Is it legal to require a deposit before releasing a loan?

Legal note

This is a general legal article for Philippine context and public information. It is not a substitute for advice from your lawyer for your specific facts.

1) The core issue: “Pay first before we release your loan”

A very common loan scam pattern in the Philippines goes like this:

You see an ad (Facebook, TikTok, SMS, Viber/Telegram, “agent” pages, loan groups) promising fast approval, no collateral, low interest, same-day release, even for those with bad credit.
You submit personal information and IDs.
You are told you are “approved,” but before release you must pay one or more “requirements,” such as:
- processing fee
- deposit / security deposit
- verification fee
- insurance
- membership fee
- BIR / DST fee
- ATM activation
- notarial fee
- release fee
The payment is requested via GCash/Maya, remittance, or transfer to a personal bank account.
After you pay, more fees appear—or you are blocked.

That is the “upfront fee” scheme. The legal question people ask is: Is it legal for a lender to require a deposit/fee before releasing the loan?

The legally accurate answer is:

It can be lawful for a legitimate lender to charge certain fees connected to a loan—but “pay first to my personal account before you get anything” is a hallmark of fraud, illegal lending activity, or abusive practice, and may expose the perpetrators to civil, administrative, and criminal liability.

2) What Philippine law says about loans and “release”

2.1 A loan (mutuum) is generally a real contract

Under the Civil Code, a simple loan (mutuum) is traditionally treated as a real contract—meaning the loan is not “perfected” until the money is actually delivered to the borrower. However, an accepted promise to lend can be binding, even if the actual loan is not yet delivered (the promise and the loan itself are legally distinct).

Why it matters: Scammers exploit the gap between:

a promise (“approved ka na”) and
the actual release (delivery of funds), to justify collecting money first while never intending to release any loan.

2.2 Fees can exist, but must be legitimate, lawful, and properly disclosed

Even legitimate lenders (banks, financing companies, lending companies) may impose fees, but these are typically:

disclosed upfront in writing (or digital disclosures you can keep),
reasonable, tied to real costs,
payable to the institution or an authorized billing channel, and
often deducted from proceeds at release rather than demanded as a “deposit” to a random account.

3) Philippine regulatory context: who is allowed to lend?

Different regulators apply depending on who is lending:

3.1 Banks and BSP-supervised financial institutions

Banks and many financial institutions are under the Bangko Sentral ng Pilipinas (BSP). They are subject to consumer protection standards, disclosure rules, and supervisory action.

3.2 Lending companies and financing companies (SEC-regulated)

Entities primarily engaged in lending (as a business) or financing are generally under the Securities and Exchange Commission (SEC) and relevant special laws (e.g., laws governing lending companies and financing companies).

Key idea: If someone is “in the business of lending” without the proper registration/authority, that can be illegal and can carry penalties.

3.3 Online lending and “loan apps”

In recent years, regulators have focused heavily on online lending, debt collection abuses, and deceptive practices. A “loan app” can be legitimate, but many scammers impersonate real companies or invent fake ones.

4) So is an “upfront processing fee” legal?

4.1 The principle: charging a fee is not automatically illegal

A lender may lawfully charge fees if:

the lender is legitimate/authorized,
the fee is for a real, lawful purpose (e.g., appraisal by a third party, documentary costs, credit investigation),
it is fully disclosed (amount, purpose, when payable, refundable/non-refundable),
it is not unconscionable or deceptive, and
it does not violate consumer protection standards against unfair or abusive practices.

4.2 But requiring a “deposit before release” is legally risky and often fraudulent in practice

In scams, the “deposit” is usually:

not tied to a real third-party cost,
not supported by an official disclosure statement,
not receipted properly,
sent to personal accounts/e-wallets,
escalated repeatedly (“additional verification fee”),
paired with threats/shaming if you refuse.

That pattern strongly supports findings of:

fraud/deceit, and potentially
estafa (swindling) under the Revised Penal Code, and/or
violations of special laws and regulations if they are operating as an unregistered lending entity.

5) When an upfront payment can be legitimate (and how it normally looks)

Here are examples that can occur in legitimate lending—but the details matter:

5.1 Appraisal or inspection fees (common in secured loans)

For housing or car loans, a lender might charge an appraisal/inspection fee. Legit versions usually have:

a schedule of fees,
official billing/receipt,
payment to the institution or accredited partner,
clear documentation.

5.2 Notarial/documentary costs

Real loan documents may require notarization. Legit versions usually:

happen alongside actual documentation,
have proper invoices/receipts,
are not demanded as a mysterious “release requirement.”

5.3 Documentary Stamp Tax (DST)

Loans may involve DST under tax rules on certain instruments. Legit practice commonly:

deducts DST from proceeds or charges it transparently,
is documented in the disclosure/loan docs,
does not involve repeated “DST top-ups.”

5.4 Compensating balance / hold-out deposits (typically banks; more formal)

Some banking products may require maintaining a deposit balance (or a hold-out) as part of credit arrangements. Legit versions:

are in the borrower’s own bank account,
documented in bank forms/terms,
not sent to an agent’s personal wallet.

Bottom line: Legitimate “pay-before-release” scenarios exist, but they look formal, documented, receipted, and institution-centered—not agent-centered and improvisational.

6) The Truth in Lending and consumer protection angle

6.1 Disclosure is a legal and practical dividing line

Philippine policy strongly favors meaningful disclosure of the true cost of credit (finance charges, effective interest, fees). A lender that refuses to give you:

written disclosures,
a loan disclosure statement you can save,
a clear computation of charges,
official receipts and company identifiers,

is waving a major red flag.

