(Philippine legal context; doctrinal and regulatory overview)

1) The basic truth: “Usury” exists in language, but statutory ceilings are generally suspended

The Philippines has a historical Usury Law (Act No. 2655, as amended) that once imposed interest-rate ceilings and penalized usury. However, since the early 1980s, the Central Bank’s policy (commonly associated with CB Circular No. 905) effectively suspended interest-rate ceilings for most credit transactions.

Practical effect:

Many private loans today can stipulate interest freely as a matter of contract.
Yet, courts still police unconscionable, iniquitous, or excessive interest and penalties using the Civil Code and equity principles. So even without a numeric “usury cap,” interest can still be reduced or struck down if it is abusive.

2) Who are “lending companies” under Philippine law?

A lending company is generally a business entity engaged in granting loans from its own capital, often to consumers and small businesses, and typically regulated/registered through the Securities and Exchange Commission (SEC) under the Lending Company Regulation Act of 2007 (RA 9474) and related SEC rules.

This matters because:

SEC registration and reporting requirements apply.
Disclosure obligations and fair dealing standards apply (especially for consumer-facing lending).
Many abusive practices seen in the market—especially from “online lending apps”—intersect with SEC enforcement, consumer protection, and data privacy rules.

3) Key Civil Code rules that shape “usurious” outcomes (even without a cap)

A. Interest must be expressly agreed in writing

Under Civil Code Art. 1956, no interest is due unless expressly stipulated in writing.

If a lender claims interest but the contract is silent (or merely implied), courts can disallow the interest.
For online loans, this often turns on what the borrower actually assented to (clickwrap terms, disclosed rate tables, amortization schedules, etc.).

B. Courts can reduce unconscionable interest and penalties

Even if interest is written, courts can intervene where terms are unconscionable or shocking to the conscience. Tools include:

Civil Code Art. 1229 (reduction of penal clauses if iniquitous/unconscionable, or partly/irregularly complied with)
Civil Code Art. 1306 (freedom to contract is limited by law, morals, good customs, public order, public policy)
General equity doctrines used in Supreme Court jurisprudence on oppressive rates.

Important nuance: Courts do not apply a single universal threshold (e.g., “anything above X% is illegal”). Outcomes are fact-specific—the borrower’s situation, bargaining power, disclosures, and the structure of charges matter.

C. Default/“legal” interest is a separate concept

When no interest rate is stipulated, or when the stipulated rate is voided/reduced, courts may apply legal interest depending on the nature of the obligation and timing of demand.

In modern doctrine, the commonly applied legal interest rate is 6% per annum (a rate used in many judgments for loans/forbearance and judgments, subject to context and prevailing rules).

4) “Interest rate” isn’t just the stated %: how lenders may load costs

A major Philippine consumer issue is that “interest” is sometimes disguised as:

Service fees, processing fees, admin fees, membership fees
Add-on interest (deducted upfront from principal)
Penalty charges for late payment (sometimes daily)
Default interest that replaces regular interest
Compounded interest and “capitalization” of unpaid charges
Collection fees, attorney’s fees, “liquidated damages,” and other penalties

Legal implication: Courts may look at the total burden (effective cost of credit), not just the headline monthly interest. A contract can become oppressive through the combined effect of interest + penalties + fees.

5) The Truth in Lending Act: disclosure is not optional

The Truth in Lending Act (RA 3765) requires lenders in covered credit transactions to disclose key credit terms, commonly including:

The finance charge and how it is computed
The effective interest rate (or equivalent measure)
The amount financed, schedule of payments, and other material terms

Practical effect: If a lending company fails to disclose clearly and accurately, it can face regulatory consequences, and the borrower may have defenses in disputes—especially where the borrower can show deception or lack of informed consent.

6) Supreme Court approach: no fixed cap, but “unconscionable” rates get cut down

Philippine jurisprudence has repeatedly recognized that while ceilings are largely lifted, the judiciary may strike down or reduce interest and penalties that are unconscionable.

Patterns that repeatedly draw scrutiny include:

Extremely high monthly rates (especially when paired with harsh penalties)
Daily penalty charges that balloon the debt rapidly
Layering multiple charges that effectively create a punitive repayment burden
Situations indicating unequal bargaining power, lack of meaningful choice, or misleading disclosures

When courts reduce terms, they often:

Reduce interest to a more reasonable rate (sometimes aligning with conventional benchmarks used in case law)
Reduce or nullify penalty charges under Art. 1229
Disallow fees that function as hidden interest when unfairly imposed

7) Criminal “usury” vs civil unenforceability: what’s actually pursued today?

