Below is a comprehensive discussion of excessive interest on online lending apps in the Philippines, with a focus on the legal framework, regulatory policies, and key considerations for both lenders and borrowers.

1. Overview of Online Lending in the Philippines

Online lending applications (commonly called “online lending apps”) have quickly gained popularity in the Philippines due to the ease and speed with which borrowers can secure short-term loans. These digital platforms are typically operated by lending companies or financing companies registered with the Securities and Exchange Commission (SEC). While these apps can be convenient and sometimes crucial for individuals in immediate financial need, many borrowers have raised concerns about excessive or unconscionable interest rates, hidden charges, and unfair debt-collection practices.

2. Legal and Regulatory Framework

2.1. Usury Law (Act No. 2655) and Central Bank Circular No. 905

The Usury Law (Act No. 2655) once capped the maximum interest rate that could be imposed on loans.
In 1982, however, the Monetary Board (under the then Central Bank of the Philippines) issued Central Bank Circular No. 905, effectively lifting the interest ceiling set by the Usury Law.
With that circular in place, there is no longer a specific statutory interest cap. However, courts have retained the power to strike down interest rates they deem unconscionable or excessive.

2.2. Civil Code Provisions

Under the Civil Code of the Philippines, particularly Article 1306, contracting parties are free to establish agreements as long as these do not violate the law, morals, public policy, or public order.
If an interest rate is found to be excessive, iniquitous, or unconscionable, courts may reduce it to a reasonable level. The Supreme Court has, in various decisions, reduced interest rates to 12% or even 6% per annum when the agreed rate was deemed inequitable.

2.3. Supreme Court Rulings on “Unconscionable” Interest

The Supreme Court has consistently ruled that freedom of contract is not absolute. If lenders impose rates so high as to be oppressive, courts can and often do moderate them.
Commonly, the Supreme Court refers to guidelines in previous rulings to decide whether an agreed-upon rate is a “simple contractual stipulation” or an “unconscionable imposition.”

2.4. Lending Company Regulation Act of 2007 (Republic Act No. 9474)

RA No. 9474 provides the legal framework for the organization and operation of lending companies.
It requires lending companies to register with the SEC and to comply with the disclosure requirements, among other rules.
Although RA No. 9474 does not reinstate strict usury ceilings, it grants the Securities and Exchange Commission (SEC) authority to regulate and monitor lending practices and impose sanctions for violations (e.g., fraudulent or abusive practices).

2.5. SEC Memorandum Circulars on Online Lending

In response to numerous consumer complaints, the SEC has issued various Memorandum Circulars and advisories to address unfair debt collection and other abusive practices by online lending operators.
Interest and Penalty Caps:
- In recent years, the SEC has considered imposing interest and penalty caps on some short-term consumer loans (especially “payday loans”).
- As of this writing, strict caps applicable to all lending companies do not exist universally, but the SEC has the power to restrict or penalize those it deems to be imposing unjustifiable rates and charges. Always check the most recent SEC circulars for updated guidelines or any newly imposed caps.

2.6. Bangko Sentral ng Pilipinas (BSP) Role

For banks and quasi-banks, the Bangko Sentral ng Pilipinas (BSP) also plays a regulatory role. However, many digital-only lending platforms are non-bank financial institutions under the SEC’s oversight.
BSP Circular 1048 (and subsequent circulars) outlines consumer protection standards for banks and financial institutions, including guidelines on disclosures and fair lending practices. Although primarily for banks, these standards influence best practices in the broader financial sector.

3. Defining “Excessive” or “Unconscionable” Interest

Since the lifting of strict caps via Central Bank Circular No. 905, the law does not specify a fixed interest rate ceiling. Rather, the benchmark for determining excessiveness or unconscionability typically involves:

Comparisons with prevailing market rates – If the rate is significantly higher than what is typically offered by established financial institutions under similar conditions.
Circumstances of the loan transaction – Courts will examine if the lender took advantage of the borrower’s dire financial need or lack of bargaining power.
Total cost to the borrower – Courts look at not just the nominal interest rate but also other charges: processing fees, penalties, collection fees, and hidden charges.
Prior Supreme Court jurisprudence – Rulings where the Court reduced rates from 60% per annum (or even higher) down to 12% or 6% per annum if the original rate was deemed unconscionable.

4. Common Issues with Online Lending Apps

4.1. High Interest Rates and Hidden Charges

Interest rates can sometimes be advertised as “low” on a per-day basis but add up to a very large annual percentage rate (APR).
Hidden or undisclosed charges may include “processing fees,” “service fees,” or other vaguely defined costs that inflate the total debt obligation.

