Harassment by Online Lending Apps and Premature Collection Practices

Below is a general overview of the main steps involved in closing a business and filing your final tax returns in the United States. Because requirements vary based on entity type, state/local jurisdiction, and your specific situation, always double-check the rules in your state or consult a qualified tax or legal professional.

1. Internal Decision and Documentation

  1. Hold a formal vote or decision:

    • Corporations typically require a board resolution or shareholder vote to approve the closure.
    • LLCs often must follow the procedure outlined in the operating agreement (e.g., a member vote).

  2. Draft and maintain meeting minutes or a written consent indicating the decision to dissolve.

2. Dissolve Your Business with the State

  1. File Articles (or Certificate) of Dissolution:

    • Submit dissolution documents to the appropriate state agency (often the Secretary of State).
    • Ensure all state fees, taxes, and annual reports are up to date.

  2. Settle state-level obligations:

    • Some states require a “tax clearance certificate” or proof that you have no outstanding taxes.

3. Notify Licensing Agencies and Cancel Registrations

  1. Local licenses and permits:

    • Contact city/county authorities to cancel business licenses, fictitious business names (“doing business as” or DBA), or permits.

  2. Professional licenses (if applicable):

    • If the business or its principals hold professional licenses, notify the relevant boards if closure affects those licenses.

  3. Close any specialized state/federal accounts:

    • If you have regulatory accounts (e.g., an alcohol permit, FDA registration), contact the issuing agency to close them out.

4. Resolve Outstanding Financial Obligations

  1. Notify creditors, vendors, and customers of your intent to close.
  2. Collect outstanding accounts receivable and settle any accounts payable.
  3. Distribute remaining assets to owners or shareholders in accordance with the business’s governing documents and state law.

5. Final Employment and Payroll Responsibilities (If Applicable)

  1. Issue final paychecks:

    • Include any accrued wages, vacation, or other benefits owed.
    • Comply with state wage payment laws, which may require final wages to be paid by a certain deadline.

  2. Prepare final employment tax forms:

    • File Form 941 (Employer’s Quarterly Federal Tax Return) or Form 944 (Employer’s Annual Federal Tax Return) for the last period in which you had employees.
    • Make final federal tax deposits for withheld income tax, Social Security, and Medicare taxes.
    • File Form 940 (Federal Unemployment Tax Return), if applicable.

  3. Provide final W-2s to employees:

    • You must furnish and file W-2s for the year in which you paid final wages.

  4. Consider state and local payroll taxes:

    • File any state or local withholding and unemployment returns.
    • Pay outstanding liabilities.

6. File Final Federal Business Tax Returns

The form you file depends on your business structure:

  1. Sole Proprietorship

    • Continue to file Schedule C (Form 1040) for your final year of business operations.
    • Mark it as “final” where applicable.
    • Report any remaining business assets sold or disposed of on the appropriate forms (e.g., Form 4797 or Schedule D).

  2. Single-Member LLC (Treated as a Sole Proprietorship)

    • Follow the same procedure as a sole proprietorship, attaching Schedule C to your 1040.
    • If your LLC elected corporate taxation, file the appropriate corporate return (Form 1120 or Form 1120-S) instead.

  3. Partnership (including Multi-Member LLC treated as a partnership)

    • File a final Form 1065 (U.S. Return of Partnership Income).
    • Check the “final return” box.
    • Issue final Schedule K-1 to each partner.

  4. C Corporation

    • File a final Form 1120 (U.S. Corporation Income Tax Return).
    • Check the “final return” box.
    • If you are distributing final assets and liquidating, also look into Form 966 (Corporate Dissolution or Liquidation) and Form 1099-DIV for distributions to shareholders.

  5. S Corporation

    • File a final Form 1120-S (U.S. Income Tax Return for an S Corporation).
    • Check the “final return” box.
    • Issue final Schedule K-1 to each shareholder.
    • If liquidating, file Form 966 and consider whether you need Form 1099-DIV for liquidation distributions.

7. Address Other Federal Obligations

  1. Cancel your EIN (Employer Identification Number) if you have no further business plans:

    • The IRS does not technically “recycle” EINs, but you can send a letter requesting the account be closed.
    • Include the full legal name of the entity, EIN, and the reason for closing the account.

  2. File any final excise tax returns if your business was subject to excise taxes (e.g., Form 720 for certain excise taxes).

  3. Retire any specific business-related elections:

    • If you had any special tax elections (e.g., S-corp election), confirm that there are no further requirements.

8. Maintain Records

Even after closing, you must keep your business and tax records for a certain period (generally 3-7 years, depending on the type of documentation and state/federal laws). Retain:

  • Tax returns and supporting documents
  • Employment tax records
  • Proof of asset purchases, sales, and depreciation
  • Bank and credit card statements
  • Final dissolution documents

9. Final State and Local Tax Filings

  1. File final state income tax returns under the rules for your business structure.
  2. Submit final state sales tax returns, if applicable.
  3. Address business property taxes or other local fees due.

