Prohibited Conduct During Settlement Talks
- Misrepresentation of criminal liability for mere non-payment (simple debt is not estafa).
- Threatening arrest, garnishment, or publication of borrower photos without court order.
- Contacting employers or relatives without the borrower’s signed consent. (RESPICIO & CO.)
Violations expose the company and individual collectors to fines of ₱25 000–₱1 M per offence and licence revocation. (Credit Information Corporation)
6 | Jurisprudence on Unconscionable Interest & Penalties
| Case | Ratio |
|---|---|
| Spouses Abella v. Bernardo, G.R. 243287 (21 Apr 2021) | Courts may strike down a 5 % per month penalty as “shockingly excessive” and reduce it to 6 % per annum compensatory interest. |
| Macalinao v. BPI, G.R. 231671 (9 Oct 2019) | Pre‐agreed interest beyond 3 % per month on consumer loans is prima facie unconscionable. |
| Security Bank v. Spouses Tiu, G.R. 230743 (27 July 2022) | Even sophisticated borrowers may invoke equity to pare down interest if total charges exceed 100 % of principal. |
A prudent settlement therefore mirrors or betters what a court would likely impose under these precedents.
7 | Compliance Checklist (2025) for Settlement Drafting
- Verify lender’s SEC licence number against the latest registry.
- Confirm the loan falls inside or outside the BSP/SEC “small-loan” cap to apply the proper ceilings.
- Compute → disclose → document every peso of interest and penalty written off.
- Include CFP and CIC delisting timeline.
- Add a Data-Erasure clause referencing NPC circulars.
- Stipulate venue and ADR clause consistent with RA 9285.
- Obtain borrower’s wet or digital signature compliant with the E-Commerce Act.
8 | Forward Look
The SEC’s 2024 impact study suggests average cost of funds for registered lenders has dropped, and a review of the 6 %/15 % caps is scheduled for Q3 2025. Practitioners should draft settlement language flexible enough to accommodate any downward adjustment—e.g., “in no case higher than the statutory or regulatory ceiling then in force.” (Respicio & Co.)
9 | Practical Tips for Borrowers & Lenders
- Borrowers: Negotiate before default; a timely proposal leveraging the cap often secures a 30-70 % interest waiver.
- Lenders: Offer structured settlements (e.g., 20 % down + 3 monthly instalments) rather than a punitive lump-sum deadline; regulators view this favourably in licence-renewal audits.
- Both: Keep communication on record (e-mail or in-app chat) for evidentiary purposes.
Conclusion Well-structured settlement terms align commercial reality with the evolving Philippine regulatory matrix—ceiling rates, consumer-protection statutes, privacy rules, and recent jurisprudence. By honouring these guardrails, OLPs preserve their licence, borrowers regain solvency without harassment, and the broader fintech ecosystem continues to mature responsibly.