Online Lending in the Philippines: Addressing Excessive Interest Rates and Harassment Complaints

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. For specific issues or concerns, it is strongly recommended to consult a licensed attorney or reach out to the appropriate government agency.

1. Introduction

The rise of digital technology and the proliferation of smartphones have made financial services more accessible than ever. In the Philippines, online lending platforms (often operating via mobile apps or websites) have become a popular way for individuals to secure fast loans without the extensive documentation required by traditional banks.

While these platforms can serve legitimate financing needs, numerous complaints have emerged about excessive interest rates, hidden charges, and aggressive or abusive collection practices. This article will comprehensively discuss the regulatory framework governing online lending in the Philippines, identify legal issues related to excessive interest rates, outline avenues for filing harassment complaints, and provide practical tips for borrowers to protect themselves.

2. Legal and Regulatory Framework

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

Scope: RA 9474 governs “Lending Companies,” defined as institutions engaged in granting loans using their own capital.
Key Provisions:
- Requires lending companies to be registered with the Securities and Exchange Commission (SEC).
- Mandates the submission of certain documents (Articles of Incorporation, financial statements, etc.).
- Empowers the SEC to supervise and regulate lending companies, including the authority to impose penalties for non-compliance.

2.2. SEC Memorandum Circulars and Guidelines

The SEC regularly issues guidelines clarifying registration processes and operational requirements for lending and financing companies. Notably:

SEC Memorandum Circular No. 18, Series of 2019: Provides rules prohibiting unfair debt collection practices and requiring lending companies to disclose certain information (e.g., interest rates, fees, and charges) transparently.
SEC’s Oplan Kandado: The SEC has been known to coordinate with various agencies to crack down on illegal lending companies or those that fail to comply with SEC regulations.

2.3. Usury Law and Interest Rate Ceilings

The Philippines historically had an Anti-Usury Law (Act No. 2655) that set strict ceilings on interest rates. However, subsequent presidential decrees and laws effectively lifted the ceiling on interest rates, allowing parties to agree to terms.
Judicial Intervention: Courts, however, retain the power under the Civil Code (e.g., Article 1229) to intervene and reduce interest rates if they are deemed unconscionable or contrary to public morals. There is no fixed rate considered automatically excessive, but the Supreme Court has repeatedly struck down interest rates it finds grossly disproportionate.

2.4. Consumer Protection Laws

Republic Act No. 7394 (Consumer Act of the Philippines): Governs general consumer protection, including fair trade practices and product or service transparency.
Bangko Sentral ng Pilipinas (BSP) Circulars: Although BSP primarily regulates banks and other financial institutions under its jurisdiction, some guidelines on consumer protection and responsible lending practices indirectly influence industry standards.

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

Imposes obligations on organizations that collect personal data (e.g., phone contacts, identity documents).
Many online lending apps have faced scrutiny for accessing borrowers’ contact lists and using this information to harass them or their acquaintances.
The National Privacy Commission (NPC) has enforcement power to investigate data privacy violations and penalize violators.

3. Common Issues with Online Lending

Excessive Interest Rates
- Some lenders charge interest rates that can exceed 20% per month (or even higher), leading to exorbitant annual percentage rates (APRs).
- Borrowers often discover hidden fees and charges only after the loan is disbursed.
Short Repayment Periods
- Many online lenders grant loans with very short repayment windows, sometimes 7–14 days.
- High interest combined with short terms can create debt traps.
Harassment and Privacy Violations
- Unfair collection practices: Threatening calls, public shaming via social media, contacting friends or employers, and even death threats in extreme cases.
- Unauthorized use of personal data: Some apps demand permission to access contact lists during installation, which is later misused to contact people within a borrower’s network.
Lack of Transparency
- Opaque terms and conditions, buried clauses in loan agreements.
- Non-disclosure of actual interest rates, service fees, or penalties until after the borrower has accepted the terms.

4. Excessive Interest: The Legal Standpoint

4.1. “Freedom to Contract” vs. “Unconscionable Rates”

Under Philippine law, parties generally have the freedom to agree on interest rates. Nevertheless, courts will not hesitate to modify or nullify interest rates deemed excessive or unconscionable.

Article 1306, Civil Code of the Philippines: Contracts are generally valid if they do not violate the law, morals, good customs, public order, or public policy.
Article 1229, Civil Code of the Philippines: The court may equitably reduce penalty clauses and interest rates if they are iniquitous or unconscionable.

4.2. Consequences of Unconscionable Interest

Courts may reduce interest or penalty charges to a “reasonable rate” (often pegged around 12% per annum in some jurisprudential guidelines, though this can vary).
Borrowers can raise the issue of unconscionable interest as a defense if sued for non-payment.

5. Harassment Complaints and Legal Remedies

5.1. What Constitutes Harassment?

Harassment typically involves any act or threat that causes substantial emotional distress or embarrassment, or an invasion of privacy for the purpose of forcing a borrower to repay.
Unfair Debt Collection Practices can include:
- Threatening violence or harm.
- Using obscene or profane language.
- Repeatedly calling at odd hours (e.g., midnight or dawn).
- Publicly shaming the borrower, such as on social media.
- Contacting people in the borrower’s phonebook to coerce repayment.

