Excessive Online Lending Interest and Harassment

Below is a comprehensive discussion of Excessive Online Lending Interest and Harassment in the Philippine context from a legal standpoint. This overview covers relevant laws, regulations, and remedies available to borrowers and other parties affected by these practices.

1. Introduction

Online lending platforms have gained significant traction in the Philippines over the last several years. Their popularity stems from the convenience of quick loan approvals, minimal documentation, and accessible mobile apps or websites. However, these services have also come under scrutiny for:

  1. Charging extremely high interest rates, fees, and penalties well beyond conventional market levels.
  2. Engaging in aggressive or harassing collection practices, including public shaming and personal data misuse.

This article examines the legal framework that governs online lending, focusing on interest rate regulations, consumer protection, and borrower remedies against harassment and unethical debt-collection methods.

2. Legal Framework Governing Lending and Interest Rates

2.1 The Philippine Usury Law and Deregulation of Interest Rates

  • Act No. 2655 (Usury Law): Historically, this law provided caps on interest rates in the Philippines. However, subsequent presidential decrees and BSP (Bangko Sentral ng Pilipinas) issuances effectively lifted the interest rate caps starting in the early 1980s.
  • Usury Law Decriminalization: In effect, there is no longer a strict statutory limit on interest rates for most forms of private lending. While the law is still technically in the statute books, interest rate ceilings have been generally deregulated in ordinary commercial transactions.

2.2 Truth in Lending Act (Republic Act No. 3765)

  • Mandates full disclosure of the terms of credit, including the effective interest rate and finance charges.
  • Enforced by the Bangko Sentral ng Pilipinas (BSP) for banks and quasi-banks, and by the Securities and Exchange Commission (SEC) for lending and financing companies.
  • This law underscores the need for transparency but does not by itself cap interest rates. Instead, it focuses on making sure consumers understand the true cost of borrowing.

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

  • Governs the creation and regulation of lending companies in the Philippines.
  • Mandates lending companies to register with the SEC and to comply with certain requirements related to capitalization, reporting, and business conduct.
  • Makes it unlawful to operate as a lending company without a proper license from the SEC.

2.4 Consumer Act of the Philippines (Republic Act No. 7394)

  • Covers various aspects of consumer protection, including fair trade practices and product safety.
  • While the Consumer Act is not lending-specific, it provides general safeguards against deceptive, unfair, or unconscionable sales and credit practices.

2.5 Financial Products and Services Consumer Protection Act (Republic Act No. 11765)

  • This relatively new law further strengthens consumer protection measures in the financial sector.
  • It grants regulatory bodies such as the BSP, the SEC, the Insurance Commission, and the Cooperative Development Authority the power to protect consumers of financial products and services from abusive and unethical practices.

3. Regulation of Online Lending Platforms

3.1 SEC Oversight and Circulars

  • The Securities and Exchange Commission (SEC) has become increasingly proactive in regulating online lending platforms (OLPs).
  • The SEC requires that online lending applications be registered and authorized before they can legally extend credit to the public.
  • In some cases, the SEC has ordered the shutdown or suspension of non-compliant or abusive online lending companies.

3.2 BSP Regulations for Banks and Non-Bank Financial Institutions

  • While banks and quasi-banks generally fall under BSP regulations, many online lending platforms are non-bank entities. Hence, the SEC typically exercises jurisdiction over them.
  • However, BSP Circulars concerning consumer protection, transparency in loan terms, and fair debt collection guidelines can influence the standard of what is “reasonable” or “fair” practice in the broader lending ecosystem.

4. Excessive Interest Rates: Legal and Practical Considerations

4.1 “Unconscionable” or “Excessive” Interest Rates

  • Philippine jurisprudence (decided cases by the Supreme Court) provides that even in the absence of a statutory cap, courts may nullify or reduce interest rates that are found to be “unconscionable” or “excessive.”
  • The Supreme Court has, on various occasions, reduced interest rates that reached 66%, 72%, or more per annum, when challenged in court as unconscionable.
  • Borrowers may seek judicial relief by questioning the interest clause in their loan agreement if it is grossly disproportionate or if it significantly deviates from prevailing market rates.

4.2 Contract of Adhesion

  • Online lending contracts are often contracts of adhesion, where the lender drafts the terms and the borrower only “clicks to agree.”
  • Courts may scrutinize such contracts more strictly, especially when a borrower claims unfair or one-sided terms.

4.3 Practical Barriers

  • Litigation can be expensive and time-consuming, discouraging many borrowers from challenging usurious rates in court.
  • Borrowers also face the practical limitation of needing credit fast, making them less able to negotiate or shop for better terms.

