Usury, Predatory Lending, and Borrower Rights

1) Why this topic matters

Online loan apps (often called “online lending platforms” or OLPs) promise fast cash with minimal requirements. The same features that make them convenient—speed, automation, remote onboarding—also make them fertile ground for abusive pricing, hidden charges, and aggressive collection tactics. In the Philippine setting, the legal conversation usually centers on three questions:

Is the interest/fee structure lawful and enforceable?
If there is no fixed “usury cap,” when does interest become unconscionable or predatory?
What rights and remedies do borrowers have against harassment, doxxing, and privacy violations?

This article lays out the key rules and practical consequences.

2) The regulatory landscape: who regulates what

A. SEC: Lending companies, financing companies, and many loan apps

Many online loan apps operate as, or on behalf of, lending companies or financing companies, which are typically under the Securities and Exchange Commission (SEC). In practice, SEC oversight is central for:

Registration/licensing (whether the lender is authorized to lend as a business)
Compliance with fair collection rules (prohibitions on harassment and abusive collection)
Business conduct (including the way lending is marketed and collected)

Key point: Borrowers should first determine whether the lender is SEC-registered (or otherwise properly licensed) because unregistered operations raise enforceability and enforcement issues and can trigger regulatory action.

B. BSP: Banks and BSP-supervised financial institutions

If the lender is a bank, quasi-bank, or other BSP-supervised financial institution, the Bangko Sentral ng Pilipinas (BSP) may be the appropriate regulator. Some apps are front-ends for entities in this ecosystem, while others are not.

C. NPC: Data Privacy Act enforcement

Where the complaint involves contact harvesting, unauthorized access to phonebook/contacts, public shaming, doxxing, and unlawful processing of personal data, the National Privacy Commission (NPC) becomes highly relevant under the Data Privacy Act of 2012 (RA 10173).

D. Law enforcement and prosecutors: threats, harassment, cybercrime, defamation

Online lending abuses often cross into criminal territory:

threats, coercion, grave threats/light threats
unjust vexation/harassment (depending on facts)
libel/cyberlibel (if defamatory posts are made online)
identity-related or device-related cyber offenses in appropriate cases These are handled through the PNP/NBI and the prosecutor’s office.

3) “Usury” in the Philippines: the modern reality

A. The “Usury Law” exists, but interest ceilings are not fixed the way people assume

The Philippines historically had interest ceilings under the Usury Law (Act No. 2655, as amended). However, for decades, the legal system has operated under a framework where statutory interest ceilings are effectively not the main control for most private loans. The practical consequence is:

There is often no single numeric cap you can point to and automatically say, “Anything above this is usurious.”

This leads to a common misconception: “There’s no usury anymore, so lenders can charge anything.” That is not how courts treat abusive pricing.

B. Courts can still strike down or reduce excessive interest

Even without a simple “cap,” Philippine law and jurisprudence allow courts to reduce or invalidate interest rates and penalty charges that are unconscionable, iniquitous, or contrary to morals/public policy.

Courts typically rely on:

Freedom of contract is not absolute (contracts must not be contrary to law, morals, good customs, public order, or public policy).
Equity and fairness controls (courts may temper oppressive stipulations).
Rules on interest and penalties in the Civil Code (including requirements for written stipulations and the court’s ability to reduce penalties/liquidated damages when iniquitous).

Practical takeaway: A lender may demand excessive charges, but that does not guarantee enforceability in court.

4) The Civil Code rules that matter most in excessive-interest disputes

A. Interest must be expressly stipulated (and typically in writing)

A foundational rule in Philippine obligations and contracts is that interest is not presumed. If a lender claims interest, it must be clearly and expressly agreed upon—commonly understood as needing a written stipulation to be collectible as interest, not merely implied.

Why it matters for loan apps: If the app’s terms are unclear, buried, not properly presented, or not properly consented to, the borrower can challenge whether “interest” and certain charges were validly imposed.

B. Hidden charges may be treated as disguised interest

Some apps avoid stating “interest” plainly and instead impose:

“service fees”
“processing fees”
“transaction fees”
“convenience fees”
“collection charges” imposed upfront If these charges function as the price for the use of money, they may be analyzed as effective interest—especially when they inflate the cost of credit far beyond what was disclosed.

C. Penalties and liquidated damages can be reduced

Even when a borrower is in default, penalty clauses are not limitless. Courts may reduce penalties (and sometimes compounded interest/fees) when they become oppressive or shock the conscience.