5.2. Filing a Complaint with the SEC

Jurisdiction: The SEC regulates lending companies (and financing companies).
Procedure:
1. Gather Evidence: Screenshots of threatening messages, call logs, and any proof of abusive or illegal collection tactics.
2. Prepare a Written Complaint: State all relevant details—name of the lending app, specifics of the harassment, timeline of events.
3. Submit: You can file your complaint at the SEC main office or via their online portals, depending on current regulations and advisories.
4. Follow Up: The SEC may request additional evidence or schedule a hearing.

5.3. Filing a Complaint with the National Privacy Commission (NPC)

Basis: Unauthorized use of personal data, such as sharing borrower’s information or contacting individuals in their phonebook without consent.
Procedure:
1. Gather Evidence of Data Privacy Violations: App permission requests, screenshots, recordings, or any record of how the data was misused.
2. File a Complaint: Through the NPC’s official channels (online or in-person).
3. Investigation: The NPC will evaluate the complaint, and if meritorious, they may summon the parties, conduct hearings, or issue sanctions.

5.4. Filing a Criminal or Civil Case

Criminal Complaint: In extreme cases—e.g., threats of harm or defamatory statements—borrowers may seek assistance from the Philippine National Police (PNP) or the National Bureau of Investigation (NBI) to file criminal charges. Possible crimes include grave threats (under the Revised Penal Code), libel, or unjust vexation.
Civil Case: Borrowers can also file civil cases (or raise counterclaims if the lender sues them) for moral damages if they suffered from distress or reputational harm.

6. Defenses and Strategies for Borrowers

Check Legitimacy of the Lender
- Verify with the SEC if the lender is registered.
- Check reviews, forums, and consumer feedback online.
Demand Transparency
- Before taking a loan, ask for a breakdown of charges: interest rates, penalties, processing fees, etc.
- Retain a copy of any electronic contract or disclosure statement provided by the lender.
Document Everything
- Keep copies of all messages, emails, and any written communication.
- Log phone calls and note any harassing or threatening behavior.
Negotiate
- In some cases, lenders might be open to restructuring or reducing fees if approached professionally.
Seek Legal Advice
- If you suspect predatory lending or experience harassment, consult a lawyer or relevant government agencies (SEC, NPC, etc.).
Report to Authorities
- If you are harassed, do not hesitate to report to the barangay, local police, or directly to the SEC or NPC as warranted.

7. Regulatory and Industry Responses

SEC Crackdowns: The SEC, in collaboration with other agencies, has conducted investigations and shut down or revoked licenses of lenders found to be engaged in illegal or abusive practices.
Data Privacy Enforcement: The NPC has sanctioned several online lending apps for unauthorized access or misuse of personal data.
Public Advisories: Government agencies periodically issue warnings about unregistered or rogue lending apps. Borrowers are encouraged to download apps only from legitimate app stores and read reviews carefully.

8. Practical Tips for Avoiding Predatory Online Lenders

Research the Company: Confirm that the lending platform is duly registered and regulated by the SEC.
Read the Fine Print: Scrutinize terms and conditions, focusing on interest rates, hidden fees, and penalties for late payment.
Mind Your App Permissions: Be cautious when installing apps that request access to contacts, photos, or other personal data.
Borrow Responsibly: Only borrow what you can repay, and be mindful of short-term loans with very high interest rates.
Engage in Open Communication: If you experience financial difficulty, communicate with your lender to explore options to avoid default and potential harassment.

9. Conclusion

Online lending in the Philippines can be a convenient solution for many, but it also poses risks of exploitation through exorbitant interest rates and abusive collection practices. The existing legal framework—anchored by the SEC’s regulatory authority, the Data Privacy Act, and the general principles of the Civil Code—provides mechanisms to address these issues.

Borrowers who find themselves facing harassment or believe they are subject to excessive interest rates should know that the law affords them remedies. By being proactive—gathering evidence, filing complaints with the correct agencies (SEC, NPC, PNP/NBI if necessary), and seeking legal counsel—borrowers can protect their rights and challenge predatory practices.

In the long term, continuing public awareness campaigns, vigilant regulatory enforcement, and responsible borrowing practices will be key to creating a fair and transparent online lending environment in the Philippines.

References and Resources

Republic Act No. 9474 (Lending Company Regulation Act of 2007)
SEC Memorandum Circular No. 18, Series of 2019
Civil Code of the Philippines (Articles 1306, 1229)
National Privacy Commission website: https://www.privacy.gov.ph
Securities and Exchange Commission website: https://www.sec.gov.ph
Bangko Sentral ng Pilipinas website (consumer protection pages): https://www.bsp.gov.ph

For personalized guidance, consult a lawyer or approach relevant government agencies.