Online Loan Late Payment Penalties in the Philippines: A Comprehensive Legal Guide (2025)

This article is an educational overview of Philippine law and regulation as of April 2025. It is not a substitute for personalized legal advice. Where “₱” appears, it refers to Philippine pesos.

1. Regulatory Framework and Competent Authorities

Type of lender	Primary regulator	Key issuances that touch penalties
Banks & Digital Banks	Bangko Sentral ng Pilipinas (BSP)	• BSP Circular No. 1098 (2020) — credit-card rate & penalty caps • BSP Circular No. 1134 (2022) — consumer-protection rules under R.A. 11765
Financing & Lending Companies (including most loan apps)	Securities and Exchange Commission (SEC)	• R.A. 9474 & IRR (2009) • SEC Memorandum Circular (MC) No. 19-2019 — unfair collection practices • SEC MC No. 3-2022 — interest/penalty caps for small-value consumer loans
E-Money & Payments-only firms	BSP (for the EMI) + SEC (if also doing credit)	Same as above, plus BSP e-money rules
All financial service providers	Jointly BSP, SEC, Insurance Commission under R.A. 11765 (Financial Products & Services Consumer Protection Act, 2022)	Gives regulators power to set ceilings, void abusive terms, and impose penalties/issuances

2. Statutory & Civil-Code Foundations

Civil Code, Arts. 1956, 2209–2227 & 1229
- Interest or penalties must be expressly stipulated in writing; otherwise they cannot be collected.
- Courts may reduce penalty clauses that are “iniquitous or unconscionable.”
- Penalty and compensatory interest cannot be merged unless expressly so provided.
Truth in Lending Act – R.A. 3765 (1963)
- Requires lenders to disclose total finance charge, annual percentage rate (APR), penalty rates, and the exact formula before contract signing.
BSP’s Liberalization of Usury (CBP C. No. 905, 1982)
- Repealed fixed usury ceilings but left courts free to police unconscionable rates. Supreme Court jurisprudence since Reformina to Nacar v. Gallery Frames routinely strikes down 3%-10% per month as excessive.
R.A. 9474 (Lending Company Regulation Act, 2007)
- Licensing; prohibitions on “exorbitant or unreasonable” charges; SEC empowered to suspend or revoke certificates.
R.A. 11765 (FPSCPA, 2022)
- Codifies the borrower’s right to fair, honest, and equitable treatment.
- Lets regulators cap interest/penalties, order restitution, or fine violators up to ₱2 million + restitution/ disgorgement, or close an entity that endangers consumers.

3. Current Caps on Late-Payment Penalties

Segment & loan size	Cap on interest/charges	Cap on penalties for late payment
Credit Cards (BSP Circular 1098)	2% per month (24% p.a.) on unpaid balance; ₱200 processing ceiling for installment pre-termination	₱1,000 per month or the unpaid minimum amount, whichever is lower
Small-value, general-purpose consumer loans ≤ ₱10 000 and ≤ 4 months (SEC MC 3-2022)	Max nominal 0.1% per day (≈ 36% p.a.) Max effective 0.2% per day (≈ 73% p.a.)	Max 5% per month of the amount due
Other consumer loans (banks/digital banks & larger FC/LC loans)	No fixed numeric ceiling, but rates must be reasonable; regulators may compel reduction; Civil Code Art. 1229 applies	Same policy on reasonableness; typical bank penalty: 3% per month or ₱200, whichever higher, subject to reduction if unconscionable

Notes on application

Penalties start the day after due date unless the contract grants a grace period.
If both “penalty interest” and “default interest” are charged, double recovery is prohibited; lenders must pick one basis.
Any fee not fully disclosed violates R.A. 3765 and may render the charge void.

4. Calculation Methods Lenders Commonly Use

Percentage of Outstanding Principal (most typical)

Penalty = Principal x Penalty Rate x (days late/30)
Fixed Daily Amount (rare; usually flat ₱50–₱300/day) — vulnerable to Art. 1229 reduction if the amount quickly dwarfs the loan.
Tiered or “Whichever Is Higher” Formulas (e.g., 3% of amount due or ₱200, whichever is higher) — allowed if within caps and not unconscionable.
Stacked Charges prohibited: collection fees, legal fees, or “service fees” layered in addition to capped penalties are generally void unless the borrower actually incurs and agrees to them post-default.

