Unlicensed Loan Apps & Excessive Charges in the Philippines: A Comprehensive Legal Primer (as of June 2025)
1. What Counts as an “Unlicensed” Loan App?
| Test | Key Philippine Requirement | Consequence if Violated |
|---|---|---|
| Corporate Test | Must be a stock corporation registered with the Securities and Exchange Commission (SEC) and carry the purpose “lending” or “financing” in its Articles of Incorporation (― Lending Company Regulation Act • RA 9474; Financing Company Act • RA 8556). | SEC may deny or revoke registration; contracts may be deemed void for illegality. |
| Secondary License Test | Must secure a secondary Certificate of Authority (CA) from the SEC before starting operations (RA 9474 §4; RA 8556 §6). | Operating without a CA: ₱10 000–₱50 000 fine and/or 6 months – 10 years jail (RA 9474 §12). |
| Platform Test | If loans are offered through a website or mobile app, the platform itself must be registered as an Online Lending Platform (OLP) and disclosed to the SEC (SEC Memo Circ. 18-2019). | SEC may issue a cease-and-desist order (CDO), revoke the CA, request platform delisting from Google/Apple, and file criminal charges. |
Practical flag: Any app that asks for your ID, selfies, or phone-book access but cannot show its SEC Company Registration & CA number, or whose name does not appear on the SEC’s public “List of Registered Lending/Financing Companies and OLPs,” is prima facie unlicensed.
2. Are Their Loan Contracts Enforceable?
Illegality of Purpose – Contracts with an entity engaged in a business prohibited by law are void (Civil Code Art. 1409(1)).
Unjust Interest – Even if the borrower already received the money, Philippine courts routinely refuse to enforce usurious or unconscionable rates, relying on:
- Medel v. Court of Appeals (G.R. 131622, 29 Sept 1999) – 5.5 % per month interest reduced to 12 % per annum as the original rate was “shockingly unconscionable.”
- Spouses Abella v. Abella (G.R. 180226, 28 Aug 2013) – 6 % monthly and 5 % monthly penalty both struck down; courts may equitably reduce interest sua sponte.
- Security Bank v. Spouses Bernabe (G.R. 171464, 11 Jan 2016) – reiterates that Circular 905 (1982) suspended the Usury Law ceilings but did not license predators; “the unconscionability test survives.”
Void Penalty Clauses – Penalties exceeding 1 % per month are typically cut to “equitable” amounts (Civil Code Art. 1229).
Bottom line: An unlicensed lender may sue, but Philippine courts often nullify or severely reduce the interest, penalties, and even the principal if the evidence of disbursement is unreliable.
3. Statutory Caps on Interest & Charges (2020-2025 Snapshot)
| Instrument | Coverage | Ceiling (Nominal) | Penalty Ceiling | Took Effect |
|---|---|---|---|---|
| SEC Memo Circ. 3-2022 | Unsecured consumer & “payday” loans ≤ ₱10 000, tenor ≤ 4 months, granted by lending/financing companies & OLPs | 4 % per month (≈ 0.133 % per day) on outstanding principal | 0.5 % per day on unpaid amount | 24 Mar 2022 |
| BSP Circular 1098 (Credit Cards) | All credit-card issuers | 2 % per month (24 % p.a.) finance charge | ₱1 000 cap per late-payment fee | 03 Nov 2020 |
| BSP-SEC Joint Guidelines on Small-Value Digital Loans (draft 2024, expected 2025) | Micro-loans ≤ ₱2 000, tenor ≤ 45 days | Framework proposes nominal 0.8 % per day effective interest cap incl. all fees | TBD | Pending |
Unlicensed apps, by definition, fail to comply. Borrowers can cite these caps when disputing charges.
