Responding to Demand Letters from Lending Companies in the Philippines

Important: This article provides general information only and is not legal advice. Laws and regulations change, and every case is fact-specific. If you receive a demand letter, consult a Philippine lawyer or the Securities and Exchange Commission (SEC) for tailored guidance.

1. What Is a “Demand Letter” and Why Does It Matter?

Key Point	Practical Meaning
Definition	A formal written notice from a creditor (or its lawyer/collection agent) requiring you to settle an alleged debt within a stated time.
Legal Effects	- Interrupts prescription (Art. 1155, Civil Code)—the clock on the 4-, 6-, or 10-year prescriptive period resets. - Serves as proof that you were asked to pay before the creditor sues.
Usual Content	Amount allegedly owed, interest/penalties, due date, threat of legal action or reporting to credit bureaus, and payment instructions.

Ignoring a legitimate demand letter often hastens litigation, increases costs, and limits bargaining power.

2. Regulatory Landscape for Lending Companies

Law / Rule	What It Covers
Republic Act 9474 (Lending Company Regulation Act)	Licensing, capitalization, and conduct of lending companies. Oversight: SEC.
SEC Memorandum Circular No. 18-2019	Prohibits unfair debt collection practices such as harassment, public shaming, threats of violence, or contacting people in your phonebook without consent. Violations can lead to fines / license revocation.
BSP Circular No. 1160 (2023)	Similar fair collection rules for banks, credit-card issuers, and financing companies supervised by Bangko Sentral ng Pilipinas (BSP).
Data Privacy Act of 2012 (RA 10173)	Protects personal data; abusive disclosures may be actionable before the National Privacy Commission.
Usury & Interest Rules	Monetary Board Circular No. 799 (2013) removed the 12 % ceiling, but courts may reduce “unconscionable” rates (Supreme Court jurisprudence).

3. First Steps When You Receive a Demand Letter

Stay calm and read carefully. Note total amount, computation of interest, due date, and the sender (in-house, outsourced agency, or law office).
Verify authenticity. Compare against your loan contract and SEC records. Check SEC’s Lending Companies and Financing Companies “red flags” lists.
Gather documents. Promissory note, receipts, screenshots of payments, text/email exchanges, proof of harassment if any.
Check the statute of limitations.
- Written loan or promissory note: 10 years
- Open-ended or verbal loan: 6 years (or 4 years for quasi-contracts)
Re-compute the balance. Confirm principal, interest rate, penalty clauses, and whether interest is applied on interest (which courts disfavor).
Identify any abusive collection behavior (threats, humiliation, multiple daily calls). Document it (recordings, screenshots).

4. Legitimate Rights and Protections of Borrowers

Freedom from harassment & public shaming.
- Posting of your debt on social media or group chats is prohibited.
Confidentiality of contact list & photos. Collectors may not access your phonebook without consent (SEC MC 18-2019; NPC Circulars).
Right to dispute the debt and seek validation or accounting.
Right to negotiate for restructuring, condonation of penalties, or reduction of interest.
Remedies against abusive collectors: File a complaint with SEC Enforcement and Investor Protection Dept (EIPD), NPC, or BSP depending on the entity.
No jail for purely civil debt. Non-payment alone is not a crime, though B.P. 22 (bouncing checks) or Estafa may apply if checks or fraudulent misrepresentation were involved.

5. Choosing a Response Strategy

A. Pay in Full

Fastest way to end the matter.
Ensure you receive an official receipt and a release and quitclaim.

B. Negotiate / Restructure

Propose lower interest, waiver of penalties, lump-sum discount, or installment terms.
Put all terms in writing; require countersignature by an authorized officer.

C. Dispute the Amount or Liability

Point out computation errors, usurious rates, expired prescription, or identity theft.
Request written proof within a reasonable time (e.g., 15 days).

D. Assert Legal or Regulatory Defenses

Cite SEC MC 18-2019 violations; threaten to elevate matter to SEC/NPC.
Question legality of interest > 36 % p.a. as “unconscionable” (case-law based).

E. Do Nothing (Not Recommended)

Risk of civil suit (collection or small claims), possible asset attachment, damage to credit score, and heavier settlement later.

6. How to Draft an Effective Reply Letter

Tip: Keep tone professional; avoid admissions you do not intend.

