Below is a comprehensive, general-information overview of legal interest rates applicable to online lending platforms in the Philippines. This discussion is not intended as legal advice and should not be treated as a substitute for official statutes or the advice of a qualified attorney. Nonetheless, it provides a solid starting point for understanding the regulatory environment, statutory provisions, and relevant jurisprudence that govern interest rates in online lending transactions.

1. Historical Context: The Usury Law and Its Suspension

1.1 The Usury Law (Act No. 2655)

The foundational statute governing interest rates in the Philippines for many decades was the Usury Law (Act No. 2655), enacted in 1916.
Originally, this law set ceilings on interest rates to prevent abusive lending practices. For example, it capped interest rates at 12% per annum for loans not secured by a mortgage and at 10% per annum for loans secured by a mortgage (subject to certain exceptions).
Over time, these static caps became impractical as economic conditions evolved.

1.2 Central Bank Circular No. 905 (Series of 1982)

In 1983, Central Bank Circular No. 905 effectively lifted the ceilings imposed by the Usury Law (except for certain pawnshop transactions).
Since then, the Philippines has followed a policy of interest rate liberalization, allowing lenders and borrowers to agree upon interest rates by contract.
However, courts have retained the power to declare interest rates unconscionable if they are found to be excessive or unjust under specific circumstances.

2. Legal Framework Under the Civil Code and Supreme Court Jurisprudence

2.1 Civil Code Provisions

Articles 1956 to 1961 of the New Civil Code outline the basic principles of interest in the Philippines:
- Article 1956: “No interest shall be due unless it has been expressly stipulated in writing.”
- Article 2209: When a debt is established but not paid on time, legal interest (as determined by law or regulation) may be imposed as a form of damages.
Under these provisions, parties are generally free to agree upon an interest rate, provided it is in writing.

2.2 Supreme Court Doctrine on Unconscionable Interest

Even with the lifting of interest rate ceilings, Philippine courts can nullify or reduce interest rates they deem to be “unconscionable” or “excessive.”
Several Supreme Court rulings (e.g., Medel v. Court of Appeals, Almeda v. Court of Appeals, and others) have invalidated interest rates ranging from 36% per annum to even higher rates where the Court found them to be exorbitant or lacking in justification.
The case of Nacar v. Gallery Frames (2013) adjusted the legal interest rate on judgments to 6% per annum (both pre- and post-judgment interest from the time of finality of the judgment), but that applies specifically to money judgments in litigation—not necessarily to private lending agreements.

3. Regulatory Authorities Over Lending Companies and Online Lenders

3.1 The Securities and Exchange Commission (SEC)

The SEC is the primary regulator for lending and financing companies under:
- Republic Act No. 9474 or the Lending Company Regulation Act of 2007
- Republic Act No. 8556 or the Financing Company Act of 1998
Any entity that extends credit in a regular, non-occasional manner must register as a lending company or a financing company with the SEC.
The SEC has issued regulations aimed at curbing abusive lending practices, including:
- Disclosure requirements on interest rates and other charges under the Truth in Lending Act (Republic Act No. 3765), and subsequent SEC or BSP circulars.
- Caps and limitations on penalties or surcharges for late payments (though formal, universal caps on regular interest rates have not been as strictly set for all lending companies, the SEC may consider certain rates abusive and impose sanctions).

3.2 The Bangko Sentral ng Pilipinas (BSP)

The BSP regulates banks, quasi-banks, and other financial institutions (including some financial technology or “fintech” firms, depending on their business model).
While the BSP has set specific caps—for instance, on credit card interest rates (e.g., 2% per month or 24% per annum)—these caps do not automatically apply to all online lending platforms unless those platforms are under BSP supervision or operating in a manner akin to a credit-card issuance.
If the online lending platform is structured as a bank or quasi-bank, or if it falls under certain BSP regulations (e.g., e-money issuance, digital bank license), BSP rules become relevant.

4. Key Legislation and Regulations Impacting Online Lenders

Lending Company Regulation Act (R.A. 9474)
- Requires lending companies to incorporate and register with the SEC.
- Imposes basic disclosure requirements, corporate governance standards, and consumer protections.
Financing Company Act (R.A. 8556)
- Similar to R.A. 9474 but focuses on financing companies that purchase receivables or lease equipment and other financing products.
Truth in Lending Act (R.A. 3765)
- Mandates lenders to fully disclose to borrowers the true cost of credit, including the nominal interest rate, effective interest rate, and all other related fees and charges.
Circulars and Memoranda from the SEC and BSP
- The SEC regularly issues memoranda reminding lending companies, including online lenders, about the prohibition on harsh debt-collection practices and the requirement to provide transparent disclosure of interest rates.
- The BSP may issue circulars that directly or indirectly impact online lending, especially in areas such as anti-money laundering (AML) and consumer protection.
Consumer Act of the Philippines (R.A. 7394)
- Contains broad consumer protection provisions and guidelines that may come into play when dealing with abusive lending schemes or misleading advertising.