10. Seek Professional Guidance if Needed

Closing a business involves both tax and legal considerations. You may need:

  • A tax professional (CPA or EA) to help prepare final returns.
  • An attorney to navigate state dissolution procedures and handle asset/liability questions.
  • A payroll specialist to correctly handle final paychecks and employment tax forms.

Key Points to Remember

  1. Timing: You cannot simply “stop filing.” You must file all final returns (federal, state, and local) and pay off any outstanding tax liabilities.
  2. Recordkeeping: Even after dissolution, keep records for the IRS and any state or local agency that may audit.
  3. Compliance: Canceling licenses, permits, and registrations is essential to avoid future tax or reporting obligations.
  4. Notice to Stakeholders: Creditors, employees, and customers should receive notice of your closure to avoid potential claims down the line.

Disclaimer

This overview is for general informational purposes and not exhaustive. It is not legal or tax advice. Always confirm details with an attorney, CPA, or other qualified professional who understands your specific situation and applicable state or federal laws.

Below is a comprehensive discussion of harassment by online lending applications (“lending apps”) and premature collection practices in the Philippine context. This article aims to explain how these practices occur, the relevant laws and regulations, the rights of borrowers, and possible avenues for redress.

1. Introduction

The rapid expansion of digital finance in the Philippines has given rise to online lending apps that offer quick approval and convenient loan disbursement. However, many of these platforms have also been reported to engage in unethical or illegal debt collection practices. Commonly reported abuses include harassment, invasion of privacy, and shaming of borrowers. Philippine law provides various safeguards for debtors against such misconduct, and government agencies—including the Securities and Exchange Commission (SEC) and the National Privacy Commission (NPC)—have taken steps to penalize erring companies.

2. Online Lending Apps in the Philippines

  1. Proliferation of Fintech

    • The fintech boom has led to numerous online lending platforms, often accessible through mobile apps.
    • These platforms typically advertise fast cash release and minimal documentary requirements, making them attractive to borrowers with urgent needs.

  2. Risks and Regulatory Challenges

    • Unlike traditional banks, many online lending apps are not always transparent about their fees, interest rates, and collection policies.
    • Some may not be duly registered or authorized by the SEC (in the case of lending/financing companies), thereby circumventing regulatory safeguards.

3. Harassment Tactics and Premature Collection Practices

  1. Harassment via Calls and Messages

    • Continuous, excessive calling at inappropriate times (early morning or late at night).
    • Abusive or offensive language toward borrowers.

  2. Public Shaming and Unauthorized Contact of Third Parties

    • Accessing contact lists and sending text messages to friends, family, and colleagues, disclosing the borrower’s debt and labeling them as scammers or delinquents.
    • Threatening to sue, embarrass, or harm the borrower’s reputation unless payment is made immediately.

  3. Premature Collection Efforts

    • Demanding payment even before the due date, or immediately after the due date lapses without allowing for grace periods.
    • Imposing exorbitant penalties and charges after a short delay in payment.

  4. Misrepresentation and Threats

    • Pretending to be law enforcement officials, lawyers, or government agents to intimidate borrowers into settling.
    • Sending fake legal notices or threatening criminal charges without legal basis.

4. Legal and Regulatory Framework

Multiple Philippine laws and regulations address debt collection practices, data privacy, and consumer protection. Key provisions include:

4.1. Securities and Exchange Commission (SEC) Oversight

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

    • Governs the establishment and operation of lending companies.
    • Requires registration of lending companies with the SEC.
    • Provides that lending companies must conduct business in accordance with existing laws and regulations (including those on fair debt collection).

  • SEC Memorandum Circulars

    • The SEC has issued various circulars reinforcing guidelines on lending and financing companies. For instance, SEC Memorandum Circular No. 18, Series of 2019, prohibits unfair debt collection practices such as using obscene language, posting personal information online, or threatening borrowers with violence or defamatory statements.

4.2. Bangko Sentral ng Pilipinas (BSP) Regulations

  • While BSP primarily regulates banks and certain financial institutions, it also issues guidelines on ethical lending practices.
  • Circulars from BSP often emphasize responsible lending and fair treatment of clients, though direct regulation of non-bank lending apps typically falls under the SEC’s purview.

4.3. Data Privacy Act of 2012 (Republic Act No. 10173)

  • Scope and Applicability

    • Protects personal information and sets rules on data handling and processing.
    • The National Privacy Commission (NPC) enforces this Act.

  • Prohibited Acts

    • Collecting or processing personal data without legitimate purpose or consent.
    • Accessing contact lists and sharing the borrower’s financial information to third parties (such as family or friends) without consent may violate the Data Privacy Act.

  • Penalties

    • Violations can lead to fines, imprisonment, or both, depending on the severity and nature of the offense.

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

  • Although primarily for consumer product transactions, some provisions on unfair or unconscionable sales acts or practices may be relevant by analogy in financial services.

4.5. Revised Penal Code and Other Special Penal Laws

  • Grave threats, grave coercion, or unjust vexation

    • If the collection practices cross into intimidation, coercion, or threat of harm, these acts may be punishable under the Revised Penal Code.

  • Cybercrime Prevention Act (Republic Act No. 10175)

    • Harassment or threats made through electronic communication might qualify as cyberstalking or online libel if defamatory content is posted publicly.