4. Collection Tactics: When Does It Cross the Line?
| Prohibited Act | Legal Basis | Penalty / Action |
|---|---|---|
| Broadcasting borrower’s debt on social media, group chats, or SMS “shaming” | Data Privacy Act RA 10173 §§11-13; NPC Circular 20-01 (Guidelines on Processing Personal Data for Loan Collection) | Possible ₱500 000 – 5 M fine + 1-3 years imprisonment; NPC may issue Cease-Processing Order |
| Contacting contacts found in phone directory without consent | SEC Memo Circ. 18-2019 § Unfair Collection | SEC CDO; NPC complaint |
| Threats, insults, use of profane language | Financial Consumer Protection Act (FCPA) RA 11765 §§4-6 | SEC/BSP/DTI may impose monetary penalties, suspend operations |
| False police-blotter threats, fake “warrants” | Revised Penal Code – Grave threats (Art. 282), Estafa (Art. 315) | Criminal liability |
Borrowers should:
- Collect evidence (screenshots, call logs).
- Complain simultaneously to SEC (Enforcement & Investor Protection Dept), NPC, and if threats are violent, the PNP/NTC.
5. Civil & Criminal Liability of Operators
| Violation | Primary Statute | Range of Penalties |
|---|---|---|
| Operating without CA | RA 9474 §12; RA 8556 §13 | ₱10 000 – ₱50 000 and/or 6 months – 10 years imprisonment |
| False statements in SEC filings | RA 8799 (Securities Regulation Code) §54 | ₱50 000 – ₱5 M fine and/or 7-21 years imprisonment |
| Privacy breaches | RA 10173 §25-32 | ₱500 000 – ₱5 M fine, up to 6 years imprisonment |
| Financial consumer abuse | RA 11765 §§11-13 | up to ₱2 M per transaction or greater of 0.1 % of total outstanding loans; plus administrative suspension |
| Syndicated estafa (≥ ₱10 M or 5+ offenders) | PD 1689 | Life imprisonment to death (reclusion perpetua — penalty recalibrated after RA 9346) |
6. Borrower Remedies & Practical Steps
- File SEC Complaint – Free, online; may request investigative subpoena; SEC can freeze bank/e-wallet accounts.
- Data Privacy Complaint – National Privacy Commission’s portal; success rate high where contact list harvesting is shown.
- Small Claims Suit (≤ ₱400 000) – Revised Rules on Small Claims (A.M. 08-8-7-SC, 2022 rev.); no lawyer required; ask court to declare interest void.
- Annulment of Contract / Consignation – Regional Trial Court if amount, facts complex.
- Criminal Complaint – City/Prov’l Prosecutor’s Office for grave threats, estafa.
Tip: When sued, raise illegality and unconscionability as affirmative defenses and present SEC certification that the lender is not licensed. Courts have dismissed complaints outright on this ground.
7. Policy Trends to Watch (2025 - 2026)
Congressional Bills seek to:
- mandate real-time API verification of lender licenses by Google Play/App Store;
- introduce a central interest-rate benchmark updated quarterly;
- empower the NTC to block SMS blast numbers used for harassment.
BSP “Project Agila” aims to link digital-loan data to the national Credit Information Corporation (CIC), improving transparency and limiting serial defaults.
Digital Collection Code of Conduct – SEC draft (Feb 2025) proposes graduated sanctions for first, second, third offenses, culminating in perpetual industry disqualification for erring directors/officers.
8. Key Take-Aways
- License first – Offering credit without an SEC Certificate of Authority automatically triggers criminal liability.
- Interest caps now exist – 4 %/month for small OLP loans; courts still police “shocking” rates beyond any cap.
- Unfair collection = liability – Privacy, consumer-protection, and criminal statutes create multiple enforcement vectors.
- Borrowers have tools – SEC, NPC, FCPA, and the judiciary routinely provide relief; contracts with illegal lenders are not a lost cause.
- Regulation is tightening – Expect more API-driven gate-keeping and steeper deterrent penalties by 2026.
Prepared 24 June 2025. This article summarizes prevailing Philippine statutes, regulations, and jurisprudence but does not constitute legal advice. For specific cases, consult counsel or the relevant regulatory agency.