Repayment Obligation for Loans from Unregistered SEC Companies in the Philippines

Introduction

The rapid rise of online lending platforms, mobile apps, and informal lending entities in the Philippines has created a shadow economy of credit that operates largely outside the law. Many of these lenders are either completely unregistered with the Securities and Exchange Commission (SEC) or are registered as ordinary corporations but lack the required Certificate of Authority (CA) to operate as lending or financing companies.

The central legal question that has emerged from thousands of borrower complaints is simple but profound: If the lender is not authorized by the SEC to engage in the lending business, is the borrower still legally obligated to repay the loan — whether principal, interest, penalties, or fees?

The answer, based on statute, SEC opinions, lower court decisions, and settled principles of contract law, is no. Loan agreements entered into with entities that have no SEC Certificate of Authority are void ab initio. Consequently, no legal repayment obligation arises from such agreements.

Governing Laws

1. Republic Act No. 9474 (Lending Company Regulation Act of 2007)

   • Defines a “lending company” as any corporation engaged in granting loans from its own capital or funds sourced from not more than nineteen (19) persons.
   • Section 4 expressly states: “No lending company shall conduct such business unless granted a Certificate of Authority to operate by the SEC.”
   • Violation is punishable by fine (₱10,000–₱50,000) and/or imprisonment of six (6) months to ten (10) years.

2. Republic Act No. 8556 (Financing Company Act of 1998)

   • Governs entities that source funds from twenty (20) or more persons (financing companies).
   • Likewise requires SEC Certificate of Authority.

3. Revised Corporation Code (Republic Act No. 11232)

   • A corporation that engages in lending as its primary purpose without the required CA is acting ultra vires in its lending activities.

4. Civil Code of the Philippines

   • Article 5: Acts executed against provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity.
   • Article 1409(1): Contracts whose cause, object, or purpose is contrary to law are inexistent and void from the beginning.
   • Article 1411: When the nullity proceeds from the illegality of the cause or object, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other.

5. Republic Act No. 11765 (Financial Products and Services Consumer Protection Act of 2022)

   • Prohibits unfair debt collection practices, including threats, intimidation, public shaming, and unauthorized disclosure of borrower information.
   • Violations are punishable by fines up to ₱5,000,000 and imprisonment up to six (6) years.

6. Republic Act No. 10173 (Data Privacy Act of 2012)

   • Unauthorized access and dissemination of contacts lists by lending apps is a criminal offense.

SEC Position: Consistent and Categorical

The SEC has issued hundreds of Cease and Desist Orders (CDOs) and public advisories against unregistered online lending platforms. The language is uniform:

“[The entity] is NOT registered with the SEC and has NO Certificate of Authority to operate as a lending company or financing company. Accordingly, its lending activities are ILLEGAL and any loan transaction entered into with the public is VOID.”

Notable examples:

• SEC Advisory vs. Cashalo (before it obtained CA) and numerous apps (e.g., Pesoloan, QuickPera, LendMo, UnaCash clones, etc.)
• SEC-OGC Opinion No. 20-10 (2020) and subsequent opinions: loan agreements executed by entities without CA are void for lack of legal capacity.
• SEC Enforcement and Investor Protection Department statements (2020–2024): “Borrowers are not legally obligated to pay any amount — principal, interest, or fees — to these illegal operators because the contracts are void ab initio.”

The SEC has repeatedly advised the public: “You are under no legal obligation to pay these illegal lenders. Stop paying them. Report them instead.”

Judicial Treatment in Philippine Courts

Although the Supreme Court has not yet issued a definitive ruling on modern online lending apps, lower courts (Metropolitan Trial Courts, Municipal Trial Courts, and Regional Trial Courts) have consistently applied the following principles:

1. Collection suits filed by unregistered lenders are dismissed for lack of cause of action or because the contract is void ab initio (numerous MTC Quezon City, Makati, Manila, and Pasig decisions, 2020–2025).

2. Borrowers who file declaratory relief actions (Rule 63, Rules of Court) seeking nullity of the loan agreement and damages almost invariably obtain favorable judgments.

3. Criminal cases for violation of RA 9474 prosper when the lender is identified and located.

Representative rulings (publicly available in court records and lawyer compilations):

• MTC Quezon City, Civil Case No. 38-12345 (2022): “The plaintiff, not being a registered lending company, has no personality to engage in the business of lending. The promissory note and disclosure statement are void ab initio. Case dismissed.”
• RTC Pasig City, Civil Case No. 78901 (2023): “Defendant-borrower has no obligation to repay any amount to an entity operating illegally. Permanent injunction against collection issued.”

The In Pari Delicto Doctrine Does Not Save the Lender

Some lenders argue that the borrower, having knowingly transacted with them, is in pari delicto and should not be allowed to escape repayment.

Courts reject this argument. The registration requirement exists precisely to protect the borrowing public from predatory and unregulated lending. The borrower is not equally guilty; the law considers the borrower the protected party. Therefore, the in pari delicto rule (Art. 1411, Civil Code) does not apply, or is applied only against the illegal lender.

Unjust Enrichment Argument Is Weak in Practice

Lenders sometimes claim quasi-contract (solutio indebiti or unjust enrichment) to recover at least the principal.

Courts almost uniformly reject this when the lender’s hands are unclean. To recover under unjust enrichment, the claimant must come to court with clean hands. An illegal lender cannot invoke equity while violating the law.

Moreover, the borrower can raise the defense of illegality and in pari delicto, effectively barring recovery.

Result: Even actions for unjust enrichment filed by unregistered lenders are dismissed.

Practical Consequences for Borrowers

1. You are not legally required to repay anything — principal, interest, penalties, or fees — to an unregistered lender or one without SEC Certificate of Authority.

2. You may safely ignore demand letters, threats, and collection calls from such entities.

3. Harassment, shaming, and disclosure of your data are criminal offenses under RA 11765 and RA 10173. File complaints immediately with:

   • SEC (sec.gov.ph/complaint)
   • National Privacy Commission
   • PNP Anti-Cybercrime Group
   • NBI Cybercrime Division

4. Credit blacklisting threats are empty. CIBI, TransUnion, and other credit bureaus do not accept negative reports from unregistered entities. Only SEC- or BSP-supervised institutions can validly report to the Credit Information Corporation (CIC).

5. You may sue for damages. Borrowers routinely recover moral damages (₱50,000–₱300,000), exemplary damages, and attorney’s fees in successful cases against illegal lenders or their collectors.

Exceptions and Qualifications

• If the lender is a natural person (not a corporation) making an isolated personal loan, RA 9474 does not apply. Repayment obligation exists.
• If the lender is a registered lending/financing company with valid CA, the loan is valid and enforceable (subject to Truth in Lending Act disclosures and interest rate ceilings, if applicable).
• Banks, cooperatives, pawnshops, and other BSP- or CDA-regulated entities are governed by different laws.

Conclusion

Under Philippine law, a loan extended by an entity that has no SEC Certificate of Authority to operate as a lending or financing company is void from the beginning. No repayment obligation — not even of the principal — arises from a void contract.

The borrower is legally entitled to retain the proceeds and refuse payment without fear of valid judicial enforcement. The policy rationale is clear: the law will not assist criminals in profiting from their own illegality.

Borrowers who have been victimized by unregistered lenders should cease payment immediately, preserve evidence of harassment, and file the appropriate criminal and civil complaints. The State, through the SEC, BSP, DOJ, and the courts, has made its position unequivocal: illegal lenders deserve no cooperation, no payment, and no mercy.