Excessive Penalty and Harassment in Online Lending

Excessive Penalty and Harassment in Online Lending (Philippine Context)
Comprehensive Legal Discussion

1. Introduction

Online lending (also called digital lending or app-based lending) has grown significantly in the Philippines. By offering quick cash and minimal documentary requirements, these platforms have opened credit access to many individuals who are underserved by traditional banks. Unfortunately, there have also been increasing reports of exorbitant interest rates, excessive penalties, and harassment in collection practices.

This article discusses the legal framework governing online lending in the Philippines, key issues surrounding excessive penalty and harassment, and remedies available to borrowers. While this is not a substitute for professional legal advice, it provides a comprehensive overview of the topic.

2. Legal Framework Governing Online Lending

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

    • Governs the establishment and operation of lending companies in the Philippines.
    • Requires all lending companies to register with the Securities and Exchange Commission (SEC).
    • Empowers the SEC to regulate interest rates, fees, and other charges when necessary to protect borrowers from abusive practices.

  2. Republic Act No. 8556 (Financing Company Act of 1998)

    • Similar to R.A. 9474, but specifically covers financing companies.
    • Financing companies and lending companies often offer small, short-term loans and may operate through mobile or online platforms.
    • They also fall under the regulatory jurisdiction of the SEC.

  3. BSP Circulars and the Anti-Usury Law

    • The Philippines had an Anti-Usury Law (Act No. 2655), which set maximum interest rates, but subsequent issuances by the Central Bank (now Bangko Sentral ng Pilipinas or BSP) effectively lifted the ceilings on interest rates.
    • While there is no fixed cap on interest rates for most lending products, unconscionable interest rates can still be challenged in court under general principles of law and equity (Civil Code provisions and Supreme Court jurisprudence).

  4. Consumer Act of the Philippines (R.A. 7394)

    • Provides general consumer protection but is not as specific to lending practices as R.A. 9474.
    • Still relevant for addressing deceptive, unfair, and unconscionable sales acts and practices.

  5. Data Privacy Act of 2012 (R.A. 10173)

    • Protects personal data collected by companies, including lending apps.
    • Unauthorized access, disclosure, or misuse of borrowers’ personal information can subject the lender to penalties and fines imposed by the National Privacy Commission (NPC).

  6. SEC Memorandum Circulars

    • SEC Memorandum Circular No. 18, s. 2019: This circular sets out prohibitions on unfair debt collection practices, including the use or threat of violence, use of profane language, and contacting people in the borrower’s contact list without authority, among others.
    • The SEC has since issued additional circulars and advisories reminding lending and financing companies of responsible lending and collection standards.

3. Understanding Excessive Penalty: Interest, Penalties, and Other Charges

  1. Interest vs. Penalties

    • Interest is the charge for borrowed money, typically expressed as a percentage of the principal loan amount.
    • Penalties may include late payment charges, collection fees, or other surcharges imposed when a borrower fails to pay on time.

  2. When is a Penalty or Interest Rate “Excessive”?

    • Philippine law does not fix a specific percentage cap for “excessive” interest across all loans (unlike credit card interest, which is subject to certain BSP ceilings).
    • However, under the Civil Code and Supreme Court jurisprudence, courts may reduce interest or penalties deemed “unconscionable” or “exorbitant.”
    • In Medel vs. Court of Appeals (1998), the Supreme Court declared a 66% interest per annum excessive and reduced it. Since then, other decisions have followed similar reasoning, stating that interest rates far beyond 24–36% per annum often raise a presumption of unconscionability.

  3. Contractual Freedom vs. Court Intervention

    • Parties to a loan agreement have freedom to stipulate interest and penalty rates.
    • Nonetheless, Article 1229 of the Civil Code allows courts to equitably reduce a penalty if it is iniquitous or unconscionable.
    • Similarly, interest deemed excessive can be reformed by courts.

  4. Notable Regulatory Position

    • The SEC can issue guidelines on interest rates and penalties where it finds them to be injurious to public interest.
    • While no strict caps apply to most online lending platforms, the SEC has repeatedly reminded lending companies to avoid oppressive rates and charges.

4. Harassment in Online Lending: Definitions, Forms, and Prohibitions

  1. What Constitutes Harassment?

    • Harassment in debt collection includes, but is not limited to:
      • Threats of violence or bodily harm.
      • Use of obscene or profane language.
      • Repeated phone calls intended to annoy or abuse.
      • Public shaming tactics such as posting borrower information on social media or contacting the borrower’s relatives, employers, or friends without lawful basis.

  2. Common Harassment Tactics by Online Lenders

    • Unauthorized Access to Contacts: Some lending apps require permission to access phone contacts. Lenders then send threatening or shaming messages to these contacts.
    • Shaming Posts or Group Chats: Borrowers’ names and personal details are publicly posted online to force payment.
    • Misrepresentation or False Legal Threats: Threatening arrest warrants or criminal cases without basis, or falsely claiming affiliation with law enforcement.
    • Excessive and Aggressive Calls: Continuously calling the borrower or the borrower’s references at odd hours.