5. Harassment and Abusive Collection Practices

5.1 Common Forms of Harassment by Online Lenders

  1. Threats and Intimidation: Constant calls or text messages threatening legal actions or harm if payments are not made immediately.
  2. Public Shaming: Sending messages to a borrower’s contacts, family members, or office colleagues about their debt; posting on social media.
  3. Unauthorized Access to Personal Data: Scraping the borrower’s phone contacts without explicit permission or beyond what is needed to process the loan.
  4. Use of Obscene Language or repeated late-night calls to harass the borrower.

5.2 Data Privacy Act (Republic Act No. 10173)

  • This law protects the personal data of individuals and penalizes the unauthorized disclosure or misuse of personal information.
  • Online lending apps that access a user’s contact list or media files without legitimate basis or explicit consent may be violating the Data Privacy Act.
  • The National Privacy Commission (NPC) has penalized or issued cease-and-desist orders against certain online lending platforms that engaged in unauthorized data harvesting and “shaming” tactics.

5.3 SEC and NPC Enforcement Actions

  • Cease-and-Desist Orders (CDOs): The SEC has issued CDOs against several online lending companies for harassment, usurious interest, or operating without a license.
  • Fines and Penalties: The NPC can impose fines, require corrective actions, or even require the closure of an app that violates data privacy standards.

5.4 Possible Criminal Liabilities

  • Repeated harassment, threats, or defamatory statements may constitute crimes such as Grave Threats, Slander, or Online Libel under the Revised Penal Code in conjunction with the Cybercrime Prevention Act of 2012 (Republic Act No. 10175).
  • Unauthorized use of another’s personal information for harassment could also lead to criminal liability under the Data Privacy Act.

6. Remedies for Borrowers

  1. File a Complaint with the SEC:

    • Borrowers can lodge complaints regarding lending violations (excessive interest, unregistered lending, unethical collection) with the SEC’s Enforcement and Investor Protection Department (EIPD).

  2. Submit a Report to the National Privacy Commission (NPC):

    • If the lender violated data privacy rights (e.g., accessed phone contacts without consent, publicly shamed the borrower), one can file a complaint at the NPC.

  3. Consult with Legal Assistance Groups:

    • Government agencies like the Public Attorney’s Office (PAO) or private organizations such as the Integrated Bar of the Philippines (IBP) may provide legal support or advice for harassment cases.

  4. Civil Action in Court:

    • Borrowers may file a case for damages if they suffered harm from harassing acts or if the terms of the loan are unconscionable.
    • Courts have the power to modify or void excessive interest rates under principles of equity.

  5. Criminal Complaints (for Harassment, Threats, or Libel):

    • If harassment escalates to criminal conduct, borrowers can file complaints at the local prosecutor’s office or directly at the police station.

  6. Debt Restructuring or Negotiated Settlement:

    • Borrowers might attempt to negotiate directly for a restructured payment plan, especially if faced with a legitimate but burdensome debt.
    • Some companies may be open to lowering interest or waiving penalties to avoid legal or regulatory complications.

7. Practical Tips for Borrowers

  1. Check if the Lender is Registered:

    • Before borrowing from any online lending app, confirm through the SEC website if the entity is duly registered and authorized.

  2. Read the Terms Carefully:

    • Even though these are “click-to-agree” terms, try to understand the interest rate, fees, and consequences of late or non-payment.

  3. Keep Records of Communications:

    • If you experience harassment, preserve text messages, call recordings, or screenshots to support any future complaints.

  4. Know Your Rights Under Data Privacy Laws:

    • Online lenders must obtain proper consent to access your contacts or personal data. You have the right to revoke that consent and to file complaints for misuse of data.

  5. Engage Early if Problems Arise:

    • If you foresee difficulties repaying on time, communicate with the lender as early as possible to work out a modified arrangement.

8. Conclusion

The rise of online lending platforms in the Philippines has brought convenience alongside serious concerns regarding excessive interest rates and harassment in debt collection. While Philippine law no longer imposes rigid caps on interest rates, courts have the power to reduce fees deemed “unconscionable.” Regulatory agencies such as the SEC and the NPC have ramped up oversight to address unethical or unlawful practices, issuing cease-and-desist orders and penalizing non-compliant lenders.

Borrowers have multiple avenues of recourse—from filing regulatory complaints and seeking legal assistance to pursuing civil or criminal actions, where appropriate. To protect themselves, prospective borrowers are encouraged to stay informed, transact only with SEC-registered lenders, and assert their rights under consumer protection and data privacy laws.

Ultimately, both consumer vigilance and robust government enforcement are key to curbing predatory lending practices. If you are a borrower experiencing harassment or facing excessive interest demands, knowing your legal remedies and taking proactive steps can help you secure relief and safeguard your rights.

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

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