The Legality of Charging 20 % Interest per Week by Unregistered Lenders in the Philippines
A doctrinal and practical survey (as of 20 April 2025)
Reader’s note: This is a scholarly overview, not a substitute for personalised legal advice. Statutes, rules and jurisprudence cited are in force on the date above unless otherwise indicated.
1. Registration Is the First Gatekeeper
| Requirement | Governing Law | Key Points | Consequences if Ignored |
|---|---|---|---|
| Licence to lend | Republic Act (RA) 9474 – Lending Company Regulation Act of 2007 Implementing Rules & SEC Memorandum Circulars |
• Any “lending company” (individual or entity regularly offering loans for profit) must first register with the Securities and Exchange Commission (SEC). • Paid‑up capital: ₱1 million minimum (higher if foreign‑owned). • Mandatory disclosure of effective interest, penalties, fees. |
Criminal: Fine ₱50 k – ₱500 k and/or 6 months – 10 years’ imprisonment (RA 9474, s. 20). Administrative: Cease‑and‑desist, asset freeze, website/app takedown, publication of blacklist. |
| Banks & quasi‑banks | General Banking Law, BSP supervision | Separate charter; interest rules differ but registration is still compulsory. | BSP sanctions & criminal liability under banking laws. |
| Digital / online apps | RA 11765 (Financial Products and Services Consumer Protection Act) SEC MC 19‑2022 & BSP Circular 1154‑2023 on FinTech |
Apps need both corporate licence and product approval; intrusive phone‑book harvesting or shaming practices are prohibited. | Fines up to ₱2 million per transaction day, revocation of SEC/BSP licence, criminal cases for data‑privacy and consumer‑protection violations. |
Bottom line: An unregistered person or outfit imposing loans is already acting illegally before interest is even discussed. Any contract for professional lending without the required licence is void with respect to the right to collect interest or fees; only the principal may be recovered (Civil Code arts. 1409 & 1411).
2. Interest‑Rate Regulation After the Usury Law Ceilings Were Lifted
Act No. 2655 (Usury Law) originally capped interest at 12 % per annum (p.a.).
Central Bank (now BSP) Circular 905 (1982) suspended statutory ceilings, allowing parties to “agree freely” on rates.
But freedom to stipulate is not absolute:
- Civil Code, art. 1229 – Courts may reduce a penal clause they find “iniquitous or unconscionable.”
- Civil Code, art. 1306 – Stipulations must not be “contrary to law, morals, good customs, public order or public policy.”
- Constitution, art. II, s. 9 & art. XII, s. 1 – State policy against usury and predatory practices may justify regulation.
Sector‑specific caps have since been re‑imposed:
Product Instrument Ceiling (nominal) Credit cards BSP Circular 1165‑2023 2 % per month (24 % p.a.) finance charge; 1 % per month penalty if any. Loans by duly‑licensed lending/finance companies
(loan amount ≤ ₱25 000 & term ≤ 4 months)SEC Memorandum Circular 3‑2022 • 0.2 % per day (≈ 6 % per month) on outstanding principal.
• Total cost of credit (interest + all fees except notarial) ≤ 15 % per month (≈ 180 % p.a.)Micro‑finance (poverty‑alleviation loans) BSP Circular 1119‑2021 2.5 % per month all‑in effective interest.
A demand for 20 % interest per week (≈ 80 % per month or > 1 000 % p.a.) is far above every modern regulatory ceiling.
3. Jurisprudence on “Unconscionable” Interest
| Case | Facts & Rate | Supreme Court Ruling |
|---|---|---|
| Medel v. CA, G.R. 131622 (27 Nov 1998) | 5.5 % per month on a P500 k loan | Interest reduced to 12 % p.a.; court: 66 % p.a. “shockingly iniquitous.” |
| Spouses Castro v. Tan, G.R. 168940 (1 Feb 2012) | 7 % per month | Declared void; reduced to legal rate (then 6 % p.a.). |
| Security Bank v. Spouses Viesca, G.R. 192374 (7 Jan 2013) | 5 % per month default interest | Cut to 12 % p.a. |
| Nacar v. Gallery Frames, G.R. 189871 (13 Aug 2013) | Clarified legal interest is now 6 % p.a. for money judgments. | |
| Development Bank of the Phils. v. Court of Appeals, G.R. 119180 (20 Oct 2021) | 3 % per month stipulated, plus penalties | Court again voided excessive charges; reiterated that courts may motu proprio reduce rates even if not pleaded. |
Key take‑aways
- Courts routinely void commercial rates exceeding ~36 % p.a. as “unconscionable.”