6.2 Unfair, deceptive, and abusive conduct

Modern Philippine financial consumer protection policy (including laws strengthening consumer protection in financial products/services) targets practices like:

misrepresenting approval,
hiding real costs until the last moment,
conditioning release on arbitrary payments,
refusing refunds for “fees” that produced no service,
bait-and-switch terms.

Even if a company exists, deceptive “approved” claims paired with surprise deposits can still be actionable.

7) Criminal liability: what crimes can apply to upfront-fee loan scams?

Depending on facts, common criminal angles include:

7.1 Estafa (swindling) under the Revised Penal Code

If the scam involves deceit (false approval, fake company, false promises) that causes you to part with money, that can fit estafa theories—especially when the “fee” is taken with no real intention to grant a loan.

7.2 Cybercrime implications (if done online)

If committed using ICT (online messaging, apps, social media), the conduct may have cybercrime-related consequences that affect jurisdiction, evidence, and penalties.

7.3 Identity/document misuse and other offenses

Scammers often collect IDs/selfies and use them for:

account opening,
further scams,
loan harassment schemes,
SIM registration abuses.

Other offenses may apply depending on how your identity is used.

8) Administrative liability: regulators can act even without a criminal case

Even when criminal prosecution is slow, regulators can:

investigate,
issue cease-and-desist measures,
penalize licensed entities,
sanction unfair collection or deceptive marketing,
pursue unregistered operators.

If the “lender” is pretending to be SEC-registered/BSP-supervised, that misrepresentation is itself important evidence.

9) The practical test: “Legit fee” vs “scam fee”

Use this checklist.

9.1 Signs it may be legitimate

You can verify the entity as a real institution (not just a page).
You receive a written disclosure of all fees and total cost of credit.
There are official receipts issued under the institution’s name.
Payments go to official channels (company accounts, official payment gateways).
The process includes normal underwriting steps (not just instant “approved”).

9.2 Signs it’s likely a scam (or illegal/unfair)

“Approved ka na” with minimal checks; urgency tactics.
“Deposit first” to an agent’s personal bank/e-wallet.
No official disclosure statement, or they won’t send docs unless you pay.
Fees keep changing: “one last fee” multiple times.
They won’t allow you to visit an office or verify corporate details.
They pressure you to borrow more to cover fees.
They ask for excessive personal data early (video selfies, contacts list, OTPs).
They threaten you, shame you, or claim you’ll be sued immediately if you don’t pay the “deposit.”

Rule of thumb: If the money must leave you before you receive any verifiable loan documentation and release schedule, and it goes to a personal account, treat it as presumptively fraudulent.

10) If you already paid: what to do next (Philippine steps)

10.1 Preserve evidence immediately

Screenshots of chats, posts, ads, pages, profiles.
Transaction receipts, reference numbers, bank details.
Names/aliases, numbers, emails, URLs.
Any “loan contract” files sent.

10.2 Report to the right places

Depending on who is involved:

Your e-wallet/bank: report the fraudulent transaction and request account tracing/flagging (results vary, but do it fast).
Law enforcement cyber units: if the transaction and deception happened online.
SEC: if they claim to be a lending/financing company or are operating as one.
BSP consumer assistance: if a BSP-supervised institution or its agent is implicated (or if they’re impersonating one).

10.3 Consider filing a criminal complaint

If the elements fit (deceit + damage), you can consider:

filing a complaint for estafa and related offenses,
attaching transaction proof and communications.

10.4 Protect your identity

If you submitted IDs/selfies:

monitor accounts for suspicious activity,
tighten privacy settings,
consider steps to secure SIM/e-wallet accounts,
be alert for impersonation or harassment.

11) If you’re a legitimate lender/agent: compliance guidance to avoid looking like a scam

If you work in legitimate lending, the safest compliance posture is:

never collect “release deposits” to personal accounts,
provide complete written disclosures early,
issue official receipts,
document the basis and refundability of any pre-release fee,
ensure advertising does not imply guaranteed approval,
maintain auditable records and clear complaint-handling.

A big part of scam prevention is making legitimate processes distinguishable from fraud patterns.

12) Frequently asked questions

“Is it illegal per se to pay a processing fee before loan release?”

Not always. What matters is who is collecting, why, how disclosed, where the money goes, and whether the lender truly intends and is able to extend credit.

“What if they say the deposit is refundable?”

Scams commonly say this. A “refundable deposit” without formal documentation and an established institution behind it is often just bait.

“They sent a contract—does that make it legal?”

Not necessarily. Fake contracts are easy to produce. Look for verifiable entity details, official receipts, and regulated channels.

“Can I recover my money?”

Sometimes, but it can be difficult. Fast reporting to the bank/e-wallet provider improves chances. Criminal and regulatory complaints may help, but recovery is not guaranteed.

13) The takeaway

In the Philippines, fees in lending can be lawful, but the “upfront processing fee before release” trope is one of the most abused mechanisms for loan scams. The more the demand looks like pay-to-get-paid, especially to personal accounts with shifting justifications, the more it points to deceit, unauthorized lending activity, and potentially criminal fraud.

If you want, paste (remove any sensitive info like full account numbers) the exact message they sent you about the “processing fee/deposit,” and I’ll mark the specific red flags and what category of fee they’re pretending it is.