Heading & date. Use your address and the creditor’s.
Reference. State loan account number or contract date.
Acknowledgment. “I acknowledge receipt of your letter dated ….”
Your position. e.g. “I dispute the amount due to incorrect penalty calculations …” or “I am willing to settle under the following terms ….”
Request. Ask for updated statement, notarized authority of collection agent, or SEC registration details.
Timeline. Offer a date for payment/meeting.
Reservation of rights. “This letter is without prejudice to my rights and remedies.”
Signature. Preferably over printed name; attach valid ID if requested.

7. Escalating the Matter

Option	When to Use	How to File
SEC Complaint	Creditor is a lending/financing company; unfair collection or excessive interest.	File affidavit-complaint with evidence at SEC EIPD, PICC, Pasay or regional extension offices.
BSP Consumer Assistance	Bank or credit-card issuer involved.	Email consumeraffairs@bsp.gov.ph or use BSP Online Buddy (BOB) portal.
National Privacy Commission	Unauthorized disclosure of personal data.	Online complaints portal within 15 days of incident.
Small Claims Court	You admit some liability but want judicial settlement ≤ ₱1 million.	File in MTC; no lawyers required.
Regular Civil Action (RTC/MTC)	Disputed amounts > ₱1 million or complex issues.	Creditor usually initiates; you defend or counterclaim.

8. Consequences of Ignoring a Legitimate Demand

Civil Suit for Sum of Money
- May lead to writ of attachment or garnishment of bank accounts, salary, or assets post-judgment.
Damage to Credit Score
- Credit Information Corporation & private bureaus (CIBI, TransUnion) can record defaults up to 10 years.
Higher Settlement Costs
- Litigation expenses, attorney’s fees (up to 10 % of claim or as proven), interest continuing at contractual or legal rate.
Collateral Foreclosure
- Chattel mortgage (car, appliances) or real estate mortgage may be foreclosed extrajudicially after notice and posting requirements.
Possible Criminal Exposure (limited)
- If you issued postdated checks that bounced (B.P. 22) or misrepresented information (Estafa under Art. 315), criminal cases may be filed.

9. Frequently Asked Questions (FAQs)

Question	Short Answer
Can I go to jail simply for not paying a loan?	No. Non-payment of debt is not punishable. Only fraudulent acts or bouncing checks may lead to criminal liability.
The collector keeps calling my employer—legal?	Repeated calls causing embarrassment violate SEC MC 18-2019. Document and complain.
Is shouting interest of 20 % per month enforceable?	Courts often reduce “shockingly unconscionable” rates. You can ask a court to pare it down to 12–24 % p.a.
What if the demand letter gives only 3 days to pay?	No fixed minimum notice period by law, but courts look at reasonableness. You can request extension.
Can I settle for less than the face amount?	Yes, through dacion en pago (asset-for-debt swap) or negotiated discount; ensure written waiver of balance.
Do I need a lawyer to reply?	Not legally required, but professional drafting avoids harmful admissions and frames defenses correctly.

10. Practical Tips & Best Practices

Keep Communications in Writing. Follow up phone discussions with an email recap.
Document Everything. Screenshots, call logs, payment receipts—vital if harassment escalates.
Maintain a Settlement Fund. Show good faith; even partial payment can build goodwill.
Check SEC Advisories. Some entities masquerade as lenders but are unregistered “investment” schemes.
Beware of “Fixers.” Paying third-party “debt negotiators” upfront fees is risky; work directly with creditor or a licensed lawyer.
Consider Credit Counseling. NGOs and some government agencies (e.g., DTI Negosyo Centers for MSMEs) offer free advisories.
Plan Post-Settlement Rehabilitation. Update credit reports, secure certificates of closure, and monitor future credit obligations.

11. Sample Timeline of Events

Day 0         Receive demand letter dated 02 Aug 2025
Day 1–3       Verify lender registration, recompute balance, gather documents
Day 4–5       Draft & send reply requesting computation and proposing restructure
Day 6–15      Negotiate; creditor counters proposal
Day 16–30     Sign restructuring agreement; make initial installment
Month 2–12    Complete payments; secure release of obligation

12. Conclusion

Demand letters are not court judgments, but they are legal wake-up calls. A calm, informed, and documented response usually prevents costlier litigation and shields you from abusive tactics. Understand your rights under Philippine law, evaluate the debt’s validity, negotiate firmly yet respectfully, and seek regulatory or judicial relief when necessary. By acting methodically—and, where appropriate, with professional legal counsel—you can resolve the matter on the most favorable terms possible.