D. Unconscionability analysis is fact-specific

Courts don’t use a single formula. They typically look at:

the stated interest rate and effective rate after fees
loan term (e.g., 7–30 days “nano-loans” can distort effective APR)
compounding, rollover, and repeated penalty layers
the borrower’s situation and bargaining power
transparency of disclosures
collection behavior (harassment can support findings of bad faith/abuse)

5) Predatory lending: what it looks like in practice

Predatory lending is not just “high interest.” It is a pattern of unfairness that may include:

Deceptive or inadequate disclosures
- The borrower thinks they will receive ₱X but gets ₱X minus steep “fees,” while repayment is computed on ₱X (or worse, on a higher base).
- The borrower sees a “low” nominal rate but the short term plus fees creates a massive effective rate.
Loan flipping / rollover traps
- The borrower is pushed to extend, refinance, or reborrow repeatedly, each time paying new fees.
Aggressive or humiliating collection tactics
- Threats, profanity, intimidation
- Contacting employer, friends, relatives, or entire contact list
- Posting borrower’s photo/name online with accusations
- Misrepresenting themselves as law enforcement or using fake “court” threats
Overbroad app permissions and data exploitation
- Accessing contacts, photos, location, device identifiers beyond what is needed
- Using harvested data to pressure payment
Misrepresentation of legal consequences
- In the Philippines, nonpayment of debt is generally not a crime by itself.
- Criminal liability may arise from fraudulent acts (e.g., estafa) but ordinary inability to pay a loan is civil, not criminal.

6) Borrower rights in the Philippines

A. Right to clear credit disclosures (Truth in Lending principles)

Philippine policy strongly favors transparent disclosure of the true cost of credit: finance charges, interest, fees, and the amount to be repaid. In consumer lending contexts, lack of meaningful disclosure can support complaints and defenses.

What borrowers should receive/see in substance:

principal (amount actually received vs. amount “credited”)
all fees deducted upfront
interest rate and how it is computed
penalty fees, late charges, collection fees
schedule and total amount due
consequences of default (accurately stated)

B. Right to privacy and lawful processing of personal data (RA 10173)

Under the Data Privacy Act, personal data processing must generally comply with principles of:

transparency
legitimate purpose
proportionality

Common problematic practices:

collecting entire contact lists when not necessary to assess credit
using contacts to shame/coerce repayment
disclosing the borrower’s debt to third parties without lawful basis
posting personal information publicly

Important nuance: Consent obtained through a take-it-or-leave-it app screen is not automatically a free pass. Even with “consent,” processing must still be proportionate and for a legitimate purpose, and debt-shaming disclosures can be hard to justify as proportionate.

C. Right to be free from harassment and unfair collection

Regulators have treated abusive debt collection by lending companies and OLPs as prohibited conduct. Collection must not employ:

threats of violence or unlawful harm
obscene or insulting language
repeated calls/messages intended to harass
false claims of criminal cases, warrants, or immediate arrest
contacting unrelated third parties to shame the borrower (especially with disclosure of the debt)

D. Right to dispute unlawful or unconscionable charges

Borrowers can challenge:

unclear or undisclosed interest/fees
penalties that become iniquitous
charges imposed without valid agreement
inflated “principal” figures that don’t match the net amount received

E. Right to seek civil remedies and raise defenses

If sued, borrowers may raise defenses such as:

invalid or unclear interest stipulation
unconscionable interest/penalties
improper application of payments
lack of standing/authority of the collector
failure to comply with disclosure rules
harassment/bad faith supporting equitable reduction of charges

7) Criminal and quasi-criminal exposure: what lenders can and cannot do

A. “Bouncing checks” and fraud are different from ordinary debt

Ordinary loan default is generally civil.
Criminal cases typically require additional elements, such as deceit, fraud, or issuance of a bouncing check under specific conditions.

B. Harassment and online shaming can create liability for lenders/collectors

Depending on the facts, collectors may expose themselves (and sometimes their principals) to:

criminal complaints for threats or coercion
cyber-related complaints if online posts are used
defamation/cyberlibel risks if accusations are published
Data Privacy Act complaints for unauthorized disclosure and misuse of personal data

8) Enforceability problems specific to online loan apps

A. Identity and authority: who exactly is the creditor?

Borrowers often deal with:

an app brand
a lending company name in fine print
a third-party collection agency
rotating e-wallet accounts

Legal relevance: Only the real party in interest (or an authorized representative) can properly enforce a debt. If a collector cannot show authority (e.g., assignment, agency authority), that weakens their position.

