How to Challenge Excessive Interest and Penalties on Online Lending Apps in the Philippines
A Comprehensive Legal Guide

1. Introduction

In recent years, online lending apps have become increasingly popular in the Philippines due to their quick and convenient loan-processing methods. While many of these apps operate within legal bounds, others have been reported to charge exorbitant interest rates and penalties, often trapping borrowers in cycles of debt. This article provides an in-depth discussion of Philippine laws regulating lending activities, the rights and remedies of borrowers, and practical steps to challenge unfair or excessive charges imposed by online lending apps.

2. Legal Framework Governing Lending Activities

2.1. The Lending Company Regulation Act of 2007 (R.A. No. 9474)

Definition: R.A. 9474 requires all lending companies to be registered with the Securities and Exchange Commission (SEC) and to adhere to prescribed standards, including transparency in loan agreements.
Importance: This law imposes penalties on lending companies (including digital lenders) that fail to register or violate the conditions set by the SEC.

2.2. The Truth in Lending Act (R.A. No. 3765)

Purpose: Ensures that consumers are fully informed of the terms of credit being offered, including the finance charges, annual percentage rate (APR), and other fees.
Applicability: Lending companies, including online lending platforms, must disclose effective interest rates, total loan amount, payment terms, and penalties in clear, understandable language.

2.3. The Consumer Act of the Philippines (R.A. No. 7394)

Consumer Protection: Under this law, consumers are protected from deceptive, unfair, and unconscionable sales acts or practices. This can cover situations where lenders misrepresent loan terms or hide unreasonable charges in the fine print.

2.4. Supreme Court Jurisprudence on Interest Rates and Penalties

No More Fixed Ceiling, But Must Be Reasonable: The old Usury Law (Act No. 2655) was effectively suspended, meaning there is no longer a fixed legal ceiling on interest rates. However, the Supreme Court has consistently ruled that interest rates must not be “excessive, iniquitous, unconscionable, and/or exorbitant.”
Judicial Intervention: Courts have the power to reduce or nullify interest rates and penalty charges they deem unconscionable or contrary to public morals (e.g., Medel v. Court of Appeals, G.R. No. 131622 (1998)).

2.5. SEC Memorandum Circulars and Regulations

Registration Requirement: Online lending companies must secure an SEC license. Operating without a license is a clear violation and can lead to closure and penalties.
Debt Collection Practices: SEC Memorandum Circular No. 18 and 19, Series of 2019, explicitly prohibit unfair or abusive debt collection practices, such as harassment, threats, or shaming borrowers on social media.

2.6. The Data Privacy Act of 2012 (R.A. No. 10173)

Consent and Data Protection: Many online lending apps access a borrower’s personal data (such as phone contacts, messages, or photographs). Under R.A. 10173, companies must secure valid consent and protect personal data. Any misuse or unauthorized sharing of personal data can be reported to the National Privacy Commission (NPC).

3. Identifying Excessive Interest and Penalties

3.1. What Constitutes Excessive Interest?

Comparative Benchmark: While there is no fixed ceiling, interest rates surpassing standard commercial rates (which typically range between 12% to 36% annually for many secured loans, although personal/online loans may be higher) can be questioned for excessiveness.
Unconscionable Terms: If the rate is grossly disproportionate to typical market rates or if the lender fails to explain how it was computed, it may be deemed unconscionable.

3.2. Illegal and Hidden Charges

Pre-Processing Fees: Excessive “processing” or “service” fees withheld from the principal.
Penalty Charges: Excessive daily penalty rates for late payment that quickly balloon the outstanding debt.
Miscellaneous Fees: Undisclosed costs added at the time of repayment without prior notice or agreement.

4. Remedies and Legal Avenues for Borrowers

4.1. Direct Negotiation or Loan Restructuring

Revisiting Terms: Borrowers may contact the lender directly to seek a restructuring of payment terms or reduction of penalties.
Documentation: All offers, counteroffers, and settlement proposals should be in writing. This forms crucial evidence if a dispute escalates.

4.2. Filing Complaints with the Securities and Exchange Commission (SEC)

Grounds for Complaint:
1. Operating Without a License
2. Charging Unconscionable Interest Rates
3. Employing Harassment or Other Unfair Debt Collection Tactics
Procedure:
1. Prepare all evidence (loan agreements, statements, screenshots, text messages).
2. Draft a formal complaint and submit it to the SEC.
3. The SEC may call for a hearing or investigation; non-compliant lenders risk fines and closure.

