Excessive Interest and Harassment by Loan App in the Philippines

Excessive Interest and Harassment by Loan Apps in the Philippines: A Comprehensive Legal Overview

The proliferation of online lending or “loan apps” in the Philippines has made small, short-term loans more accessible than ever. However, borrower complaints about excessive interest rates, unfair debt collection practices, and harassment have prompted both regulatory scrutiny and public concern. This article explores the Philippine legal landscape governing loan interest, debt collection practices, and the available recourse for borrowers who experience abusive tactics from loan apps.

1. The Legal Framework Governing Interest Rates

1.1 The Usury Law and Subsequent Developments

  1. Usury Law (Act No. 2655)

    • Historically, Philippine law placed a hard cap on interest rates through the Usury Law. Over time, these ceilings were amended to keep pace with changing economic conditions.
    • Suspension of Usury Law Ceilings: By virtue of Presidential Decree (P.D.) No. 116, and subsequent issuances by the Monetary Board, the mandatory ceilings on interest rates were effectively lifted. Banks, lending companies, and other financial institutions may generally impose their own interest rates, subject to the principle of reasonableness and general supervision by the Bangko Sentral ng Pilipinas (BSP).

  2. Role of the Bangko Sentral ng Pilipinas (BSP)

    • While strict usury ceilings no longer exist, the BSP, through its rule-making authority, may set or recommend interest rate ceilings on particular lending products, particularly for microfinance and small consumer loans.
    • The BSP’s Circulars and other regulations primarily apply to banks, quasi-banks, and other BSP-supervised financial institutions. Many online lending apps may not always be directly under BSP supervision if they are not registered as banks or quasi-banks. Instead, they may fall under the authority of the Securities and Exchange Commission (SEC) if they operate as lending or financing companies.

  3. Civil Code and Judicial Review for Excessive Interest

    • Article 1229 of the Civil Code empowers courts to reduce or invalidate any interest that is considered “iniquitous or unconscionable.”
    • In practice, Philippine courts have held certain rates—especially when they venture above 2-3% monthly—as potentially usurious if coupled with unfair practices or misleading clauses. However, each case is resolved on its specific merits.

1.2 SEC Regulation of Lending and Financing Companies

  1. Lending Company Regulation Act of 2007 (R.A. 9474)

    • Requires any person or entity engaged in the business of lending to be registered with the SEC. Lending companies must comply with disclosure requirements and operate under fair business practices.
    • The SEC has the power to investigate allegations of abusive or unscrupulous lending practices and to impose administrative sanctions or revoke the licenses of violators.

  2. Financing Company Act of 1998 (R.A. 8556)

    • Similar to the Lending Company Regulation Act, financing companies must be registered with the SEC.
    • Although the law does not set explicit maximum interest rates, the financing or lending company’s imposition of exorbitant rates can be questioned for unconscionability and unfair dealing.

2. Harassment by Loan Apps: Legal Protections and Restrictions

2.1 Prohibited Debt Collection Practices

  1. Fair Debt Collection Principles

    • In the Philippines, while there is no single comprehensive “Fair Debt Collection Practices Act” akin to that of other jurisdictions, a patchwork of laws and regulations protect consumers from excessive or abusive debt collection methods.
    • BSP Circular No. 1048 (Debt Collection Practices) applies to BSP-supervised financial institutions, providing that lenders may not harass, threaten, or publicly shame borrowers in the pursuit of collecting payment.

  2. Actions Amounting to Harassment

    • Repeated phone calls or messages at odd hours of the night.
    • Threatening the borrower with violence, defamation, or criminal charges (unless there is a legitimate legal basis).
    • Publicly humiliating or shaming the borrower (for example, posting personal information or outstanding debt details on social media or messaging the borrower’s phone contacts).
    • Using profane or abusive language.

  3. Possible Criminal and Civil Liabilities

    • Grave threats, unjust vexation, or libel under the Revised Penal Code may apply if the creditor’s communication or actions cross into criminal behavior (e.g., threatening physical harm or tarnishing a borrower’s reputation through false statements).
    • Data Privacy Act of 2012 (R.A. 10173): Unauthorized use or disclosure of personal information (such as contacting a borrower’s friends, family, or employer without consent) can violate data privacy rights. A complaint can be filed with the National Privacy Commission (NPC).
    • Cybercrime Prevention Act of 2012 (R.A. 10175): If threats, defamatory statements, or unauthorized personal data disclosures occur online (e.g., social media harassment), such acts may be prosecuted under cyber-libel or other cyber-related offenses.

