A practical legal guide for consumers, platforms, and counsel

1) Why this topic matters

Digital lending—through mobile apps, social media, and e-commerce “buy-now-pay-later” (BNPL)—has made credit accessible to millions of Filipinos. Alongside the benefits are abusive practices: sky-high “service fees,” opaque charges, and debt-shaming. This article gathers the Philippine legal rules that matter most when evaluating “usurious” online interest and what to do when charges or collections cross the line.

2) Core legal framework

2.1 The Usury Law and its suspension

Act No. 2655 (Usury Law) historically set ceilings on interest.
Central Bank (now BSP) Circular No. 905 (1982) suspended interest ceilings. Practical effect: there is no fixed statutory cap on interest rates in general commercial lending. Charging a high rate is not automatically illegal or criminal merely for being high.

2.2 Civil Code guardrails still apply

Even without a cap, courts and regulators police unconscionable rates and abusive terms:

Art. 1956: Interest is not due unless expressly stipulated in writing.
Arts. 1959–1960: “Interest on interest” (compounding) requires a written stipulation or judicial demand.
Art. 1229 & Art. 2227: Courts may reduce iniquitous or unconscionable penalty/interest stipulations.

2.3 The legal interest rate (when courts step in)

Nacar v. Gallery Frames (2013) aligned the legal interest for “loans or forbearance of money” at 6% per annum—the default when the court substitutes an unconscionable rate or when no rate is agreed.

2.4 Sector-specific laws and regulators

Bangko Sentral ng Pilipinas (BSP) supervises banks, EMI/Wallets, and other BSP-supervised financial institutions (BSFIs). BSP issues disclosure and consumer-protection rules and has, from time to time, capped certain charges (e.g., credit-card finance charges).
Securities and Exchange Commission (SEC) supervises lending companies (RA 9474) and financing companies (RA 8556 as amended). It regulates online lending platforms (OLPs), prescribes disclosure and collection conduct, and has shut down abusive operators.
National Privacy Commission (NPC) enforces the Data Privacy Act (RA 10173) against debt-shaming and contact-harvesting.
Financial Consumer Protection Act (RA 11765, 2022): a cross-cutting statute strengthening the BSP, SEC, and IC powers on market conduct, disclosures, abusive practices, redress, and restitution.

2.5 Truth in Lending

Truth in Lending Act (RA 3765) and its IRR (implemented by BSP/SEC for their supervisees) require clear, prior disclosure of the total finance charge and effective interest rate (EIR/APR). Hidden or back-loaded fees may be treated as interest for legality, disclosure, and “unconscionability” analysis.

3) What “usury” means today

Because ceilings are suspended, the question is no longer “Did the lender exceed X%?” but “Is the rate or charge unconscionable, and was it properly disclosed?” Courts examine:

Magnitude of the rate/fees relative to risk and market norms.
How the charge is structured (e.g., “processing fee,” “one-time service charge,” “collection fee,” “accelerated interest”). If a fee functions like interest, courts may treat it as interest.
Negotiation power and transparency—click-wrap terms, font size, and whether the app disclosed total cost before the borrower committed.
Penalty interest and liquidated damages—courts frequently reduce multi-percent-per-month penalties.
Compounding—permitted only if clearly stipulated; otherwise struck down or simplified.

Illustrative jurisprudence (frequently cited by courts):

Medel v. CA (1998): 5% per month interest (60% p.a.) reduced as unconscionable; courts substituted a lower lawful rate.
Neri v. Heirs of Hadjia (2002): 3% per month reduced.
Ligutan v. CA (2002) and later cases: penalty charges at several percent per month reduced for being iniquitous.
Nacar v. Gallery Frames (2013): clarified 6% p.a. legal interest when courts intervene.

Takeaway: Even without a statutory cap, courts routinely pare down exceedingly high monthly rates (e.g., 3–10%/month), massive penalties, or pyramiding “fees.”

4) Online lending specifics

4.1 Licensing and who may lend online

Lending companies (RA 9474) and financing companies (RA 8556) must be SEC-registered and comply with capitalization, reporting, and platform registration requirements (for OLPs).
Banks/EMIs and BSFIs require BSP authority.
Unregistered lending is a violation (administrative/criminal). Borrowers may rescind or void effects of illegal operations and complain to the regulator.

