What Is the Legal Interest Rate on Loans and How to Help Employees Harassed by Online Lenders in the Philippines

Introduction

In the Philippines, the lending industry has evolved rapidly with the rise of online lending platforms, offering quick access to credit but often at the cost of high interest rates and aggressive collection tactics. This has led to widespread concerns, particularly among employees who may face harassment from lenders, affecting their mental health, productivity, and job performance. Understanding the legal framework governing interest rates on loans is crucial for borrowers to protect their rights. Equally important is knowing how to address harassment, especially in a workplace context where employers have a duty to support their staff.

This article provides a comprehensive overview of the legal interest rates applicable to loans under Philippine law, the regulatory environment for lending, the prohibitions against unfair debt collection practices, and practical steps to assist employees facing harassment from online lenders. It draws from key statutes, jurisprudence, and regulatory issuances to offer guidance for individuals, employers, and legal practitioners.

Legal Interest Rate on Loans: Statutory Foundations

The concept of legal interest in the Philippines is rooted in the New Civil Code (Republic Act No. 386), which governs obligations and contracts, including loans. Under Article 2209 of the Civil Code, if a debtor incurs delay in the payment of a sum of money and no interest rate is stipulated in the contract, the indemnity for damages shall be the payment of legal interest, which is fixed at 6% per annum on the amount due.

However, the Bangko Sentral ng Pilipinas (BSP), as the central monetary authority, has the power to adjust this rate through its Monetary Board. Pursuant to BSP Circular No. 799, Series of 2013, effective July 1, 2013, the rate of interest in the absence of stipulation for the loan or forbearance of any money, goods, or credits, and the rate allowed in judgments, is 6% per annum. This applies to both monetary and non-monetary obligations where delay occurs.

Distinction Between Legal Interest and Conventional Interest

• Legal Interest: This is the default rate applied when no interest is agreed upon. It serves as compensation for the use of money or as damages for delay (mora). For instance, in cases of breach of contract involving loans, courts award legal interest from the time of judicial or extrajudicial demand until full payment.

• Conventional Interest: Parties to a loan agreement can stipulate any interest rate, as the Usury Law (Act No. 2655) was effectively repealed by Central Bank Circular No. 905, Series of 1982. This deregulation allows for market-driven rates, but with caveats: the rate must not be unconscionable or contrary to morals, good customs, public order, or public policy (Article 1306, Civil Code). Supreme Court rulings, such as in Spouses Silos v. Philippine National Bank (G.R. No. 181045, July 2, 2014), have invalidated excessively high rates (e.g., over 30% per annum in some contexts) as void for being iniquitous.

Application to Different Types of Loans

• Simple Loans (Mutuum): Governed by Articles 1933-1961 of the Civil Code. Interest accrues only if stipulated or in cases of delay.

• Loans with Security: For mortgages or pledges, interest rates follow the same rules, but additional regulations apply under the Truth in Lending Act (Republic Act No. 3765), which mandates full disclosure of finance charges, including interest, fees, and penalties.

• Credit Card Loans: Regulated by BSP Circular No. 1098, Series of 2020, capping interest at 2% per month (24% per annum) and cash advance fees at 3% per month, with a floor interest rate not exceeding 1% per month for unpaid balances.

• Payday and Salary Loans: Common among employees, these are subject to the same deregulation, but lenders must comply with Securities and Exchange Commission (SEC) rules for financing companies (Republic Act No. 9474, Lending Company Regulation Act of 2007).

In jurisprudence, the Supreme Court in Nacar v. Gallery Frames (G.R. No. 189871, August 13, 2013) clarified that legal interest on monetary judgments is 6% per annum from finality until satisfaction, aligning with BSP Circular No. 799.

Regulatory Framework for Online Lending

Online lenders, often operating as fintech companies, fall under the supervision of the SEC for lending companies and the BSP for banks or quasi-banks. Key regulations include:

• SEC Memorandum Circular No. 19, Series of 2019: Establishes guidelines for online lending platforms (OLPs), requiring registration, prohibiting unfair collection practices, and mandating transparent disclosure of interest rates and fees.

• Truth in Lending Act (RA 3765): Lenders must provide a clear statement of the loan amount, interest rate, finance charges, and effective interest rate (EIR) before consummation. Violations can lead to penalties and loan nullification.

• Consumer Protection: The Consumer Act (Republic Act No. 7394) protects against deceptive practices, while the Data Privacy Act (Republic Act No. 10173) safeguards personal information used in lending.