  3. Legal Prohibitions and Liabilities

    • SEC Memorandum Circular No. 18, s. 2019 explicitly forbids collection practices that involve violence, intimidation, harassment, unfair means, or dishonest methods.
    • Data Privacy Act sanctions unauthorized processing or sharing of personal data. Lenders who misuse the borrower’s phone contacts can be liable for violation of privacy rights.
    • If harassment involves threats, defamation, or intimidation, the Revised Penal Code provisions on grave threats, unjust vexation, or libel/slander may be applied.

5. Regulatory Oversight and Enforcement

  1. Securities and Exchange Commission (SEC)

    • Primary regulatory agency for lending and financing companies.
    • Has the power to suspend or revoke the Certificate of Authority (CoA) of any lending company found to violate regulations on interest rates or debt collection methods.
    • Receives complaints against abusive lenders and can issue cease-and-desist orders or penalize erring companies.

  2. Bangko Sentral ng Pilipinas (BSP)

    • Oversees banking institutions, but many digital lenders are non-bank entities.
    • Nonetheless, BSP’s consumer protection framework serves as a general guideline for fair lending practices.

  3. National Privacy Commission (NPC)

    • Enforces the Data Privacy Act of 2012 to protect personal data.
    • Borrowers can file complaints if they suspect that an online lender has illegally accessed or misused their personal information.
    • NPC can impose fines and even recommend criminal prosecution for severe breaches.

  4. Courts

    • Courts can reduce or invalidate unconscionable interest rates and penalties.
    • They can also award damages to borrowers who suffer from unlawful harassment, defamation, or privacy violations.

6. Remedies and Actions for Borrowers

  1. Filing a Complaint with the SEC

    • Borrowers can file a complaint by submitting a sworn affidavit detailing the alleged abusive practices.
    • Provide evidence such as screenshots of messages, call logs, or recordings (if legally obtained).

  2. Complaints with the National Privacy Commission (NPC)

    • If the lender violates privacy rights—e.g., accessing contacts without consent, broadcasting personal information—borrowers can lodge a complaint before the NPC.
    • Attach relevant proof of data misuse or unauthorized disclosure.

  3. Filing Cases in Court

    • Civil Case: Borrowers can seek judicial intervention to question the validity of excessive interest or penalties. The court may order the reformation or nullification of unconscionable terms.
    • Criminal Case: If the lender’s collection method constitutes threats, coercion, or defamation, the borrower can consider filing a criminal complaint under the Revised Penal Code.

  4. Seeking Help from Law Enforcement

    • In cases of grave threats, blackmail, or intimidation, borrowers can seek assistance from the Philippine National Police (PNP) or the National Bureau of Investigation (NBI).

  5. Self-Protection Measures

    • Read the terms and conditions carefully before using any lending app.
    • Limit app permissions: If possible, avoid granting full access to contacts, photos, or other unnecessary data.
    • Document and save all communications from the lender—screenshots, emails, call recordings—to build evidence in case of a dispute.

7. Potential Consequences for Erring Online Lenders

  1. Administrative Penalties by the SEC

    • Suspension or revocation of Certificate of Authority to operate.
    • Fines for violations of SEC regulations and circulars.

  2. Data Privacy Act Penalties

    • Fines ranging from thousands to millions of pesos, depending on the severity and scope of the breach.
    • Possible imprisonment for responsible officers if criminal liability is established.

  3. Civil Liabilities

    • Courts may award actual, moral, or even exemplary damages to borrowers subjected to harassment or unlawful collection practices.
    • Reduction or annulment of excessive fees, interest, or penalty clauses.

  4. Criminal Liabilities

    • Lenders, owners, or employees may be criminally liable if they engage in threats, unjust vexation, libel/slander, or grave coercion.

8. Conclusion

The rise of online lending in the Philippines offers both opportunities and risks. While it democratizes credit access, it also opens the door to excessive interest rates, hidden charges, and aggressive or abusive collection methods. Philippine law, through the Lending Company Regulation Act, the Data Privacy Act, and SEC and NPC guidelines, seeks to protect borrowers from such abuses.

If a borrower experiences excessive penalties or harassment, the following steps are crucial:

  1. Gather evidence—texts, call logs, screenshots.
  2. File a complaint with the SEC, NPC, or relevant authorities.
  3. Seek legal recourse in courts to challenge unconscionable interest or penalty clauses.

Ultimately, raising awareness of borrower rights and strict enforcement of existing laws will help curb abusive lending practices. Should you find yourself in a predicament with an online lending platform, consider consulting a qualified attorney or reaching out to the relevant government agencies listed above.

Disclaimer: This article is for general informational purposes only and not intended as legal advice. If you need specific legal counsel, please consult an attorney knowledgeable in Philippine banking and finance law.

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

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