- Once voided, the loan is deemed non‑interest‑bearing ab initio; the lender can recover only the principal plus legal interest computed by the court (6 % p.a. from judicial or extrajudicial demand).
- The rule applies even if the borrower initially agreed and even if Circular 905 is cited.
A fortiori, 20 % per week would certainly be struck down.
4. Criminal Exposure Beyond RA 9474
| Provision | Possible Offence Triggered by 20 %/week | Penalty Range |
|---|---|---|
| Revised Penal Code, art. 315 (Estafa) | Obtaining money by false pretence of lawful lending authority or by concealing usurious nature; converting payments. | Up to life imprisonment if amount ≥ ₱2.4 million. |
| RA 7394 – Consumer Act, arts. 50‑52 | Unfair or unconscionable sales practice. | Fine ₱500 – ₱300 000 and/or 1 day – 1 year. |
| RA 10175 – Cybercrime Act | Online shaming, threats, doxxing used to force payment. | Penalties one degree higher than corresponding RPC offence. |
| Data Privacy Act (RA 10173) | Illegal harvesting of contacts/photos to harass borrowers. | Fine up to ₱5 million and/or imprisonment up to 3 years. |
| RA 11765 | Deceptive, abusive, unfair collection or mis‑selling. | Administrative fines up to ₱50 million or 10 % of net worth, criminal penalties on officers. |
5. Civil Remedies for Borrowers
- Judicial Consignation or Action for Annulment of Contract – File in RTC where borrower resides; interplead principal in court to stop harassment.
- SEC Complaint – Even if lender is unregistered, SEC’s Corporate Governance and Finance Department investigates and can issue ex parte cease‑and‑desist orders within 48 hours.
- BSP or DTI Complaint – If product overlaps with their jurisdiction (banks, pawnshops, cash agents).
- Philippine National Police – Anti‑Cybercrime Group & CIDG – For threats, public shaming, privacy invasion.
- Barangay Protection Order – Immediate relief against intimidation, though limited.
- Class or representative suit – Available where many borrowers suffer the same predatory terms (Rule 3, Sec. 12, Rules of Court).
Note: Paying an unconscionable interest does not validate it; the borrower may still sue for refund within four years (Civil Code art. 1391).
6. Practical Guidelines for Lenders & FinTech Start‑Ups
| Do | Don’t |
|---|---|
| ✔ Register with SEC and secure a Certificate of Authority before any marketing. | ✘ Start operations under a “single‑prop” DTI permit alone — insufficient. |
| ✔ Follow SEC MC 3‑2022 caps until changed; adjust app code to auto‑calculate effective interest. | ✘ Use “factor rates” or “service fees” to disguise excess charges; the SEC looks at total cost of credit. |
| ✔ Provide a Key Fact Statement (KFS) clearly showing APR, penalties, dates. | ✘ Access the borrower’s contacts or cameras without explicit, granular consent (NPC Circular 20‑01). |
| ✔ Adopt humane collection scripts; record calls. | ✘ Post threats or shame borrowers on social media; grounds for criminal and administrative action. |
7. Policy Trends & Legislative Watch (2025‑2027)
- Absolute interest caps: A pending House Bill seeks to re‑enact a modern Usury Law setting 30 % p.a. upper limit across sectors.
- Special courts for predatory lending: The Supreme Court is pilot‑testing designated commercial court salas to expedite RA 9474 prosecutions.
- Mandatory credit‑bureau reporting: SEC is linking licensed lenders to the Credit Information Corporation, promoting responsible risk‑based pricing and lowering systemic rates.
8. Conclusion
Charging 20 % interest every week is patently illegal in the Philippines on three independent grounds:
- Licensing: Doing so without an SEC Certificate of Authority violates RA 9474 and voids the interest stipulation.
- Rate caps: Even if licensed, the rate exceeds all extant statutory and regulatory ceilings.
- Unconscionability: Supreme Court jurisprudence consistently voids commercial rates far lower than 20 % weekly.
Borrowers may refuse or sue; lenders risk civil invalidation, SEC shutdown, crippling fines and imprisonment. In short, “loan‑shark” rates have no legal foothold under contemporary Philippine law and policy.
Prepared by: [Your Name], J.D.
(Admitted to the Philippine Bar, practising banking & finance law)