4.2 Required disclosures in apps

Clear display before acceptance of:
- Principal, total finance charge, EIR/APR, tenor, amortization schedule;
- All fees (e.g., disbursement, late/penalty, collection, prepayment, convenience, “verification”).
No misleading math: Deducting a big “processing fee” upfront while computing interest on the full principal is a red flag and may be treated as usurious/inequitable.

4.3 Debt collection rules (and debt-shaming)

SEC rules prohibit unfair collection practices, including: threats, profane/obscene language, contacting people in the borrower’s phonebook, public shaming on social media, contacting the borrower’s employer or references beyond legitimate purposes, and false legal threats (e.g., “arrest tomorrow”).
NPC enforcement: Accessing and broadcasting contacts/photos without a proper lawful basis or consent violates data privacy; “debt-shaming” texts, group chats, or posts often lead to NPC complaints and penalties.
Criminal law overlays: harassment may also constitute grave threats, libel/slander, unjust vexation, anti-cybercrime offenses, or violations of special laws (e.g., anti-photo/video voyeurism where images are misused).

4.4 BNPL, salary advances, and wallet-based credit

If structured as forbearance of money, finance charges function as interest and enter the unconscionability and disclosure analysis.
If the provider is a BSP-supervised EMI/wallet or a bank partner, BSP’s consumer-protection and disclosure regimes apply in addition to the SEC’s where relevant.

5) How courts and regulators evaluate “unconscionable” rates

Red flags that trigger reductions or sanctions:

Monthly rates at multiple percent per month (especially with stacked penalties).
Front-loaded fees that slash the actual cash received but compute interest on the undiscounted principal.
Forced add-ons (insurance, verification, “rush release”) with no opt-out.
Compound interest not clearly stipulated.
Ambiguous clauses enabling unilateral rate changes or hidden rollover charges.
Collection abuses or privacy violations (often decisive even if the nominal rate alone might pass muster).

When a court intervenes, typical outcomes include:

Nullifying the usurious or penalty stipulation;
Substituting the legal interest (often 6% p.a. simple interest) from default or demand;
Recomputing the obligation (net of unlawful fees);
Awarding damages/attorney’s fees for abusive collection or bad faith.

6) Practical compliance playbook for online lenders

License properly (SEC or BSP) and register each online lending platform.
Disclose EIR/APR prominently, in plain Filipino/English, before the borrower taps “Agree.”
Itemize all fees and ensure they are reasonable and not interest in disguise.
Cap penalties to a reasonable level; avoid “stacking” late interest + penalty + collection fee + daily surcharge.
Avoid compounding unless plainly explained and accepted in writing; provide an amortization schedule.
Collection conduct: adopt scripts and audit trails; no debt-shaming, no scraping/using phonebook contacts without a lawful basis.
Data privacy: data-minimize; secure explicit, granular consents; honor purpose limitation; allow easy consent withdrawal and data deletion when lawful.
KYC/AML: lending and financing companies are covered persons under AMLA; implement KYC, screening, and suspicious-transaction reporting.
Complaint handling: set up a consumer assistance mechanism; track and resolve within regulated timelines.
Testing and governance: run APR audits, fairness reviews, and model risk checks on pricing/collections.

7) Borrower strategies and remedies

7.1 Before borrowing

Compare EIR/APR, not just “per day” rates.
Watch for upfront deductions; compute the net cash received and back-calculate the real APR.
Save screenshots of disclosures, fee breakdowns, and chat logs.

7.2 If already borrowed

Reconstruct the loan: principal released, dates, payments, and all fees.
Write a dispute letter demanding a recomputation and citing the Truth in Lending Act and Civil Code rules on unconscionability.
Escalate to the proper regulator:
- SEC for lending/financing companies and OLPs;
- BSP for banks/EMIs/BSFIs;
- NPC for privacy violations or debt-shaming;
- DTI for marketplace misrepresentations;
- NBI/PNP for threats, libel, extortion, or cyber offenses.

