In the Philippines, the rise of Financial Technology (FinTech) and Online Lending Applications (OLAs) has increased financial inclusion but has also led to a surge in predatory lending practices. Borrowers often find themselves trapped in a cycle of debt characterized by unconscionable interest rates and "debt-shaming" tactics. Philippine law and regulatory bodies provide specific protections to shield borrowers from these abuses.
1. Protection Against Excessive Interest Rates
While the Central Bank (Bangko Sentral ng Pilipinas) suspended the Usury Law years ago—effectively removing a fixed legal ceiling on interest—this does not give lenders a "blank check" to charge any rate they desire.
The Doctrine of Unconscionable Interest
The Philippine Supreme Court has consistently ruled that interest rates that are "iniquitous, unconscionable, exorbitant, and contrary to morals" are void. Even if a borrower voluntarily signs a contract agreeing to a high rate, the judiciary has the power to reduce it.
- Standard Benchmarks: Generally, courts have flagged interest rates of 3% per month (36% per annum) or higher as potentially unconscionable, depending on the circumstances. Rates reaching 6% to 10% per month are almost always struck down.
- Legal Consequence: When a court declares an interest rate void for being unconscionable, the rate is typically reduced to the prevailing legal rate (currently 6% per annum), and any excess payments already made are credited against the principal.
SEC Ceiling for Small Loans
Under SEC Memorandum Circular No. 3 (Series of 2022), specific caps are imposed on financing and lending companies offering small-value, short-term loans:
- Nominal Interest Rate: Capped at 6% per month (approx. 0.2% per day).
- Effective Interest Rate (EIR): Capped at 15% per month (includes all fees like processing, service, and insurance fees).
- Penalties: Capped at 1% per month for outstanding amounts.
2. Protection Against Online Harassment and Debt-Shaming
Online lending apps frequently employ "shaming" tactics to compel payment. These actions are not only unethical but are strictly prohibited under Philippine law.
Prohibited Collection Practices
Under SEC Memorandum Circular No. 18 (Series of 2019), lenders are forbidden from:
- Using threat of symbols, violence, or other criminal means to harm the person, reputation, or property of any person.
- Using profanity or abusive language.
- Disclosure of Information: Contacting persons in the borrower’s contact list without consent, or posting the borrower’s debt on social media (debt-shaming).
- Deceptive Representation: Falsely claiming to be lawyers, police officers, or representatives of government agencies to intimidate the borrower.
- Contacting borrowers at unreasonable hours (typically between 10:00 PM and 6:00 AM), unless agreed upon.
Data Privacy Violations
Most OLAs require access to a phone’s contacts, gallery, and location. Use of this data to harass the borrower or their contacts violates the Data Privacy Act of 2012 (RA 10173).
- The National Privacy Commission (NPC) has penalized numerous lending apps for "re-purposing" contact lists to send blast messages to a borrower’s friends and family, a move that violates the principle of proportionality and legitimate purpose.
3. Cyberlibel and Unjust Vexation
Borrowers are protected by the Revised Penal Code and the Cybercrime Prevention Act of 2012 (RA 10175).
- Cyberlibel: If a lender posts defamatory comments about a borrower online (e.g., calling them a "thief" or "scammer" on Facebook), they can be charged with Cyberlibel.
- Unjust Vexation: Constant, annoying, and distressing texts or calls may constitute Unjust Vexation.
4. Summary of Legal Remedies
If a borrower’s rights are violated, they have the following avenues for redress:
| Agency | Type of Violation |
|---|---|
| Securities and Exchange Commission (SEC) | Violations of the Lending Company Regulation Act, excessive rates, and harassment by OLAs. |
| National Privacy Commission (NPC) | Unauthorized access to contacts/media, debt-shaming, and data breaches. |
| Bangko Sentral ng Pilipinas (BSP) | If the lender is a traditional bank or a BSP-supervised financial institution. |
| Philippine National Police (PNP) Anti-Cybercrime Group | For criminal acts like online threats, extortion, and cyberlibel. |
The Truth in Lending Act (RA 3765)
Borrowers have the right to full disclosure. Before a loan is consummated, the lender must provide a Disclosure Statement showing the cash price, down payment, all fees, and the finance charge expressed as an annual percentage rate. Failure to provide this statement is a violation of the law and can result in the forfeiture of the lender's right to collect finance charges.