5. Special COVID-Era Rules (Now Lapsed but Sometimes Misapplied)

Law	Relief	Status
R.A. 11469 — Bayanihan 1 (March 2020)	30-day mandatory grace on all loan due dates falling Mar 17–June 30 2020; no additional interest, penalty, or fees during grace	Expired June 2020
R.A. 11494 — Bayanihan 2 (Sept 2020)	One-time 60-day grace for all loans existing as of Sept 15 2020; no compounding of penalties	Expired Dec 2020

A lender that still applies “accrued penalties” for those periods violates law and must reverse the charges.

6. Unfair Collection & Data-Privacy Constraints

SEC MC 19-2019 identifies forbidden practices:
▸ calling or threatening contacts in the borrower’s phonebook; ▸ use of obscenities; ▸ misleading identification; ▸ public shaming via social media or group chats; ▸ threats of violence or criminal prosecution for civil debt.
Violations carry administrative fines up to ₱1 million per offense, permanent revocation, and respectively criminal liability under:
▸ R.A. 10173 (Data Privacy); ▸ RPC Arts. 287, 355 (grave coercion, libel); ▸ R.A. 11765 (consumer-protection offenses).
NPC Enforcement: The National Privacy Commission has repeatedly ordered app-based lenders to “cease and desist” contact-list harvesting and to delete illegally obtained data.

7. Jurisprudence on Penalty Reduction

Case	Key holding on penalties
Spouses Abellas v. CA (G.R. 164268, Jan 25 2012)	5% per month penalty reduced to 12% p.a.; 5% “clearly excessive and unconscionable.”
Ligutan v. CA (G.R. 138677, Nov 12 2000)	3% per month interest reduced to 12% p.a.; court stressed Art. 1229.
Nacar v. Gallery Frames (G.R. 189871, Aug 13 2013)	Judicial interest reset to 6% p.a. post-judgment; guidance often analogized to post-default penalty interest.
Garcia v. Rural Bank of Santo Tomas (G.R. 164813, Jan 22 2014)	Flat penalty of ₱2,000/day struck down; court said amount quickly outstrips loan and is punitive.

The trend: Anything above 36–48 % per annum, or a flat daily fee that accumulates beyond the loan principal, is at high risk of judicial reduction.

8. Borrower Defenses & Remedies

Internal dispute — demand a detailed computation citing the contractual clause and governing circular.
Regulatory complaint
- SEC Enforcement & Investor Protection Dept. (lending companies)
- BSP Consumer Assistance Mechanism (banks, digital banks, e-money)
- NPC (data-privacy breaches)
Civil action — for annulment or reformation of contract, refund of usurious/excess penalties, damages, and attorney’s fees.
Criminal action — only if collectors commit coercion, threats, privacy violations, or libel; non-payment of civil debt is not a crime.

9. Best-Practice Checklist for Lenders

Must-Do	Must-Not-Do
Disclose APR, penalty rate, computation example before disbursement	Exceed statutory caps or hide “service” or “processing” fees post-default
Put the penalty clause in writing with borrower’s signature/e-signature	Impose interest on interest (compounding) unless expressly allowed and within caps
Comply with SEC-MC 19-2019 on collection behavior	Access phone contacts or threaten criminal charges for mere debt
Provide at least one cost-free payment channel	Block the borrower’s phone via malware or lock-screen “ransomware” tactics

10. Practical Tips for Borrowers

Know the dates: mark due dates and statutory holidays; a payment posted on a weekend counts on next banking day but penalties may run (check contract).
Read the disclosures: a one-page Key Facts Statement is required by R.A. 11765 IRR.
Keep proof of payment (screenshot, email, receipt).
Communicate early: lenders may restructure or waive penalties; SEC & BSP encourage proactive workout.
Document harassment: screenshots, call logs and recordings strengthen any future complaint.

11. Looking Ahead

RegTech audits (2024–2025): The SEC is rolling out automated scraping to flag loan-app terms that exceed the 0.1 %-per-day / 5 %-per-month thresholds.
Digital banks: BSP’s 2024 draft amendments tighten caps on micro-installments bundled in e-wallets; final circular expected mid-2025.
Credit-information sharing: Wider pull of Credit Information Corp. data may temper penalty rates as lenders shift to risk-based pricing rather than punitive default fees.

12. Conclusion

Late-payment penalties for online loans in the Philippines sit at the intersection of contract freedom and public-interest ceilings. While parties may agree on penalties, the Civil Code, R.A. 11765, BSP, and SEC collectively ensure those penalties remain transparent, reasonable, and non-abusive. Borrowers who face penalties beyond the caps—or harassment in their collection—have a clear path to regulatory and judicial relief. Staying informed of the latest circulars, reading disclosure statements closely, and promptly asserting one’s rights are the best defenses against excessive late-payment charges in the digital-lending era.