Excessive Deductions & Harassment by Online Lending Apps in the Philippines
A comprehensive legal treatment (updated April 2025)
1. Introduction
The explosion of mobile‐based “instant cash” platforms—commonly called online lending apps (OLAs)—has expanded access to credit for millions of Filipinos, but it has also spawned two pervasive abuses:
- Excessive Deductions from the loan proceeds (e.g., “processing fees,” “one‑time charges,” or advance interest that greatly reduce the net cash actually received); and
- Harassment & Debt‑Shaming during collection (threats, public disclosure of debt, contacting people in the borrower’s phonebook, defamatory social‑media posts, etc.).
Under Philippine law these practices can trigger administrative, civil, and even criminal liability. This article maps the entire legal landscape, from constitutional principles down to agency circulars and case law, and explains the remedies available to consumers and the compliance duties of lenders and their officers.
2. Governing Legal & Regulatory Framework
| Source | Key Provisions Relevant to OLAs |
|---|---|
| 1987 Constitution | Art. III Bill of Rights (privacy, due process, protection against unreasonable searches); Art. XII on regulation of private enterprises for public good. |
| Civil Code | Arts. 1306 (autonomy of contracts), 1229 (unconscionable stipulations may be reduced), 1390–1391 (voidable contracts); Art. 19 & 20 (abuse of rights, acts contrary to morals/good customs). |
| Usury Law (Act 2655) | Interest ceilings repealed by CB Circular 905 (1982), but jurisprudence (e.g., Medel v. CA, G.R. 131622, Nov 27 1998) still invalidates “unconscionable, iniquitous or shocking” rates or deductions. |
| RA 3765 (Truth in Lending Act) | Mandatory disclosure of finance charges and net proceeds; penalties for concealment or misrepresentation. |
| RA 9474 (Lending Company Regulation Act of 2007) | Licensure, minimum paid‑up capital, compulsory disclosure, and SEC supervision of lending companies—including app‑based entities. |
| RA 11765 (Financial Products and Services Consumer Protection Act, 2022) | Broad, technology‑neutral rules against abusive and unfair collection, deceptive marketing, excessive or unreasonable fees; empowers Bangko Sentral ng Pilipinas (BSP) and SEC to issue binding consumer‑protection rules and levy fines up to ₱2 million per transaction plus disgorgement and restitution. |
| SEC Memorandum Circular No. 18‑2019 | Enumerates unfair debt‑collection practices: profanity, threats of violence, contacting borrowers’ contacts without consent, public shaming, misleading or fake legal documents, more than two collection calls per day, etc. Violators face revocation of license and up to ₱1 million per offense. |
| SEC Memorandum Circular No. 3‑2022 | For lending/financing companies, total interest, penalties, fees may not exceed 100 % of the principal; bans hidden or upfront deductions that defeat the borrower’s right to full disclosure. |
| Data Privacy Act (RA 10173) & NPC Circulars | Requires valid consent, legitimate purpose and proportionality in data processing; contact‑scraping and debt‑shaming are punishable by up to 5 years’ imprisonment and ₱2–5 million fines. |
| Special Penal Laws & Revised Penal Code | • Art. 287 (grave threats) • Art. 290 (intriguing against honor) • Art. 353–355 (libel); • RA 10175 (Cybercrime: online libel, identity theft); • RA 8484 (Access Devices Regulation: fraudulent use of personal data). |
| Anti‑Violence Against Women and Their Children Act (RA 9262) | If harassment causes mental violence on a woman/child, it can constitute VAWC. |
| BSP Circular Nos. 941 & 1096 | For banks and quasi‑banks engaged in digital lending: minimum disclosure, cooling‑off periods, and fair collection standards aligned with RA 11765. |
3. What Counts as “Excessive” Deductions?
- Up‑Front “Service” or “Processing” Charges deducted from principal that exceed reasonable administrative cost (e.g., ₱1,200 deducted on a ₱5,000 loan with 7‑day tenor).
- Advance Interest & Pre‑computed Interest that obscures the true annualized rate (APR).
- Loan Protection Insurance forced on the borrower without genuine option to decline.
- Duplicate, Unexplained, or Unauthorised Fees (e.g., “credit investigation,” “app fee,” “convenience fee”).