Despite deregulation, rates exceeding 100% EIR in some online loans have been scrutinized. The SEC has issued cease-and-desist orders against unregistered OLPs charging exorbitant rates, emphasizing that while no cap exists, rates must be fair.

Harassment by Online Lenders: Legal Prohibitions

Harassment in debt collection is a pervasive issue with online lenders, who often use digital means to intimidate borrowers. This includes incessant calls, texts, social media shaming, threats, or contacting employers and family. Such practices violate multiple laws:

• Unfair Debt Collection Practices: SEC MC No. 18, Series of 2019, explicitly prohibits OLPs from using threats, profanity, public shaming, or accessing contacts without consent. Violations can result in revocation of registration.

• Anti-Harassment Laws:

  • Revised Penal Code (Act No. 3815): Articles 285 (Other Light Threats) and 287 (Unjust Vexation) penalize threats or annoying acts.
  • Cybercrime Prevention Act (Republic Act No. 10175): Covers online harassment, such as cyber libel (Section 4(c)(4)) or computer-related identity theft if personal data is misused.
  • Safe Spaces Act (Republic Act No. 11313): Protects against gender-based online sexual harassment, including unwanted messages.

• Data Privacy Violations: Unauthorized use of borrower data (e.g., sharing photos or contacts) breaches RA 10173, enforceable by the National Privacy Commission (NPC), with penalties up to PHP 5 million.

In the workplace, harassment can manifest as lenders contacting HR departments or colleagues, leading to embarrassment and potential discrimination.

Legal Remedies for Harassed Employees

Employees facing harassment have several avenues for redress:

1. Civil Remedies:

   • File a complaint for damages under Article 19 (Abuse of Rights) or Article 26 (Violation of Privacy) of the Civil Code.
   • Seek injunctions to stop harassing communications.

2. Criminal Remedies:

   • Report to the Philippine National Police (PNP) Anti-Cybercrime Group for RA 10175 violations.
   • File with the Department of Justice (DOJ) for preliminary investigation.

3. Administrative Remedies:

   • Complain to the SEC for unregistered or non-compliant OLPs.
   • Report data breaches to the NPC.
   • For labor-related impacts, approach the Department of Labor and Employment (DOLE) under the Labor Code (Presidential Decree No. 442), which mandates a safe work environment.

Jurisprudence, such as People v. Villanueva (G.R. No. 226152, March 27, 2019), has upheld convictions for online threats in debt collection contexts.

Steps to Help Employees Harassed by Online Lenders

Employers play a vital role in supporting affected staff, as harassment can lead to absenteeism, reduced productivity, or resignation. Here's a step-by-step guide:

1. Establish Workplace Policies:

   • Develop an anti-harassment policy incorporating DOLE Department Order No. 183-17 (Guidelines on Mental Health in the Workplace), which addresses stress from financial issues.
   • Provide financial literacy training on loan management and recognizing predatory lenders.

2. Immediate Response to Complaints:

   • Encourage confidential reporting through HR.
   • Document incidents, including screenshots of messages or call logs.

3. Legal and Counseling Support:

   • Refer employees to free legal aid from the Integrated Bar of the Philippines (IBP) or Public Attorney's Office (PAO).
   • Offer employee assistance programs (EAPs) for counseling on debt and mental health.

4. Reporting and Advocacy:

   • Assist in filing complaints with SEC, NPC, or PNP.
   • Coordinate with DOLE for mediation if harassment affects employment.

5. Preventive Measures:

   • Partner with legitimate financial institutions for employee loans at reasonable rates.
   • Educate on alternatives like Pag-IBIG Fund or SSS salary loans, which have lower rates (around 10-12% per annum).

6. Debt Resolution Strategies:

   • Advise negotiating settlements with lenders, citing unfair terms.
   • Recommend credit counseling from organizations like the Credit Management Association of the Philippines.

In severe cases, employees can seek protection orders under the Anti-Violence Against Women and Their Children Act (RA 9262) if harassment is gender-based.

Conclusion

The legal interest rate in the Philippines provides a baseline of 6% per annum for unstipulated loans, but the deregulated environment demands vigilance against excessive rates in online lending. Harassment by lenders not only violates borrower rights but also disrupts workplaces, necessitating proactive employer intervention. By leveraging existing laws and remedies, employees can be empowered to combat these issues, fostering a more equitable financial landscape. Stakeholders, including regulators, must continue enforcing protections to curb abuses in this growing sector. For personalized advice, consulting a licensed attorney is recommended.