1) Why “usury” still matters even without fixed caps

“Usury” is commonly understood as charging interest that is excessively high or oppressive. In Philippine law, the concept has two layers:

Statutory usury (fixed ceilings under the old law). The traditional “Usury Law” framework came from Act No. 2655 (Usury Law) and related rules that once set numerical interest ceilings.
Judicial control of oppressive interest (unconscionability). Even after fixed ceilings were effectively removed, courts continue to police unconscionable, iniquitous, or shocking interest rates through Civil Code principles, equity, and jurisprudence—often by reducing interest/penalties to reasonable levels rather than enforcing what the contract states.

This is why people still talk about “usurious” interest: not always as a crime today, but as a basis to invalidate or reduce abusive interest, penalties, and collection practices.

2) The modern baseline: Freedom to stipulate, but not freedom to oppress

A. Suspension of interest ceilings

Historically, the Philippines moved from statutory ceilings toward market-based interest. The monetary authority’s issuance of Bangko Sentral ng Pilipinas-related measures (classically identified with BSP Circular No. 905 under the earlier central bank regime) is widely understood to have suspended fixed interest ceilings under the Usury Law for many loan/forbearance transactions.

Practical effect: Parties may generally agree on any interest rate, but that agreement is not automatically enforceable if it becomes legally or equitably unacceptable.

B. Key Civil Code anchors that still bite

Several Civil Code rules remain central:

Interest must be expressly stipulated in writing. Under the Civil Code, interest is not due unless it has been expressly stipulated in writing. (In litigation, this becomes a frequent “gotcha”: verbal interest agreements are vulnerable.)
Courts can reduce iniquitous interest and penalties. When interest/penalty charges are unconscionable, courts may cut them down. This is often applied to:
- extremely high monthly interest,
- compounding schemes that explode the debt,
- stacked “service fees” + “processing fees” + “penalty fees” that function as disguised interest.
Interest on interest (anatocism) is restricted. As a rule, unpaid interest does not itself earn interest unless statutory or jurisprudential conditions are met (often tied to judicial demand or a clear agreement consistent with law).

C. The “legal interest rate” used by courts (when contracts are silent or for judgments)

When a contract has no valid interest stipulation, or when courts compute interest on judgments/forbearance, jurisprudence and BSP policy shifted the default legal interest regime over time. A major modern reference is BSP Monetary Board Circular No. 799, associated with the widespread application of 6% per annum as legal interest in many contexts, and the Supreme Court’s guidance on interest computation in Nacar v. Gallery Frames and Eastern Shipping Lines v. Court of Appeals.

Practical effect: Even if a lender fails to prove a valid contractual interest clause, courts may still award legal interest in appropriate cases (especially involving damages or forbearance), but not whatever rate the lender asserts.

3) What counts as “unconscionable” interest in practice

Philippine courts typically do not use a single universal numerical threshold. Instead, they look at the totality:

Stated rate and effective rate. (Monthly rates can mask extreme annualized rates.)
Penalties on top of interest. (Penalty interest can dwarf principal.)
Compounding frequency and triggers.
Borrower’s position and bargaining power.
Transparency of disclosure.
Purpose of the charge. (Is it truly a fee for a service, or disguised interest?)
Conduct in collection. (Harassment can color equity assessments and consumer-protection enforcement.)

When a rate is struck down as unconscionable, courts often:

enforce only the principal, plus
reasonable interest (sometimes the legal rate), and/or
reduce penalties substantially.

4) “Illegal lending” as a regulatory and criminal concept

Illegal lending is not just “high interest.” It often refers to operating the lending business without authority, using prohibited schemes, or committing fraud/harassment in the course of lending.

A. The licensing/registration regime (SEC)

In the Philippines, non-bank lenders typically fall under Securities and Exchange Commission (Philippines) regulation, especially:

Lending Company Regulation Act of 2007 (RA 9474)
Financing Company Act (RA 8556)

Core idea: to engage in lending/financing as a business, an entity generally must be properly organized and authorized, and comply with SEC rules. Operating without authority can trigger administrative sanctions and, depending on the violation and statute/rules invoked, criminal exposure.

B. Banks and quasi-banks (BSP)

Entities that take deposits or operate as banks/quasi-banks are typically under BSP authority, not the SEC. “Illegal lending” in this realm can overlap with unauthorized banking or similar regulated activity.

C. Cooperatives, pawnshops, and niche lenders

Certain lenders (e.g., cooperatives, pawnshops, microfinance-oriented entities) may fall under specialized regulatory frameworks. The legality of their lending and pricing can depend on their charter, their regulator, and what exactly they do.

5) Online lending apps, “5-6,” and the modern enforcement landscape

A. Online lending apps

Online lending apps can be lawful if the operator is properly registered/authorized and complies with SEC rules and other laws. But common illegal/unlawful patterns include:

Operating without SEC authority (or using a shell registration not matching actual operations).
Misrepresentation of the lender’s identity or the real cost of credit.
Abusive collection: threats, doxxing, contacting employers/friends, publishing “shame posts,” or using phone access to harass contacts.
Data misuse: collecting excessive data, using it beyond stated purpose, or sharing it unlawfully.