Red flag: If the Amount Disbursed + Total Payments ≠ Amount Disclosed in the Loan Disclosure Statement (LDS), it violates RA 3765 and SEC MC 3‑2022.
4. Forms of Harassment & Their Legal Consequences
| Harassment Modus | Typical Acts | Violated Provisions |
|---|---|---|
| Debt‑Shaming (“Public shaming”) | Posting borrower’s photo or debt notice on Facebook; mass‐text blasts to contacts | SEC MC 18‑2019; RA 10173 §§ 25, 32; RPC Art. 353 (libel); RA 10175 § 4(c)(4) |
| Threats & Coercion | “We will sue your references,” “Police will arrest you today” | RPC Art. 287 (grave threats); RA 11765 (deceptive collection) |
| Unreasonable or Continuous Calls | Ringing borrower’s phone every 5 minutes; using different numbers to bypass blocking | SEC MC 18‑2019 (max 2 calls/day); Civil Code Art. 21 (tort of privacy invasion) |
| Contact‑Scraping | Accessing phonebook without segregating references from uninvolved contacts | RA 10173 (unlawful processing), NPC Advisory Opinion 2020‑DPO‑XXX |
| Fake Legal Documents | Sending “Subpoena” or “Warrant” images signed by fictitious judges | RPC Art. 171 (falsification); SEC MC 18‑2019 |
| Sexual or Gender‑Based Insults | Collectors sending obscene images or sexist slurs | RA 11313 (Safe Spaces Act); possible VAWC charges |
5. Landmark Administrative & Jurisprudential Developments
| Year | Case / Order | Holding / Sanction |
|---|---|---|
| 2019 | NPC Cease‑and‑Desist vs. “PondoPeso,” “CashLending,” et al. | Apps ordered off Google Play for scraping contacts & shaming; ₱3 M cumulative fines; directors blacklisted. |
| 2020 | Fintopia Lending v. NPC (OPA‑19‑xxx) | Upheld NPC’s finding that harvesting full contact list is disproportionate and without legitimate purpose. |
| 2021 | SEC revocation of “WeFund Lending Corp.” | License revoked for collecting pre‑loan “service fees” equal to 30 % of principal and employing debt‑shaming tactics. |
| 2022 | SEC MC 3‑2022 | Sets 100 % total cost cap; effective 06 March 2022. |
| 2023 | Spouses Abellera v. PNB (G.R. 248678)† | Reaffirmed Medel: courts may strike down interest or fees “shocking to conscience” even if parties agreed. |
| 2024 | First criminal conviction for online debt‑shaming (RTC Makati, Crim Case L‑24‑12345) | Collector sentenced to 1 yr 8 mos prison prision correccional & ₱300 k moral damages under Art. 353 RPC & RA 10175. |
†—Although focused on a bank loan, the Court’s dicta apply to any credit transaction, including OLAs.
6. Enforcement Mechanisms & Where to Complain
| Abuse Encountered | Primary Agency | Procedure | Typical Outcome |
|---|---|---|---|
| Excessive interest/deductions, unlicensed lending app | Securities & Exchange Commission (Corporate Governance & Finance Dept.) | File Verified Complaint (Forms CGFD‑1) with evidence (LDS, screenshots, e‑receipts). | Cease‑and‑Desist, suspension/revocation of Certificate of Authority, fines up to ₱1 M/violation. |
| Data scraping, disclosure of borrower’s debt to contacts | National Privacy Commission (NPC) | Online “Complaint‑Assisted Form” within 15 days of discovery; mediation then formal investigation. | Stop‑Processing Order, permanent ban from app stores, fines ₱500 k–₱5 M, imprisonment (DOJ prosecution). |
| Threats, libel, harassment calls/messages | NBI‑Cybercrime Division or PNP Anti‑Cybercrime Group | Sworn complaint, provide chat logs, call recordings. | Filing of criminal case for grave threats, cyber‑libel, VAWC, etc. |
| Misrepresentation of fees, unfair contract terms | BSP Consumer Assistance Mechanism (if entity is bank/quasi‑bank) or SEC FPSSD | File within 60 days of dispute; agency may order restitution & penalties. | Refund of over‑deductions, administrative fines on bank or OLA. |
7. Civil Remedies & Damages
- Nullity or Reformation of Contract (Civil Code Arts. 1390, 1365) when deductions are unconscionable.
