A Philippine legal article on what “usury” means today, how courts treat excessive interest, and how the rules apply to online lending platforms (OLPs) and lending apps.

1) Why this topic is confusing in the Philippines

People often assume the Philippines has a single “legal maximum interest rate.” In practice:

The country historically had statutory interest ceilings under the Usury Law (Act No. 2655, as amended).
Those ceilings were later effectively lifted/suspended for most loans through Central Bank/BSP issuances (commonly discussed as the “suspension of the Usury Law ceilings”).
Even without fixed ceilings, courts can still strike down or reduce interest that is unconscionable, iniquitous, or shocking to the conscience.
For online lenders, the analysis expands beyond “interest rate” and includes mandatory disclosures, consumer protection, licensing, data privacy, and abusive collection practices.

So, “usury” in everyday talk often means “sobrang taas na interest,” but legally the fight is usually framed as unconscionable/excessive interest plus regulatory violations.

2) Key legal sources (Philippine context)

A. Civil Code rules on interest and loan terms

Several Civil Code provisions are central in almost every excessive-interest dispute:

Interest is not due unless expressly stipulated (rule on interest as something that must be agreed upon).
If interest is agreed, it must be in writing (otherwise, it generally cannot be collected as interest, though the principal remains demandable).
Freedom to contract is not absolute: parties may stipulate terms, but not those contrary to law, morals, good customs, public order, or public policy.
Penalty clauses (late-payment penalties, liquidated damages) may be equitably reduced if iniquitous or unconscionable.
Courts may also intervene where obligations are enforced in a way that becomes oppressive.

Practical takeaway: Even if a borrower clicked “I agree,” courts can still examine whether the combined cost of borrowing (interest + fees + penalties) is oppressive.

B. “Usury Law” ceilings and the modern regime

Historically, charging interest above statutory ceilings could be “usurious.” But for decades now, the Philippines has operated under a regime where interest rate ceilings were generally lifted, especially for private lending and bank lending, subject to regulation.

Practical takeaway: Many cases today are not decided by comparing the rate to a single statutory cap. They are decided by equity and unconscionability and by regulatory compliance, especially for consumer loans.

C. Truth in Lending and disclosure duties

For consumer credit, the Philippines has a “truth in lending” framework that (in broad terms) requires creditors to clearly disclose the cost of credit—not just a headline interest rate, but the finance charges and effective cost.

Practical takeaway: Online lenders are vulnerable when they advertise “low interest” but load the cost into service fees, processing fees, “membership” fees, insurance add-ons, daily penalties, and rollover fees—especially if disclosures are unclear, hidden, or misleading.

D. Regulation of lending/financing companies and online lending platforms

Online lending apps commonly operate under entities regulated by the SEC (for lending/financing companies), and they may also be subject to BSP rules if they are a bank/financial institution under BSP supervision.

The SEC has issued rules and enforcement actions directed at online lending platforms (OLPs)—focusing on:

proper registration/licensing,
required disclosures, and
prohibited unfair debt collection practices.

Practical takeaway: A lender can “win” contractually on paper and still face administrative sanctions (or lose in court) if the operation violates SEC rules or consumer protections.

E. Data Privacy Act and abusive collections (a major OLP battlefield)

Many online lending complaints are less about the rate and more about collection tactics:

accessing contacts/photos/files,
blasting messages to friends/employers,
public shaming, threats, or harassment.

This can trigger:

Data Privacy Act (RA 10173) issues (lawful basis, proportionality, transparency, consent validity, unauthorized processing/sharing), and possible complaints with the National Privacy Commission.
Possible criminal/civil exposure under laws on threats, coercion, unjust vexation/harassment, defamation/libel (including online contexts), and other related offenses depending on conduct.

Practical takeaway: Even if the debt is real, collection must still be lawful.

3) What “usury” means today (and what it doesn’t)

A. Classic “usury” vs. modern “excessive interest”

Classic usury: charging interest beyond a statutory ceiling.
Modern PH reality: with ceilings generally lifted, disputes are framed as:
1. Unconscionable interest (equitable reduction/invalidity),
2. Invalid interest due to lack of written stipulation,
3. Unfair or deceptive lending practices, and/or
4. Illegal charges/fees/penalties and abusive collections.

B. Excessive interest can be attacked even if “agreed”

Philippine courts have repeatedly held that interest rates and related charges may be reduced when they are iniquitous or unconscionable, especially where:

the borrower is in a weaker bargaining position,
the transaction is adhesive (take-it-or-leave-it),
the effective rate is extreme (e.g., monthly/daily rates that balloon), and
penalties compound the oppression.

Important nuance: Courts usually look at the totality—not only the nominal interest but also:

processing/service fees,
“advanced deductions,”
rollover/extension fees,
daily penalty interest,
compounding provisions,
attorney’s fees and collection costs.

4) How courts analyze “unconscionable” or “excessive” interest

There is no single bright-line number that is always “too high.” Courts typically consider:

The effective cost of credit
- What is the real annualized rate once you include all fees and the actual amount received by the borrower?
Market context and risk
- Microloans and unsecured lending carry risk, but that does not justify oppression.
Borrower’s consent and bargaining power
- Clickwrap/app contracts are often treated as contracts of adhesion; courts scrutinize harsh terms more closely.
Transparency of disclosures
- Was the borrower plainly told the finance charges and the consequences of default?
Penalty structure
- Penalties designed to punish rather than compensate are more likely to be reduced.
Compounding and acceleration
- Clauses that cause exponential growth can push charges into “shocking” territory.