Because the old ceiling regime is generally suspended, most modern disputes are civil (collection suits, defenses, reformation/reduction of obligations), not criminal usury prosecutions.

However, lenders can still face legal exposure through other routes:

Fraud/misrepresentation (if terms were deceptively presented)
Unfair collection practices (harassment, threats, shaming)
Data privacy violations (especially contact harvesting and mass messaging)
Regulatory violations (SEC rules on lending companies, licensing/registration issues)

8) Online lending apps: where “usurious” pricing meets harassment and privacy issues

In recent years, a recurring Philippine fact pattern involves short-term digital loans marketed with fast approval, but priced with high effective charges and enforced through aggressive collection.

Borrowers’ legal touchpoints commonly include:

SEC (registration status of the lending entity; enforcement actions; compliance with lending regulations)
National Privacy Commission (NPC) under RA 10173 (Data Privacy Act) if the app accessed contacts/photos/messages without valid consent or used them for shaming/harassment
Potential liability under laws addressing threats, coercion, libel/online defamation (depending on conduct), and consumer protection norms

Even if the loan is valid, abusive collection can create separate legal violations.

9) What makes an interest rate “unconscionable” in practice?

Courts weigh indicators such as:

Magnitude and structure: very high monthly rates, plus penalties and add-on fees
Transparency: clear disclosures vs buried or confusing terms
Borrower vulnerability: urgent need, lack of alternatives, low sophistication
Bargaining power: take-it-or-leave-it contracts, adhesion terms
Behavior: oppressive collection and enforcement conduct
Disproportion: charges grossly out of proportion to risk, principal, and market norms

A rate can be “technically stipulated,” yet still be reduced if it operates as an oppressive penalty.

10) Typical remedies and strategies when faced with excessive charges

A. If you are sued for collection (or threatened with it):

Check if interest was stipulated in writing (Art. 1956).
Challenge penalties and “liquidated damages” as unconscionable (Art. 1229).
Analyze whether “fees” are actually hidden interest.
Compute the effective rate and show how quickly the obligation balloons.
Raise disclosure defects under RA 3765 where applicable.

B. If the lending company is regulated/registered:

Complaints may be lodged with the SEC for lending company violations and abusive practices.

C. If collection involves shaming/harassment or contact scraping:

Consider a complaint with the NPC for data privacy issues (unauthorized processing, excessive collection, lack of valid consent, improper disclosure).

D. Negotiated settlement and restructuring: Borrowers often seek a settlement that:

Recomputes the balance by removing abusive penalties/fees
Applies payments properly to principal and legitimate interest
Freezes further penalty accrual while the account is restructured

11) Guidance for lending companies: compliance basics (to avoid “usury” findings)

To reduce legal/regulatory risk, lending companies typically need to ensure:

Clear, prominent disclosures of total finance charges and effective rates
Written stipulation of interest and fees; borrower consent is demonstrable
Reasonable penalty design (avoid daily compounding schemes that explode balances)
Fair collection practices (no threats, no public shaming, no contact blasting)
Data minimization and lawful processing of personal data (especially for apps)
SEC registration, reporting, and advertising/marketing compliance

12) A quick checklist for borrowers reviewing a loan offer

Before accepting a loan, identify:

“Monthly interest” and the effective total cost (including all fees)
Whether interest is add-on (deducted upfront) or computed on declining balance
Penalty rate and whether it compounds
Total amount you will repay and the schedule
What data the lender/app collects and how it will be used
Whether the lender is properly registered/traceable and provides official documentation

Bottom line

In the Philippines, lending companies can often set interest rates by contract, but they cannot rely on that freedom to enforce oppressive, unconscionable, or deceptively disclosed credit pricing. Courts can reduce or nullify abusive interest and penalties, and regulators can act when lending companies violate registration, disclosure, consumer protection, and data privacy norms.

If you want, share a sample loan breakdown (principal, stated interest, fees, penalties, repayment schedule), and the same framework above can be used to compute the effective rate and flag the clauses most vulnerable to reduction.