1) Why this matters in online lending apps

Online lending apps (often short-term, small-amount loans) commonly charge a mix of:

Interest (stated as daily/weekly/monthly)
“Service,” “processing,” “platform,” “convenience,” “subscription,” or “handling” fees
Penalties for late payment (often per day)
Collection charges and sometimes attorney’s fees

Even when an app advertises a “low interest rate,” the total cost of credit can be extreme once fees and penalties are added—especially when deductions are taken upfront (e.g., you “borrow” ₱10,000 but receive ₱7,500 because fees are withheld).

Philippine law allows freedom to set interest rates in many private loans, but courts can strike down or reduce charges that are unconscionable/iniquitous, contrary to morals, good customs, public order, or public policy, and can also refuse to enforce abusive penalty structures.

2) Key concepts and vocabulary

a) “Unconscionable” or “iniquitous” interest

In Philippine jurisprudence, interest is treated as unconscionable when it is excessive and shocking to the conscience, or when it takes undue advantage of the borrower’s necessity and weaker bargaining position.

Important reality: there is no single statutory “cap” that automatically applies to all private loans today. Instead, the judge examines the facts and may reduce the interest to something reasonable, often anchored to legal/prevailing norms.

b) Interest vs. fees vs. penalties (and why labels don’t save a lender)

Interest: the price of using money over time.
Fees: charges for processing or “services.”
Penalties / liquidated damages: amounts imposed for breach (late payment/default).

Courts and regulators look at substance over form. A “processing fee” that functions like a hidden interest charge (especially if repeated, inflated, or deducted upfront) may be treated as part of the finance charge or as an oppressive term.

c) Add-on interest and upfront deductions

Online lenders sometimes compute interest on the original principal for the entire term (“add-on”), even if the borrower repays early or receives less due to upfront fees. This can inflate the effective interest rate dramatically.

d) Contracts of adhesion and unequal bargaining power

Most app loans are standard-form clickwrap contracts: take-it-or-leave-it. This is classic contract of adhesion territory, which courts scrutinize more closely for unfair terms.

3) The legal framework you can use

A. Civil Code principles that control excessive charges

Freedom of contract has limits Parties may stipulate terms, provided they are not contrary to law, morals, good customs, public order, or public policy (Civil Code principle on contractual stipulations). Unconscionable interest can be treated as against public policy.
Interest must be expressly stipulated in writing Under the Civil Code (commonly invoked in loan cases), interest is not due unless expressly agreed upon in writing.

If an app cannot prove a clear written stipulation of interest (including how computed), the lender may be limited to recovering principal (and possibly legal interest only in certain circumstances like delay once judicially demanded, depending on the case posture).

Courts may reduce penalties and liquidated damages Civil Code provisions on penal clauses/liquidated damages allow reduction when they are iniquitous or unconscionable. This is especially relevant to:

“Late fees” per day
Compounded penalties
Flat penalties that dwarf the principal

Equitable reduction of unconscionable interest (jurisprudence) The Supreme Court has repeatedly held that even without a statutory cap, courts may equitably reduce interest rates that are unconscionable. Practical takeaway: even if you clicked “I agree,” the interest/penalty may still be cut down.

B. Truth in Lending Act (RA 3765) and disclosure rules

Philippine consumer credit law centers on disclosure: borrowers must be informed of the true cost of credit (finance charges, effective rate, etc.). Online lenders should present, clearly and prior to consummation:

Principal
Interest rate and how computed
Fees and charges
Total amount payable and schedule
Penalties and default charges

A common attack point is misleading or incomplete disclosure, such as:

Advertising a low “monthly interest” but burying huge fees
Not showing the effective annual rate / total finance charge clearly before acceptance
Changing terms after acceptance

C. SEC regulation of lending and financing companies (and online lending platforms)

Many online lenders are either:

Lending companies (regulated by the SEC), or
Financing companies (also SEC-regulated), or
Entities operating illegally without proper authority

The SEC has issued rules and enforcement actions directed at online lending platforms, including requirements on registration/disclosure and prohibitions against abusive collection. From a borrower’s perspective, this matters because it provides a regulatory complaint route that does not require filing a full civil case immediately.

D. Data Privacy Act (RA 10173) and abusive collection tactics

Online lending apps have been notorious for:

Accessing contacts/photos
Messaging employers/friends
Public shaming
Threats and harassment

Even if a borrower owes money, collection methods must still comply with law. Potential legal hooks include:

Data Privacy Act: processing personal data must be lawful, proportionate, and limited to declared purposes; “consent” in a bundled click-through is not a free pass for excessive or irrelevant processing.
Civil damages for harassment/defamation-type conduct (depending on facts)
Possible criminal exposure for threats, coercion, unjust vexation, libel, identity-related offenses, or cybercrime-related angles—case-specific.