Typical outcomes in excessive-interest litigation

Depending on facts and pleadings, courts may:

reduce interest to a reasonable/equitable rate,
disallow interest entirely if the interest stipulation is not properly made in writing,
reduce penalties (late charges/liquidated damages),
award legal interest (as damages or forbearance) instead of the contracted rate,
award damages/attorney’s fees in appropriate cases (especially if bad faith/abusive conduct is proven).

5) Online lending: where “interest” hides (and why regulators care)

Online lending products often advertise one number but collect another. Common structures:

A. “Add-on” fees that function like interest

Examples:

service fee, processing fee, convenience fee, underwriting fee, disbursement fee, membership fee, “platform fee.”

If the borrower receives less than the face amount (because fees are deducted upfront), the effective rate may be far higher than stated.

B. Ultra-short tenors

A “small” fee over 7–14 days can translate into an enormous annualized rate.

C. Rollover/extension mechanics

“Extend for a fee” can become a debt trap—especially if the extension fee is close to (or higher than) the original finance charge.

D. Penalty stacking

penalty interest + late fee + collection fee + attorney’s fees + daily charges Stacking can push the obligation into unconscionable territory even if the base interest looks moderate.

Regulatory lens: Even if the contract labels something as a “fee,” regulators and courts can treat it as part of the finance charge if it’s effectively the price of credit.

6) Licensing and legitimacy: who is allowed to lend online?

A. SEC-regulated lending/financing companies

Many non-bank online lenders must be properly registered and authorized. Operating without proper authority can lead to:

cease-and-desist actions,
penalties,
potential invalidation issues or difficulty enforcing claims.

B. BSP-supervised institutions

If the lender is a bank or BSP-supervised entity, it must comply with BSP consumer protection and disclosure rules.

C. Red flags for borrowers (practical)

No clear company name, SEC registration details, or customer service channel.
Contract terms not downloadable/printable.
Vague pricing (“as low as…”) without total cost examples.
Requests for unnecessary permissions (contacts, storage) unrelated to credit evaluation/servicing.
Threats to contact your entire phonebook.

7) Collection practices: what crosses the line (and what to document)

A. Generally prohibited / high-risk tactics

contacting third parties (friends/employer) to shame or pressure you,
publishing your identity and alleged debt,
threatening violence, arrest, or criminal prosecution for mere nonpayment (when used as intimidation),
repeated harassment messages/calls at unreasonable hours,
using your phone data without lawful basis or beyond what’s necessary.

B. Borrower documentation checklist (very practical)

If you believe the lender is abusive or the charges are excessive, keep:

screenshots of the app’s pricing screens and disclosures,
the full contract/terms,
proof of how much you actually received,
payment receipts,
call logs, messages, emails,
evidence of third-party contacts (messages to relatives/employer),
permissions requested by the app (screenshots),
any threats (especially those mentioning arrest).

These are often more decisive than arguments about percentages.

8) Remedies and options (civil, administrative, and strategic)

A. Civil court remedies (contract/collection cases)

Depending on posture (you’re sued, or you sue first), claims/defenses may include:

interest not collectible if not properly stipulated in writing,
unconscionable interest/penalties → reduction,
nullity of oppressive clauses,
re-computation based on what you actually received,
damages if you can prove bad faith or unlawful acts.

B. Administrative/regulatory complaints

SEC: for OLP/lending company compliance, unfair practices, licensing issues.
National Privacy Commission: for data privacy violations (excessive permissions, unauthorized disclosure, unlawful processing).
Potentially other relevant agencies depending on the lender type and conduct.

C. Criminal/other legal exposure for abusive conduct

Depending on facts, collection conduct may implicate laws on:

threats/coercion/harassment,
defamation/libel (including online contexts),
data privacy violations,
related cyber-enabled offenses.

Important: Not paying a loan is generally a civil matter; criminality usually arises from fraud or unlawful conduct (including unlawful collection acts), not simple inability to pay.

9) How to evaluate whether your online loan is “excessive” (a simple framework)

Compute the net proceeds (how much you actually received).
Compute total repayment (principal + all charges + penalties expected).
Compute the time period (days/weeks).
Ask: if you annualize the cost, is it extreme?
Then ask the legal questions:
- Were all charges clearly disclosed up front?
- Is the interest stipulation properly documented?
- Are penalties stacked/compounding?
- Are collection practices lawful?
- Is the lender properly registered/authorized?

Even if you don’t annualize, courts can still find unconscionability based on sheer oppressiveness and lack of fair dealing.

10) Compliance checklist for online lenders (to avoid “excessive interest” and enforcement risk)

Provide clear, prominent disclosures of:
- amount financed, finance charges, total repayment, due dates, penalties, and effective cost examples.
Avoid pricing structures that depend on hidden fees rather than transparent interest.
Keep penalties proportionate and avoid compounding traps.
Ensure collection policies ban harassment, third-party shaming, threats, and data misuse.
Minimize personal data processing: collect only what is necessary, obtain valid consent where appropriate, and respect data subject rights.
Maintain proof that borrowers received, could review, and could save/print the terms before acceptance.

11) Bottom line in the Philippines

“Usury” as a fixed ceiling concept is not the whole story today.
The real legal battleground is unconscionable interest and penalties, truth-in-lending style disclosure compliance, proper licensing/registration, and lawful collection and data privacy.
Online lending amplifies risk because short terms, fee-heavy pricing, and aggressive collections can quickly create a record that courts and regulators view as oppressive.

This article is general legal information in the Philippine context and not legal advice. If you want, paste the exact pricing/fees/tenor of a specific loan (remove personal details) and I can help you map it onto the frameworks above and identify the strongest arguments and evidence to gather.