2.2 Recent SEC Crackdowns and Guidelines

  1. Memorandum Circulars

    • The SEC has periodically issued memorandum circulars warning lending and financing companies against unfair debt collection practices.
    • Some circulars explicitly prohibit shaming tactics or contacting the borrower’s contacts without permission. They also outline the administrative penalties for violators, including fines, suspension, or cancellation of registration.

  2. Operation of Unregistered Loan Apps

    • Many complaints stem from apps operating without a proper SEC license or from foreign-based entities that do not maintain a local presence.
    • The SEC has taken steps to block or order the cessation of these illegal or unregistered lenders. Borrowers are encouraged to check the SEC’s list of registered lending companies before transacting.

3. Remedies and Recourse for Borrowers

3.1 Negotiating or Challenging Unconscionable Interest

  1. Out-of-Court Settlement

    • Borrowers who believe they are being charged excessive interest may try to negotiate a lower rate or an extended payment plan.
    • Document all communications with the lender to have written evidence of any agreement or abusive remarks.

  2. Filing a Civil Case

    • If negotiation fails, a borrower may file a complaint in court to question the validity of the interest rate or terms of the loan.
    • Courts can reduce the interest to a reasonable level if it is proven to be unconscionable (Civil Code Article 1229).

3.2 Addressing Harassment and Abusive Collection

  1. Report to the SEC

    • If the lender is registered but engages in unethical or prohibited practices, a borrower can file a formal complaint with the SEC.
    • The SEC can impose administrative sanctions, including monetary fines, suspension, or revocation of the company’s certificate of authority.

  2. File a Criminal or Administrative Complaint

    • If the harassment includes threats, intimidation, or unlawful disclosures of personal information, the borrower can file a complaint with:
      • The National Privacy Commission (NPC) for Data Privacy Act violations;
      • The Philippine National Police (PNP) or National Bureau of Investigation (NBI) for threats, cyber-libel, or other criminal actions;
      • The Office of the City or Provincial Prosecutor for criminal complaints (e.g., grave threats, unjust vexation, libel).

  3. Seek Assistance from Government Agencies and NGOs

    • The Department of Trade and Industry (DTI) has a mandate for consumer protection, though its direct authority over lending is limited.
    • Local government units (LGUs) and certain NGOs offer legal aid or mediation services for aggrieved borrowers.
    • The Public Attorney’s Office (PAO) provides free legal representation to qualified individuals who cannot afford private counsel.

4. Preventive Measures and Best Practices

  1. Check Lender Legitimacy

    • Always verify if the loan app or company is SEC-registered. The SEC website typically provides a list of legitimate lending and financing companies and those that have been flagged for illegal operations.

  2. Read the Terms and Conditions Carefully

    • Before accepting any loan, thoroughly review the interest rates, service charges, penalties, and data privacy policy.
    • Be wary of “click-to-agree” contracts that fail to disclose the true cost of borrowing or that require blanket permissions to access your contact list or phone data.

  3. Limit Access to Personal Data

    • Many loan apps request access to the borrower’s contacts and files under the guise of “verification” or “credit scoring.” Evaluate whether the scope of requested access is proportionate.
    • Under the Data Privacy Act, you have the right to withdraw or limit consent to the processing of personal data if it is not necessary or is being misused.

  4. Document Everything

    • Keep screenshots, text messages, voice recordings, or emails of all communications with the lender.
    • These records may prove invaluable should you need to file a complaint or defend yourself in court.

5. Concluding Observations

The growth of online lending in the Philippines has undeniably expanded financial inclusion for many individuals who lack traditional collateral or bank relationships. Yet, the rise of exorbitant interest rates and harassment by unscrupulous lenders remains a serious concern. A combination of existing laws—ranging from the Civil Code provisions on unconscionable interest, the Lending Company Regulation Act, to the Data Privacy Act—provides a legal framework for borrowers to protect themselves and seek redress.

Nevertheless, enforcement challenges persist. Borrowers who find themselves victimized by illegal or harassing practices should be aware of their rights and the remedies available. By reporting abuses to the Securities and Exchange Commission, filing the appropriate criminal or administrative complaints, and taking preventive measures when borrowing, individuals can help curb these predatory practices. Over time, stronger enforcement and more precise regulations—along with borrower vigilance—are crucial to ensuring fair, transparent, and harassment-free digital lending in the Philippines.

Disclaimer: This article is intended for general informational purposes only and does not constitute legal advice. For specific issues or legal concerns, especially involving potential litigation or criminal charges, it is best to consult a qualified attorney or approach the relevant government agency for official guidance.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

Privacy Policy

Terms of Use

Lawyer Login

 
 
Privacy Policy         Terms of Use         Lawyer Login