E. E-Commerce Act (RA 8792) and electronic consent

Electronic contracts and signatures can be valid. But lenders must still prove:

The borrower knowingly consented to the terms
The terms were presented clearly
Records are reliable (audit trails, timestamps, logs)

If an app’s UI design obscured key terms (dark patterns, prechecked consent, buried fees), that supports unconscionability and disclosure arguments.

4) How courts assess “unconscionable” in practice

There is no one-size threshold. Courts typically look at:

Total cost of credit (interest + fees + penalties), not just the nominal rate
Term length (short-term loans with very high daily rates can explode)
Borrower’s situation (necessity, lack of alternatives, unequal bargaining)
Transparency (were charges clearly disclosed pre-acceptance?)
Industry norms (reasonableness compared with prevailing legal/market standards)
Penalty stacking/compounding (double-charging for the same breach)

In many decided cases (not limited to apps), the Supreme Court reduced outrageous rates and penalty schemes and substituted a more reasonable interest rate.

5) Building a challenge: the borrower’s “theory of the case”

You generally challenge excessive charges through one (or several) of these theories:

Theory 1: No valid written stipulation of interest / unclear consent

Use when:

The app cannot produce the full terms you accepted
The interest computation is ambiguous
The “rate” is shown but the effective charges are hidden in fees

Possible result:

Interest disallowed (or greatly reduced), principal enforced.

Theory 2: Unconscionable interest (equitable reduction)

Use when:

The stated and effective rates are shocking/excessive
Fees are used to disguise interest
Borrower had no real bargaining power

Possible result:

Interest reduced to a reasonable level; overpayments may be credited/refunded depending on posture and proof.

Theory 3: Unconscionable penalties / liquidated damages

Use when:

Late penalties are extreme, compounding, or exceed what is fair
Default charges double-count

Possible result:

Penalties reduced substantially or struck out.

Theory 4: Truth in Lending / defective disclosure

Use when:

The app’s pre-loan disclosures did not clearly show finance charges, total payable, effective rate
Advertising was misleading

Possible result:

Administrative liability and leverage for settlement; may support civil claims depending on circumstances.

Theory 5: Illegal or abusive collection + privacy violations

Use when:

Harassment, doxxing, contacting third parties, shame campaigns
Access to contacts/media beyond necessity

Possible result:

Complaints with the National Privacy Commission; possible damages and criminal complaints where appropriate; strong settlement leverage.

6) Practical step-by-step: how to challenge excessive loan charges

Step 1: Secure and organize evidence immediately

Save and export everything:

Screenshots of loan offer screens (principal, fees, schedule, penalties)
The full Terms & Conditions, privacy policy, and any “promissory note”
Proof of “net proceeds” received vs. face amount (bank/e-wallet records)
Payment receipts and ledger/history in the app
Collection messages, call logs, emails, SMS, chat screenshots
Any threats or messages to third parties
App permission prompts (contacts, files, photos) and what you granted
Identity of the lender: company name, SEC registration claims, certificates shown in-app

Build a simple timeline:

Date accepted → amount promised → amount received → due dates → payments → collection events.

Step 2: Compute the effective cost (this is often the most persuasive)

Do at least two computations:

(A) Net proceeds vs. total repayable

Face principal: ₱10,000
Upfront deducted fees: ₱2,500
Net received: ₱7,500
Total payable in 30 days: ₱12,000 Your effective cost is ₱4,500 to use ₱7,500 for 30 days—already a red flag.

(B) Effective monthly/annualized rate (illustrative) Courts/regulators may not require a formal APR calculation, but showing the true burden helps demonstrate unconscionability.

Step 3: Send a written dispute / demand for accounting (calm, factual)

Ask for:

A complete statement of account
Itemized fees and legal basis
A copy of the exact contract/version you agreed to
How interest is computed (daily? add-on? compounding?)
Removal/reduction of unconscionable charges
Cessation of third-party contact and harassment

Keep it professional. Do not admit amounts you dispute as “due”; instead use “alleged balance.”