4.2. Short Loan Tenures Leading to Debt Traps

Many online lending apps offer short-term loans (7 to 30 days). When combined with high interest or penalties for late payment, borrowers can end up rolling over loans or borrowing anew just to settle previous debts, falling into a cycle of indebtedness.

4.3. Harassment and Unfair Collection Practices

Unfair collection tactics have become a widespread issue: lenders contacting a borrower’s phone contacts, threatening legal action, shaming borrowers on social media, or using insulting language and intimidation.
These practices may violate the Data Privacy Act, the SEC’s debt collection regulations, and other consumer protection laws.

4.4. Unauthorized Access to Personal Data

Many of these apps require permission to access the borrower’s phone contacts or personal details.
If such access is used to harass or publicly shame borrowers—or is not adequately disclosed under the consent process—this can constitute a violation of the Data Privacy Act of 2012 (Republic Act No. 10173).

5. Legal Remedies and Enforcement

5.1. Filing a Complaint with the SEC

Borrowers who experience abusive or excessive interest rates or debt-collection methods can file a complaint with the Securities and Exchange Commission.
The SEC has the authority to suspend or revoke licenses of non-compliant lending and financing companies and impose administrative fines.

5.2. Court Action for Unconscionable Interest

A borrower may challenge the legality of the agreed interest rate in court, invoking the principle that courts can reduce or nullify iniquitous stipulations.
If the court finds that the interest or penalty rates violate public policy or are unconscionable, it will reform the contract to reflect a reasonable rate.

5.3. Complaints Under the Data Privacy Act

The National Privacy Commission (NPC) has jurisdiction over issues involving unauthorized use or misuse of personal data.
Borrowers subjected to intrusive data harvesting or public shaming can file formal complaints with the NPC, which can lead to investigations, cease-and-desist orders, and penalties against offending lenders.

5.4. Criminal and Other Applicable Penalties

In certain extreme situations—especially where there is fraud, extortion, or other criminal misconduct by lenders—borrowers may seek assistance from law enforcement (e.g., the Philippine National Police or the National Bureau of Investigation).
If convicted, officers of the lending company could face criminal liabilities, depending on the conduct.

6. Best Practices and Consumer Tips

6.1. Know Your Rights

Always read the terms and conditions carefully. Watch out for small print detailing additional fees and charges.
Interest rates in the Philippines are no longer strictly capped, but if the rate is glaringly high (e.g., 1%-2% per day which leads to 30%-60% a month), it may be arguable as “excessive” and can be challenged.

6.2. Check SEC Registration

Before applying for a loan through an online app, confirm that the lender is registered with the SEC as a lending or financing company.
The SEC regularly publishes advisories and lists of lending companies operating without proper authorization.

6.3. Be Vigilant About Privacy

Scrutinize the permission requests of the mobile application. If the lender demands access to your entire contact list or social media accounts, this is a red flag—they may use these details for aggressive collection practices.

6.4. Seek Legal Advice Early

If you suspect the terms are unfair or if you are being harassed, consult a lawyer or approach relevant government agencies (SEC, NPC) for guidance.
Early legal advice can help you negotiate or object to unconscionable rates or abusive practices before your debt spirals out of control.

7. Ongoing Developments and Reforms

There is increasing consumer advocacy and discussion in the Philippines about reinstating stricter caps on interest rates, at least for short-term, small-value loans.
The SEC and the BSP are continuously coordinating to strengthen consumer protection and clamp down on illegal and unethical lending behaviors.
Legislative measures have been proposed to update or amend the legal framework for digital lending, reflecting the technology-driven changes in how loans are accessed.

8. Conclusion

The Philippine legal landscape on interest rates is guided by a combination of statutory law, Supreme Court precedents, and regulatory issuances. While the lifting of the Usury Law ceilings means there is no absolute cap, courts and regulators retain authority to invalidate or reduce interest rates that are excessive or unconscionable. In the context of online lending apps—where convenience can come at a high cost—borrowers must stay vigilant about contract terms, unscrupulous data practices, and unjust collection methods.

As regulators such as the SEC and the National Privacy Commission ramp up enforcement against unethical lenders, and as courts continue to underscore consumer protection, there is growing momentum toward more balanced lending practices. Nonetheless, borrowers should remain informed of their legal rights and exercise caution when using online lending apps, ensuring that they fully understand the financial and personal data implications before committing to any loan.