These practices can trigger liability under:

Data Privacy Act of 2012 (RA 10173) (unlawful processing, unauthorized disclosure, excessive collection, etc.)
Cybercrime Prevention Act of 2012 (RA 10175) (depending on the act—e.g., threats, computer-related offenses, identity misuse)
The Revised Penal Code (grave threats, light threats, coercion, unjust vexation, libel/slander, etc., as applicable)
Civil actions for damages where conduct is abusive or violates rights.

B. The “5-6” model and informal lending

Informal lending (including traditional “5-6” community lending) is not automatically illegal as a private transaction, but it becomes legally risky when it involves:

engaging in the lending business without proper authority where required,
unconscionable pricing enforced through oppressive terms,
fraudulent practices, or
harassment/coercion in collection.

6) Truth-in-lending and disclosure: when the problem is not only the rate, but the deception

The Truth in Lending Act (RA 3765) reflects a consumer-protection principle: borrowers should understand the true cost of credit. Even when an interest rate is “agreed,” the enforceability and liability picture changes if:

the lender hid or misrepresented the effective rate,
fees were structured to evade disclosure (e.g., “processing fee” that functions as prepaid interest),
the borrower was misled about amortization, penalties, or compounding.

Disclosure failures can support administrative sanctions, defenses in collection suits, and civil claims depending on facts and implementing rules.

7) Contract architecture: where abusive lending hides

Abusive lending often shows up in contract design rather than a single line item:

Front-loaded deductions Borrower receives net proceeds far below “principal,” but owes the full amount—creating an extreme effective rate.
Stacked fees Service fees, late fees, collection fees, “daily handling,” “insurance,” “membership,” etc., that collectively operate as interest.
Penalty pyramids Interest + penalty interest + fixed late fee + attorney’s fees, all triggered quickly.
Compounding traps Frequent compounding or capitalization of unpaid charges.
Confession-of-judgment style pressure Clauses that pressure borrowers into waiving defenses (often scrutinized when oppressive).

Courts and regulators look at the economic reality: if the charges function as compensation for the use of money, they are treated as interest-like burdens even if labeled otherwise.

8) Litigation outcomes: defenses, remedies, and how courts typically respond

A. Common borrower defenses in collection cases

No written interest stipulation (therefore, interest not due as stipulated).
Unconscionable interest and penalties (seek reduction).
Invalid or unclear computation (attack the math and the basis).
Payment/novation/condonation defenses where supported.
Defects in authority (lender not properly authorized; entity issues).
Fraud, misrepresentation, or duress in consent.

B. Common judicial remedies

Reduction of interest and penalties to reasonable levels.
Application of legal interest when appropriate.
Nullification of certain oppressive stipulations while enforcing the core obligation.
Damages against abusive lenders in proper cases (especially with harassment, privacy violations, or bad faith).

9) Criminal law intersections: when lending conduct becomes a crime

Even where high interest is not prosecuted as “usury” per se, lending activity can become criminal through:

Estafa / fraud (misappropriation, deceitful inducement, fake investment-lending hybrids).
Syndicated fraud concerns in qualifying situations (fact-specific).
Threats, coercion, libel, or unjust vexation in collection conduct.
Cyber-related offenses when technology is used to harass, extort, or misuse identity/data.
Privacy law violations for unlawful processing/disclosure.

The key distinction: price (interest level) is usually addressed via civil/equitable reduction; methods (fraud/harassment/data abuse) can trigger criminal and regulatory consequences.

10) Compliance checklist for lawful lending (Philippine context)

A lender operating lawfully—especially in consumer-facing or app-based lending—typically needs:

Correct organizational form and authority (SEC registration/authority for lending/financing companies, or BSP authority for banks/quasi-banks, or proper coverage under special regimes).
Clear written contracts with transparent pricing and enforceable clauses.
Compliance with truth-in-lending disclosure norms.
Fair collection practices avoiding threats, harassment, shaming, or improper third-party contact.
Strict data privacy compliance (purpose limitation, proportionality, security, and lawful disclosure).
Documented computation methods (interest/penalty accrual, compounding, payment allocation).

11) Key takeaways

Fixed statutory usury ceilings are largely not the primary control mechanism today; the dominant modern control is unconscionability review by courts plus regulatory enforcement.
Written interest stipulation remains crucial; without it, collecting contractual interest is legally vulnerable.
“Illegal lending” often means unauthorized lending operations and/or unlawful conduct (fraud, harassment, privacy violations), not merely a high rate.
In disputes, Philippine courts frequently respond to abusive pricing by reducing interest and penalties rather than voiding the entire loan—while punishing abusive collection through separate civil/criminal/regulatory pathways.