7.3 Litigation and small claims

Small claims suits (no lawyers required) can recover/resolve many app-loan disputes; thresholds change over time—verify current limits and forms.
Seek judicial reduction of interest/penalties and damages for abusive collection.
Evidence wins: keep contracts, app screens, SMS/chat logs, call recordings, transaction receipts, and witness statements.

8) Special topics and recurring pitfalls

Rollovers/Top-ups: Successive “renewals” with fresh fees may be treated as a single continuing loan for unconscionability analysis.
Cross-border operators: If they target PH residents, local regulators can act; contract clauses picking foreign law/jurisdiction may be ignored in consumer cases when contrary to public policy.
Arbitration clauses: Enforceable if validly agreed, but cannot waive statutory consumer rights or regulator powers.
Employer-facilitated salary loans: Consent to payroll deduction should be specific and revocable consistent with labor standards and data privacy.
Credit reporting: Negative reporting must be accurate, proportional, and law-based; inaccurate blacklisting can justify damages.
Debt buying/assignment: Assignees inherit defenses against the original lender; they must also comply with collection and privacy rules.

9) Checklists

9.1 “Unconscionability” quick screen

☐ APR effectively exceeds typical market by multiples without risk justification
☐ Mandatory fees deducted upfront but interest computed on the gross principal
☐ Multiple penalties (late fee + daily penalty + default interest) stacked
☐ Compound interest not clearly stipulated
☐ Vague or unilateral change clauses
☐ Poor or post-facto disclosures
☐ Debt-shaming or unlawful contact harvesting

9.2 Borrower evidence pack

☐ App screenshots of rates/fees before acceptance
☐ E-mail/SMS/GCash/instapay proof of disbursement/repayments
☐ Copies of IDs/consents given, privacy policy versions
☐ Call logs/recordings and debt-collector messages
☐ Names/handles of agents, dates, and time stamps

10) Frequently asked questions

Q: Is it “usury” if an app charges 1% per day plus fees? A: There’s no fixed cap, but courts may treat that as unconscionable, especially if fees are piled on or poorly disclosed. Expect judicial reduction and possible regulatory sanctions.

Q: They deducted a 20% “processing fee” upfront—legal? A: It likely counts toward the finance charge. If undisclosed/misleading, the arrangement is vulnerable under Truth in Lending and FCPA market-conduct standards, and a court may recompute or void the charge.

Q: Can collectors message my family or coworkers? A: Generally prohibited by SEC rules and may violate data privacy and criminal statutes. Document and report.

Q: If I default, can they charge any penalty they like? A: No. Penalty clauses that are iniquitous can be reduced by courts; regulators may also sanction excessive or stacked penalties.

11) Action templates (copy-and-adapt)

11.1 Demand for recomputation (borrower to lender)

We dispute your computation of interest and charges under [Loan/App, Ref No. ____]. Please provide within five (5) days a detailed statement of principal, finance charge, EIR/APR, and all fees. We invoke RA 3765 (Truth in Lending) and Civil Code Arts. 1229/2227 on unconscionable stipulations. Absent a satisfactory recomputation, we will pursue remedies with [SEC/BSP], NPC for data/privacy issues, and the courts for judicial reduction and damages.

11.2 Cease-and-desist on debt-shaming

Your communications dated [___] to third parties constitute unfair collection and data-privacy violations. Cease contacting persons other than the borrower except as permitted by law. Preserve all logs and delete unlawfully processed personal data. We are elevating to NPC and SEC.

12) Key takeaways

No hard caps: Usury ceilings are suspended, but unconscionable rates and practices are still unlawful.
Disclosure is king: APR/EIR and all fees must be clearly shown before acceptance.
Courts cut excess: Multi-percent-per-month interest, stacked penalties, and hidden charges are often reduced to reasonable levels (frequently 6% p.a. when courts substitute).
Collections and privacy matter: Debt-shaming and unauthorized data use can be as consequential as the interest itself.
Choose the right forum: SEC (lenders/financiers/OLPs), BSP (BSFIs), NPC (privacy), DTI (consumer issues), courts/small claims (recovery and reduction).

Disclaimer

This article provides general information on Philippine law. It is not legal advice. Facts matter: if you’re facing a dispute or planning a product launch, consult counsel with your contracts, app flows, and rate model in hand.