B. Electronic contracts and “clickwrap” terms

Electronic agreements can be enforceable if properly formed (offer, acceptance, consent, and proof). Problems arise when:

terms are hidden or not reasonably accessible
the borrower is not clearly informed of key charges
the lender cannot prove what terms were presented at the time of acceptance
the system design nudges “consent” without meaningful notice

C. Computation disputes: net proceeds vs. face amount

A recurring dispute is whether repayment should be computed based on:

the “gross” amount stated, or
the net amount actually received after deductions

Courts and regulators tend to look critically at structures where deductions plus short tenor effectively produce extreme pricing without clear disclosure.

9) How borrowers can evaluate whether charges are excessive

A. Compute the “effective” cost, not just the advertised rate

Example pattern:

Borrower “loan amount”: ₱10,000
Upfront “fees”: ₱2,000 deducted
Net received: ₱8,000
Repayment due in 14 days: ₱10,000–₱11,000

Even if the app claims a modest monthly rate, the effective rate on the ₱8,000 actually received may be far higher.

B. Red flags for unconscionability

extremely short tenors with high add-on fees
daily compounding penalties
penalties stacked on top of already-high finance charges
fees imposed upfront plus interest computed as if no deduction occurred
vague language like “other charges may apply” without specifics

10) Remedies and where to complain (Philippine setting)

A. SEC complaints (for lending/financing companies and OLPs under SEC)

Common SEC-facing issues:

unregistered lending activity
prohibited debt collection practices
misleading or noncompliant conduct as a lending company/financing company

B. NPC complaints (privacy and contact-harvesting abuses)

NPC is relevant where the lender/app:

accessed contacts/photos beyond necessity
disclosed the borrower’s debt to third parties
publicly posted personal data
processed data without a proper legal basis or in a disproportionate way

C. BSP complaints (if BSP-supervised institution is involved)

If the lender is under BSP supervision, BSP consumer assistance channels may apply.

D. Police/NBI and prosecutors (threats, cyber-harassment, defamatory posts)

Appropriate when there are:

explicit threats of harm
impersonation of authorities
extortion-like demands
public defamatory posts
coordinated harassment using personal data

E. Civil actions / defenses

Borrowers can:

dispute the amount and seek recomputation
ask the court to reduce unconscionable interest and penalties
seek damages where bad faith and abuse are proven (depending on evidence and circumstances)

11) Practical borrower playbook: evidence and damage control

A. Preserve evidence immediately

screenshots of the loan offer, terms, repayment schedule
proof of net proceeds received (e-wallet/bank transaction)
full message threads, call logs, recordings where lawful and available
screenshots of posts/messages sent to contacts
app permission screens and privacy notices (if still accessible)

B. Verify registration and identity of the lender

confirm the legal entity behind the app (not just the app name)
identify the collection agency (if any) and demand proof of authority

C. Communicate strategically

keep communications in writing when possible
avoid admissions that validate disputed charges
request a written statement of account showing principal, interest, fees, penalties, and how each was computed

D. Reduce exposure to contact-harassment

revoke unnecessary app permissions
uninstall after preserving evidence (as feasible)
tighten social media privacy settings
inform close contacts not to engage and to document any messages received

12) For lenders and compliance teams: the conduct that keeps you out of trouble

In Philippine practice, the most defensible online lending operations tend to follow these principles:

clear, prominent disclosures of total cost and net proceeds
proportional data collection (no contact-harvesting for coercion)
documented consent and audit trails of presented terms
humane, truthful collection scripts (no threats, no public shaming)
fair restructuring options where appropriate, rather than rollover traps

13) Key legal takeaways

“No fixed usury ceiling” does not mean unlimited pricing. Courts can reduce unconscionable interest and penalties.
Interest and key charges must be clearly agreed upon and properly disclosed.
Harassment, threats, and public shaming are legally risky and often prohibited.
Privacy violations are central in online-loan abuse cases—contact-harassment and disclosure to third parties can trigger Data Privacy Act exposure.
Borrowers have multiple remedy lanes: regulatory (SEC/BSP), privacy (NPC), criminal (threats/harassment/cyber), and civil (reduction/recomputation/damages).