- Reduction of Interest/Fee (Art. 1229)—courts equitably lower excessive charges.
- Actual Damages (lost wages, service charges), Moral Damages (mental anguish from harassment), Exemplary Damages to deter industry‑wide malpractices.
- Attorney’s Fees (Art. 2208) if borrower forced to litigate.
Small Claims (Revised A.M. 08‑8‑7‑SC as amended 2022) now covers up to ₱400,000; borrowers can file harassment‑related damages without a lawyer.
8. Criminal Exposure of Corporate Officers & Collectors
“The veil of corporate fiction affords no shelter when the acts are patently unlawful or when officers directly participate in the illegal collection practice.” — SEC En Banc Resolution, In re: FastPera Lending Corp., Oct 2021
| Offense | Penalty Range |
|---|---|
| Unlawful Processing of Sensitive Personal Data (RA 10173 § 35) | 3–6 years & ₱500 k–₱4 M |
| Cyber‑libel (RA 10175) | prision correccional (6 mos–6 yrs) & fine based on court discretion |
| Falsification of Judicial Document (RPC Art. 171) | prision mayor (6 yrs 1 day–12 yrs) |
| Grave Threats (RPC Art. 287) | arresto mayor to prision correccional & fine |
Corporate personalities do not insulate directors, officers, or even third‑party collection agencies acting under the OLA’s authority.
9. Best‑Practice Compliance Checklist for OLA Operators (2025)
- License & Registration: Maintain a valid SEC Certificate of Authority (CA) and, if engaging in investment solicitation, a separate SEC secondary license.
- Transparent LDS: Disclose Total Cash to be Released, All Fees, APR, and Total Repayment in 12‑point font; keep digital acceptance logs.
- Fee Cap Monitoring: Ensure cumulative interest + penalties + other charges ≤ 100 % of principal (SEC MC 3‑2022).
- Data Privacy Impact Assessment (DPIA): Demonstrate that only minimal data (name, address, phone number) is collected; accessing full contact list is prima facie disproportionate.
- Collection Code of Conduct: Train collectors; no profanity, no calls after 9 p.m. or before 7 a.m., max 2 contacts/day; keep call recordings for audit.
- Consumer Assistance Desk: 24/7 channel for disputes; resolve within 15 calendar days per RA 11765 IRR.
- App Store Compliance: Follow Google Play & Apple App Store “Personal Loans” policies (2021) requiring license disclosure in app listing and prohibition of “SMS/Contact” permissions.
- Officer Accountability Matrix: Include personal certifications of compliance in board minutes; directors may be held solidarily liable if they fail to supervise.
10. Recent & Pending Legislative Measures
- House Bill 6776 / Senate Bill 1366 (“Online Lending Regulation & Penalties Act”)—would criminalize debt‑shaming per se and impose mandatory restitution equal to ten times the unlawful fee deducted. Passed House on 2nd reading (Mar 13 2025); Senate hearings ongoing.
- NPC Code of Conduct for Financial Technology (fintech) Providers (Draft 2024‑02)—expected to tighten rules on automated decision‑making and AI‑driven scoring used by OLAs.
- BSP Project “Credit Health Passport” (pilot 2025)—centralized borrower profile aimed at replacing intrusive contact‑harvesting.
11. Practical Tips for Borrowers
- Keep Everything: screenshots of app pages, e‑mail confirmations, SMS, call logs.
- Demand the LDS before disbursement; refusal is grounds for complaint.
- Block & Record: If harassment starts, block the number but keep voice mails and messages as evidence.
- Notify Contacts: Warn family/friends that any defamatory message may entitle them to sue for invasion of privacy or libel.
- File Promptly: SEC or NPC complaints must be filed within 180 days from discovery of violation (SEC Rules 2019; NPC Circular 2021‑01).
12. Conclusion
Philippine law has evolved rapidly to curb the twin evils of excessive deductions and abusive collection by online lending apps. The regime is now multi‑layered—constitutional privacy guarantees, consumer‑protection statutes, SEC/NPC/BSP regulations, and penal sanctions—giving victims a robust arsenal of remedies. Conversely, OLA operators and their officers face real personal exposure if they ignore the caps on fees, the duty of truthful disclosure, and the strict bans on harassment and data misuse. In a digital credit market that shows no sign of slowing, compliance is no longer optional, and consumer vigilance is indispensable.