5. Defining “Legal Interest Rates” for Online Lending

5.1 Contractual Freedom vs. Unconscionability

With formal usury ceilings no longer in place, the rule of thumb is that parties can agree on any interest rate in writing.
However, if a borrower disputes the interest rate as being grossly excessive, courts have the power to declare such a rate null and void or reduce it to a reasonable level.

5.2 SEC and BSP Guidance

While the SEC has not imposed a universal interest rate cap specifically for all online loans, it continues to watch out for exploitative practices through:
- Registration requirements (ensuring that only licensed, reputable entities operate).
- Disclosure rules that let borrowers see the annual percentage rate (APR) or effective interest rate (EIR).
- Monitoring and penalizing debt-collection abuses.

5.3 Emerging Industry Practices

Many legitimate online lending platforms in the Philippines offer short-term microloans (e.g., 7–30 days) with rates that may appear high on an annualized basis but are justified by the higher risk of unsecured lending.
Some platforms break down the total cost into interest + service fee + transaction fee—borrowers should carefully check these charges, as they collectively contribute to the overall “interest rate” in practical terms.

6. Consequences of Violating Interest Rate Regulations

Civil Consequences
- If a court finds the stipulated interest rate unconscionable, it may reduce the interest rate. In extreme cases, the court could also nullify the obligation to pay that specific rate altogether.
- Borrowers can file civil suits for damages if they suffer harm from unlawful or deceptive lending practices.
Criminal and Administrative Penalties
- The SEC can impose administrative fines, revoke lending licenses, or issue cease-and-desist orders if an online lender violates disclosure requirements, engages in illegal collection methods, or fails to comply with the Lending Company Regulation Act and related rules.
- Criminal charges may also be pursued for fraud or other violations under the Revised Penal Code, depending on the severity of the conduct.
Reputational Damage
- Online lenders caught imposing usurious or exploitative rates risk significant reputational damage, affecting their ability to attract borrowers and investors.

7. Best Practices for Online Lending Platforms

Register and Comply
- Ensure proper registration with the SEC (as a lending or financing company) and follow all ongoing compliance requirements.
Transparent Disclosures
- Provide borrowers with a clear statement of interest rates, service fees, processing fees, penalty fees, and the total cost of the loan (annual percentage rate or effective interest rate).
- Comply strictly with the Truth in Lending Act.
Fair and Reasonable Interest Rates
- Avoid exorbitant rates that could be deemed unconscionable if challenged in court.
- Balance the business’s risk profile with fair lending standards.
Ethical Debt Collection
- Refrain from using harassment, threats, or public shaming in collection efforts, as these are grounds for administrative sanctions and even civil or criminal liability under existing laws and SEC regulations.
Monitoring and Updating
- Stay informed about BSP and SEC circulars, memoranda, and new legislation. The regulatory landscape, especially involving fintech and online lending, can change rapidly.

8. Looking Ahead: Evolving Regulations in Fintech

The Philippines is experiencing rapid growth in fintech and digital lending platforms. As a result, the BSP and SEC continuously study possible reforms, including imposing stricter rate caps for specific types of short-term online loans.
Consumer protection is a growing concern, so future regulations may codify explicit interest rate ceilings, especially for small, unsecured online loans often marketed to financially vulnerable segments of the population.
Advocates for consumer welfare push for rules that clarify the maximum effective interest rate an online lender can charge. Meanwhile, industry advocates argue for a liberal environment that accommodates risk-based pricing and promotes financial inclusion.

9. Conclusion

In the Philippines, there is no absolute, blanket cap on interest rates for online loans due to the historical suspension of the Usury Law. However, online lenders must navigate a regulatory framework shaped by:

The SEC’s oversight of lending companies (including the requirement to register, disclose, and practice fair lending).
The BSP’s consumer protection policies and indirect controls (e.g., caps on credit cards, potential future regulations).
Supreme Court jurisprudence that authorizes courts to strike down or reduce unconscionable interest rates.
Civil, administrative, and criminal penalties for lenders engaging in unethical or illegal practices.

Ultimately, while contractual freedom governs interest rates, due diligence, transparency, and fair dealing remain critical. If a rate is challenged, it must survive judicial scrutiny under the standard of reasonableness and fairness. Borrowers, for their part, must carefully examine the effective interest rate—including all additional fees and charges—before finalizing an online loan agreement.

Disclaimer

This article aims to provide a broad overview of legal interest rates for online lending in the Philippines. It should not be construed as legal advice. Parties involved in lending transactions—whether as borrowers or lenders—are strongly encouraged to consult with legal professionals or directly refer to the relevant laws, regulations, and jurisprudence to ensure full compliance.