5. Debt Collection Guidelines in Detail

5.1. Fair Collection Practices

  1. Right to Be Treated with Dignity

    • Debt collectors must not use violence, obscene language, or threats.
    • They must not harass or embarrass the borrower.

  2. Proper Identification and Credibility

    • Collection agents must clearly identify themselves.
    • They cannot falsely represent themselves as law enforcement officers or lawyers.

  3. Accurate Representation of the Debt

    • Collectors must accurately state the amount owed, including principal, interest, and lawful charges.
    • They must not add unauthorized fees or penalties.

  4. Time of Contact

    • Collectors should avoid calling at unreasonable hours.
    • Repetitive or excessive communication may be deemed harassment.

5.2. Penalties for Violations

  • The SEC, under various circulars, may impose administrative sanctions, fines, or even revoke the Certificate of Authority of the lending/financing company.
  • Criminal charges may be pursued for violations of the Data Privacy Act or Revised Penal Code provisions.

6. Harassment Under the Data Privacy Act

An especially prevalent form of abuse by lending apps is accessing the borrower’s phone contacts and sending messages to friends or colleagues, disclosing the borrower’s personal financial information. This may violate:

  1. Data Processing Principles

    • Personal data must be processed fairly and lawfully.
    • Using contact information to shame or threaten a borrower is neither fair nor lawful.

  2. Consent Requirements

    • Lending apps often include “permission” for contact list access in their terms. However, this does not grant a blanket right to harass or disclose sensitive financial data to third parties without legitimate purpose.

  3. Possible Legal Actions

    • Borrowers can file a complaint with the NPC if their personal information was misused or shared without consent.
    • NPC can impose monetary fines and recommend criminal prosecution for severe offenses.

7. How to File Complaints and Seek Redress

  1. Securities and Exchange Commission (SEC)

    • If the lending company is registered, borrowers can lodge formal complaints against unfair collection practices or unlicensed lenders operating illegally.
    • The SEC can investigate and penalize abusive lending companies through administrative fines and license revocations.

  2. National Privacy Commission (NPC)

    • For breaches of personal data and privacy violations, the NPC accepts complaints through written submission or online portals (as provided on their official website).
    • The NPC may conduct hearings, issue compliance orders, or impose penalties.

  3. Philippine National Police (PNP) / National Bureau of Investigation (NBI)

    • If harassment includes threats of harm, extortion, or other crimes, borrowers may file a police report.
    • The PNP or NBI Cybercrime Division can investigate digital harassment and online libel allegations.

  4. Local Trial Courts

    • Borrowers may also file civil suits for damages if they have suffered reputational harm or emotional distress as a result of harassment.
    • In some cases, borrowers may seek temporary restraining orders (TROs) or preliminary injunctions to stop further harassment.

  5. Barangay Conciliation

    • Minor disputes or issues involving harassment between individuals in the same locality might be subject to barangay conciliation proceedings under the Katarungang Pambarangay system, although business entities are not always covered by this mechanism.

8. Practical Tips for Borrowers

  1. Documentation

    • Save screenshots of harassment messages or call logs; these can be used as evidence.
    • Note the date, time, and content of harassing calls.

  2. Know Your Rights

    • Remember that debt collectors are not allowed to publicly shame borrowers or contact third parties without legitimate cause.
    • Harassment and defamation are prohibited under the law.

  3. Be Wary of Illegitimate Lenders

    • Check if the lending platform is registered with the SEC.
    • Read the terms and conditions carefully before installing apps; be mindful of the permissions they request.

  4. Communicate in Writing

    • If possible, negotiate repayment terms or clarifications via email to have a written record.
    • Politely request that the lender respect your rights and privacy.

9. Current and Future Reforms

  1. Tighter Registration and Monitoring

    • The SEC has been intensifying its scrutiny of online lending apps, issuing advisories to the public about unregistered entities.
    • Digital platforms must increasingly comply with stricter documentation and transparency requirements.

  2. Enhanced Data Privacy Enforcement

    • The NPC has been active in investigating data privacy complaints against online lending apps.
    • Coordinated efforts between the NPC, SEC, and other agencies aim to streamline the process for complainants and bolster enforcement of data protection rules.

  3. Legislative Proposals

    • Some lawmakers have proposed amendments to existing laws to further penalize unscrupulous lending activities and expedite complaint resolution.
    • Potential measures include higher fines, quicker take-down orders of offending apps from app stores, and stricter guidelines on electronic documentation.

10. Conclusion

Harassment by online lending apps and premature collection practices pose serious threats to borrowers’ privacy, dignity, and well-being. Philippine law provides multiple protections: from the SEC’s regulatory framework on lending to the Data Privacy Act’s safeguards on personal information. Borrowers who face harassment should collect evidence, know their rights under the law, and file complaints with the proper authorities such as the SEC, the NPC, and law enforcement agencies if necessary.

As the fintech landscape continues to evolve, further reforms and stricter enforcement will likely follow. In the meantime, awareness remains the most powerful defense for borrowers—knowing how these apps operate, understanding the legal protections in place, and insisting on fair and respectful treatment from all lending institutions.

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