4.3. Filing Complaints with the National Privacy Commission (NPC)

Grounds for Complaint:
1. Unauthorized access or misuse of personal data.
2. Public shaming or “doxxing” of a borrower’s contacts.
Procedure:
1. Compile evidence showing data misuse or privacy breach.
2. Submit a complaint to the NPC through its official channels.
3. The NPC can impose penalties, require compensation, or direct the company to correct its practices.

4.4. Seeking Assistance from the Department of Trade and Industry (DTI)

Consumer Protection Mechanism: Though the primary regulator for lending companies is the SEC, the DTI can also step in if there are deceptive sales or trade practices involved.
Overlap with SEC Complaints: If the lending company is registered as a business entity, the DTI may mediate or guide on consumer-rights-related matters.

4.5. Civil Action in Regular Courts

Annulment or Reformation of Contract: If interest rates and penalties are manifestly excessive, borrowers can file a civil case to have the court declare such stipulations void or unenforceable.
Damages: If harassment or illegal practices caused tangible harm (e.g., job loss, defamation, mental anguish), the borrower may seek damages.
Injunction: In extreme cases of harassment or continuous unauthorized data use, a borrower may seek an injunction to order the lender to stop such acts immediately.

4.6. Criminal Complaints for Harassment or Threats

Grave Threats or Coercion (Revised Penal Code): If the lender’s representatives resort to threats of harm or extortion, borrowers may file criminal complaints.
Cybercrime (R.A. No. 10175): Online harassment, cyber libel, or unauthorized access to digital data can give rise to cybercrime charges.

5. Step-by-Step Guide to Challenging Excessive Charges

Gather All Documentation
- Secure copies of the loan agreement, receipts, screenshots of the app’s terms, text messages, emails, and any conversation proving harassment or hidden charges.
Verify the Lender’s Legitimacy
- Check the SEC’s official website to see if the lender is duly registered.
- Absence of registration is a red flag and a ground for immediate complaint.
Compute and Compare Interest/Charges
- Calculate the Actual Annualized Interest Rate (APR). Compare it with typical market ranges or other reputable lenders. If it is unreasonably high, it may be unconscionable.
Send a Written Complaint/Request for Explanation
- Ask the lender to explain how they arrived at their interest rates and penalties. Keep a record of all correspondence.
Attempt Amicable Resolution
- Propose a restructured payment plan or fair settlement. Many lenders may be open to negotiation to avoid regulatory action.
File a Formal Complaint with Relevant Agencies
- SEC: For violations of lending regulations.
- NPC: For privacy/data breaches.
- DTI: If deceptive practices fall under consumer complaints.
Seek Legal Counsel
- If direct negotiation fails or lender’s responses are unsatisfactory, consult with a lawyer who can advise on filing a civil or criminal case.
Prepare for Possible Litigation
- In court, prove that the lender’s charges are unconscionable by presenting documentary evidence and, if necessary, expert testimony (e.g., from financial experts).

6. Practical Tips and Warnings

Read Terms Carefully Before Borrowing
- Always check for hidden charges, read the small print, and ask for clarifications.
Document Everything
- Even if an arrangement is made verbally, follow up in writing to confirm the details.
Beware of Harassment and Privacy Violations
- Do not tolerate threats, public shaming, or unauthorized access to your contacts. Report such activities promptly.
Stay Informed of New Regulations
- The SEC and BSP (Bangko Sentral ng Pilipinas) may issue updated guidelines or caps on interest rates and penalties from time to time.
Act Quickly
- Delays in asserting your rights or reporting violations can lead to more accumulated fees and difficulty in proving your case later.

7. Conclusion

Challenging excessive interest rates and penalties imposed by online lending apps in the Philippines is both a legal right and a practical necessity to protect oneself from predatory lending. By understanding the relevant laws—particularly the Lending Company Regulation Act (R.A. 9474), Truth in Lending Act (R.A. 3765), Consumer Act (R.A. 7394), and Data Privacy Act (R.A. 10173)—borrowers can properly document abuses, seek regulatory intervention, and, if needed, pursue legal remedies in court.

If you believe you have been subjected to unlawful or unconscionable loan terms, consult a qualified attorney or relevant government agency at the earliest opportunity. Proper legal guidance and timely action can help you protect your rights, reduce or nullify excessive charges, and potentially receive compensation for any damages incurred.

Disclaimer: This article is intended for general informational purposes only and does not constitute legal advice. For specific legal concerns, it is best to consult directly with a licensed attorney in the Philippines.