Introduction

In the Philippines, the rapid growth of online lending platforms and informal lending entities has given rise to a recurring legal question: Does a borrower remain obligated to repay a loan obtained from a company that is not registered with the Securities and Exchange Commission (SEC) or lacks the required Certificate of Authority to operate as a lending or financing company?

This issue sits at the intersection of corporation law, contract law, consumer protection law, and regulatory compliance. While borrowers often believe that non-registration automatically voids the loan, the legal reality is more nuanced. The contract is generally unenforceable at the instance of the unregistered lender, but the borrower is not automatically relieved of all obligation—particularly with respect to the principal amount received.

Regulatory Framework

Lending as a business in the Philippines is heavily regulated by the SEC.

Republic Act No. 9474 (Lending Company Regulation Act of 2007) and its Implementing Rules and Regulations
- Defines a “lending company” as a corporation engaged in granting loans from its own capital or from funds sourced from not more than nineteen (19) persons.
- Requires registration with the SEC as a corporation and issuance of a Certificate of Authority (CA) to operate as a lending company.
- Minimum paid-up capital is currently P1,000,000.
Republic Act No. 8556 (Financing Company Act of 1998), as amended
- Governs “financing companies” that obtain funds from the public (20 or more lenders) through borrowings, debt instruments, or similar arrangements.
- Also requires SEC registration and a separate Certificate of Authority.
Republic Act No. 8799 (Securities Regulation Code)
- Grants the SEC supervisory and regulatory power over entities that should be registered as lending or financing companies when they perform such functions.

Any corporation whose primary or significant business is lending money must comply with either RA 9474 or RA 8556. Entities that lend money repeatedly and as a business without the required Certificate of Authority are operating illegally.

Consequences of Operating Without SEC Registration or Authority

Violation of RA 9474 or RA 8556 is punishable by:

Fine of not less than P10,000 nor more than P500,000
Imprisonment of six months to ten years, or both
Revocation of certificate of registration (if any) and perpetual disqualification from operating as a lending/financing company

The SEC regularly issues Cease and Desist Orders (CDOs) against unregistered online lending apps and imposes administrative sanctions.

Validity and Enforceability of the Loan Contract

The core issue is whether the loan agreement itself is valid.

SEC Position (SEC-OGC Opinions, particularly 2019–2023 series)
The SEC has consistently opined that loan transactions entered into by entities without the required Certificate of Authority are void for being contrary to law and public policy. The rationale is that the lender lacks legal capacity to engage in the regulated activity of lending as a business.

Judicial Trend in Lower Courts (RTC, MTC, and some CA decisions)
Many trial courts have adopted the SEC position and declared such loan agreements void ab initio. In collection cases filed by unregistered lenders (or their assignees), courts have dismissed the complaints on the ground that the plaintiff is engaged in an illegal business and comes to court with unclean hands.

Supreme Court Pronouncements (Indirect but Relevant)
While the Supreme Court has not issued a definitive ruling squarely on unregistered lending companies post-RA 9474, the following principles from analogous cases apply:

Contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are inexistent and void from the beginning (Article 1409, Civil Code).
When a corporation transacts business it is not authorized to perform, the contracts may be unenforceable (see Georg Grotjahn GMBH & Co. v. Isnani, G.R. No. 109272, 1994).
In usury and illegal lending cases, the Court has repeatedly held that while excessive interest is void, the principal obligation subsists unless the entire contract is tainted with illegality.

Unjust Enrichment Principle
Even if the loan contract is declared void, Article 22 of the Civil Code states: “Every person who through an act or performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.”

Thus, courts may still order the return of the principal amount received to prevent unjust enrichment of the borrower, even if the lender cannot recover interest, penalties, or attorney’s fees.

Practical Effect: Most Borrowers Are Not Successfully Sued for Repayment

Unregistered lenders almost never file formal collection suits because:

Doing so would expose them to criminal prosecution under RA 9474 or RA 8556.
Courts routinely dismiss such suits on the ground of illegality or pari delicto.
The lender would have to admit in court that it is operating illegally.

As a result, unregistered lenders typically resort to extrajudicial collection methods—harassment, shaming, threats, unauthorized access to contacts—which are themselves criminal offenses under Republic Act No. 10175 (Cybercrime Prevention Act), Republic Act No. 9995 (Anti-Photo and Video Voyeurism Act), and Republic Act No. 11765 (Financial Products and Services Consumer Protection Act of 2022).

Interest, Penalties, and Charges

Even if the principal were recoverable, any stipulated interest, service fees, penalties, or notarial fees imposed by unregistered lenders are almost always declared void by courts for being unconscionable or in violation of the Truth in Lending Act (RA 3765).

Effective interest rates of 5–10% per month (60–120% per annum) commonly charged by unregistered online lenders have been struck down as unconscionable in numerous decisions.

Summary of Borrower’s Legal Position

The loan agreement itself is generally considered void or unenforceable due to the lender’s lack of authority.
The unregistered lender has no legal standing to collect through judicial processes.
Interest, penalties, and exorbitant fees are void.
The borrower may still be ordered to return the principal amount received under the principle of unjust enrichment if a case is somehow filed and reaches judgment on that issue.
In practice, unregistered lenders cannot and do not successfully enforce repayment through the courts, giving borrowers a strong defensive position.

Recommended Course of Action for Borrowers

Verify the lender’s registration on the SEC website (list of registered lending and financing companies is publicly available).
If the lender is unregistered, cease payment of interest and penalties immediately.
Offer in writing to return only the principal amount received (this protects against future unjust enrichment claims).
File complaints with the SEC, Bangko Sentral ng Pilipinas (for payment platforms used), National Privacy Commission (for data privacy violations), and the Philippine National Police Anti-Cybercrime Group for harassment.
Consult a lawyer; many PAO and IBP lawyers handle these cases pro bono or at minimal cost.

Conclusion

Loans obtained from entities that are not properly registered with the SEC and do not possess the required Certificate of Authority to operate as lending or financing companies are, as a rule, void and unenforceable. Borrowers have no legal obligation to pay interest, penalties, or any amount beyond the actual principal received—and even the principal is rarely recoverable by the lender in practice due to the illegality of its operations. While the equitable principle of unjust enrichment may theoretically require return of the principal, the practical reality is that unregistered lenders lack the legal means to compel repayment through legitimate channels.

Borrowers dealing with unregistered lenders are therefore in a significantly stronger position than those who borrow from duly authorized institutions. The law, in this instance, tilts decisively in favor of consumer protection against illegal lending operations.