Step 4: Use regulatory complaint channels (especially for online lenders)

Depending on the entity and conduct:

SEC: for lending/financing companies and online lending platforms (registration, licensing, unfair collection, deceptive practices)
National Privacy Commission: for contact-harvesting, disclosure to third parties, unlawful processing, shaming
PNP/Prosecutor’s Office: for threats/harassment-type offenses when facts fit
Local courts: for civil actions/defenses (see below)

Regulatory complaints can be powerful because they:

Create immediate pressure
Build an official record
Do not require proving everything to the level of a full trial just to start

Step 5: If sued (or if you need to sue): court strategies

If the lender files a collection case against you

Common borrower moves:

Raise unconscionable interest and penalties as affirmative defenses
Challenge the validity of interest stipulations (lack of clear written agreement, defective disclosure)
Demand strict proof of the contract, disbursement, computation, and authority to operate
Counterclaim if there was abusive collection or privacy violations (when supported by evidence)

Possible outcomes:

Court orders payment of principal with reduced interest/penalties
Court strikes penalties and trims fees
Settlement on improved terms

If you file first (borrower as plaintiff)

Possible actions (case-specific):

Declaration of nullity of unconscionable interest/penalty clauses (partial nullity)
Reformation if terms do not reflect true agreement or were obscured
Injunction to stop unlawful collection harassment (requires strong showing)
Damages for unlawful acts (privacy/harassment/defamation-type conduct)
Accounting and restitution/crediting of overpayments

Courts often preserve the loan principal (to prevent unjust enrichment) but correct oppressive charges.

7) Typical “red flags” that strengthen an unconscionability challenge

Daily interest with short term that effectively snowballs
Net proceeds materially lower than the “principal” due to upfront fees
Penalties charged on top of already inflated fees and interest (stacking)
Compounding penalties (penalty on penalty)
Flat “collection fee” automatically added upon delay
Non-transparent schedules; unclear computation
Terms only accessible after acceptance; key terms buried
Aggressive collection to third parties; threats; shaming
Overbroad app permissions unrelated to loan servicing

8) What outcomes are realistically achievable

In court (common outcomes)

Interest rate reduced (sometimes drastically)
Penalties reduced or removed
Fees reclassified as part of finance charge and trimmed
Payments re-applied first to principal (depending on ruling/terms)
Damages in egregious unlawful collection/privacy cases (fact-dependent)

In regulatory proceedings / settlement

Restructured payment plans
Waiver of penalties and some fees
Written undertaking to stop third-party harassment
Possible suspension/revocation actions by regulators against noncompliant operators (regulator-driven)

9) Drafting points: what to allege and what to prove

To persuade a regulator or judge, focus on proof and math.

Evidence checklist (high value)

Net proceeds proof (e-wallet/bank credit) vs. stated principal
Full disclosure screenshots before acceptance
The contract version + audit trail of assent
Itemized computation of alleged balance (force them to show it)
Collection harassment artifacts (screenshots + dates + recipients)
Proof of third-party contact and reputational harm (messages to relatives/employer)

Allegations that track Philippine legal standards

Charges are contrary to public policy and iniquitous/unconscionable
Lack of clear written stipulation or defective disclosure
Penalties are punitive rather than compensatory and should be reduced
Data processing and disclosures were unlawful/excessive and used as coercion

10) Special issues unique to online lending apps

A. “Consent” to contacts and third-party messaging

Apps often claim you “consented” in a privacy policy. The legal vulnerability is that:

Consent must be meaningful, specific, and not coerced by necessity
Processing must be proportionate and purpose-limited
Public shaming/third-party disclosure is difficult to justify as “necessary” to collect

B. Identity and authority to operate

Some operators use brand names that obscure the real entity. Require:

Legal company name
SEC registration/licensing details
Physical address and responsible officers

A lender’s inability to prove authority and proper documentation undermines enforceability and strengthens regulatory complaints.

C. Assignment to collection agencies

Even if assigned, assignees generally acquire no better right than the assignor and remain constrained by privacy and lawful collection norms. Demand proof of assignment and computation.

11) Sample structure for a borrower’s written dispute (outline)

Identify loan (date, reference number, amount stated, net proceeds received)
Request full itemized accounting and contract copy/version
Dispute unconscionable interest/fees/penalties; cite lack of clear disclosure or oppressive terms
State willingness to settle the principal and reasonable charges subject to lawful computation
Demand cessation of third-party contact/harassment; preserve all communications as evidence
Put them on notice of intended complaints (SEC/NPC) if unlawful conduct continues

(Keep it short; attach computations and screenshots as annexes.)

12) Bottom line legal thesis

In the Philippines, even without a universal statutory interest ceiling for many private loans, online lending app charges can be challenged when the total finance burden is unconscionable or the penalty scheme is iniquitous, when interest was not validly stipulated and clearly disclosed, and when collection practices violate privacy and other laws. The most effective challenges are evidence-driven: prove the net proceeds, compute the effective cost, document disclosure defects, and preserve harassment/privacy violations, then use the combined leverage of regulatory complaints and civil defenses/claims to force lawful recalculation and stop abusive conduct.