Below is a comprehensive legal article discussing online lending with excessive interest in the Philippine context. It covers the historical background of usury laws, the current legal and regulatory framework, notable jurisprudence, enforcement mechanisms, and practical considerations.

I. Introduction

The proliferation of online lending platforms in the Philippines has increased consumer access to credit but has also raised concerns regarding excessive interest rates and abusive debt collection practices. This article aims to present an overview of Philippine laws, regulations, and case law relevant to online lending with excessive interest, analyze the existing enforcement framework, and provide practical insights for both lenders and borrowers.

II. Historical Background: The Usury Law and its Suspension

Usury Law
- The primary legislation on interest rates in the Philippines historically traces back to Act No. 2655, commonly known as the “Usury Law,” enacted during the American colonial period.
- The Usury Law established ceilings on interest rates for loans or forbearance of money.
Suspension of the Usury Law
- Beginning in the 1980s, Presidential Decree No. 116 and subsequent amendments gave the Monetary Board of the then Central Bank of the Philippines (now Bangko Sentral ng Pilipinas or BSP) the power to set interest rate ceilings.
- In 1983, through Central Bank Circular No. 905, the government effectively suspended the Usury Law’s interest rate ceilings. Thus, no fixed limit on interest rates was prescribed anymore.
- Today, although the Usury Law is considered still in effect in principle, its interest ceilings have been deemed effectively suspended. This makes “excessive” interest a matter subject to judicial or regulatory scrutiny, rather than strictly defined by statute.

III. Regulatory Framework for Lending Companies

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

Scope and Definitions
RA 9474 governs lending companies engaged in granting loans from their own capital funds or from funds sourced from not more than nineteen (19) persons. They must be registered with the Securities and Exchange Commission (SEC).
Key Provisions
- Requirement of SEC Registration: Any person or entity that operates as a lending company must obtain a Certificate of Authority to Operate from the SEC.
- Interest Rates, Fees, and Charges: While RA 9474 does not prescribe a specific cap, it empowers the SEC to regulate “financing rates” to prevent abusive practices.
- Penalties for Violations: Operating without a license, refusal to comply with disclosure requirements, and other violations can lead to fines and imprisonment.

B. Financing Company Act of 1998 (Republic Act No. 8556)

Financing companies also require licensing and regulation by the SEC. Though distinct from lending companies, many provisions related to interest rates and consumer protection overlap with those in RA 9474.

C. SEC Memorandum Circulars

SEC Memorandum Circular No. 18 & 19, Series of 2019
These circulars clarify rules for disclosure, debt collection, and data privacy obligations of online lending and financing companies.
- Lenders must disclose effective interest rates, total amount payable, and other fees.
- They must not employ abusive collection practices, such as harassment, libelous threats, or contacting persons in the borrower’s contact list without consent.

D. Bangko Sentral ng Pilipinas (BSP) Circulars

Although BSP primarily regulates banks, quasi-banks, and other BSP-supervised financial institutions, some general consumer-protection measures also guide lending practices. These include the requirement for “truth in lending” disclosures and fair debt collection standards.
Interest Rate Caps (Credit Cards and Certain Loans): While BSP has set an interest rate cap on credit card transactions, no universal cap applies to all non-bank consumer loans. However, the absence of a statutory cap does not mean that interest rates can be arbitrarily excessive; they remain subject to judicial scrutiny for unconscionability.

IV. Excessive Interest and the Doctrine of Unconscionability

A. General Principle

When the Usury Law’s ceilings were suspended, the Supreme Court began applying the concept of “unconscionable interest” to protect borrowers. Courts may reduce or invalidate unreasonably high interest rates to a just and reasonable level. This principle has become a critical safeguard against predatory lending practices.

B. Key Jurisprudence

Medel v. Court of Appeals (G.R. No. 131622, November 27, 1998)
The Supreme Court invalidated a 5.5% per month (66% per annum) interest rate as exorbitant and unconscionable.
Spouses Solangon v. Salazar (G.R. No. 125944, June 29, 2005)
The Court reaffirmed that while parties are generally free to contract on interest rates, the rate must not be “excessive, iniquitous, unconscionable, and exorbitant.”

C. Application to Online Lending

Online lenders that charge triple-digit annual percentage rates (APR) or similarly high monthly rates could fall under the ambit of unconscionable interest. While no bright-line rule specifies the exact threshold of “excessiveness,” the courts consider factors such as:

Nature and purpose of the loan;
Relative bargaining power of the parties;
Level of risk involved; and
Industry practice.

V. Emerging Issues Specific to Online Lending

A. Harassment and Data Privacy Concerns

Unauthorized Access to Phone Contacts:
Many online lending apps require access to the borrower’s phone contacts under the guise of verifying identity. However, unscrupulous lenders then use these contacts to shame or harass borrowers for loan repayment.
Data Privacy Act of 2012 (Republic Act No. 10173):
Unauthorized processing or misuse of personal data can lead to administrative, civil, and even criminal sanctions. Complaints can be filed with the National Privacy Commission.

B. Cyberbullying and Defamation

Online lenders who resort to threats, public shaming on social media, or defamatory statements in text messages or calls may violate:
1. Revised Penal Code provisions on libel and grave threats;
2. Cybercrime Prevention Act of 2012 (Republic Act No. 10175) if such acts are carried out through electronic channels.

C. Enforcement and Prosecution

Role of the Securities and Exchange Commission (SEC):
The SEC has the authority to revoke licenses or impose penalties on registered lending/financing companies that violate laws and regulations.
Complaints with the Bangko Sentral ng Pilipinas (BSP):
While BSP’s direct authority over non-bank entities is limited, it may coordinate with the SEC on policy matters or consumer complaints involving certain fintech services.
Possible Local Government Regulation:
Some local government units (LGUs) have ordinances addressing lending activities, though these typically focus on business licensing and consumer welfare.

VI. Penalties and Remedies

Administrative Penalties
- The SEC can impose fines, suspend, or revoke the Certificate of Authority to Operate of erring online lending companies.
Civil Remedies
- Borrowers may file civil suits to nullify or reduce unconscionable interest rates.
- Lenders who harass or defame borrowers can face suits for damages under the Civil Code.
Criminal Liabilities
- Violations of RA 9474 or the Financing Company Act can carry imprisonment and fines.
- Data privacy violations can lead to criminal prosecution under RA 10173.
- Libel or grave threats made through digital means can be prosecuted under the Revised Penal Code in relation to RA 10175 (Cybercrime Law).

VII. Practical Guidance

For Borrowers
- Perform Due Diligence: Check if the lending platform is registered with the SEC.
- Examine Disclosure Statements: Understand the nominal interest rate, effective interest rate, and total finance charges.
- Document Everything: Save screenshots or text messages in case of harassment or illegal collection tactics.
- File Complaints Promptly: If subjected to abusive practices or excessive interest, file a formal complaint with the SEC or the National Privacy Commission (for data privacy breaches).
For Lenders
- Compliance with Laws and Regulations: Secure the proper licenses from the SEC and abide by disclosure and debt collection regulations.
- Fair and Transparent Practices: Exercise responsible lending by clearly communicating all charges and avoiding oppressive collection methods.
- Protect Customer Data: Strictly comply with the Data Privacy Act. Unauthorized use or sharing of personal information is illegal.

VIII. Conclusion

Online lending offers speed and convenience for borrowers but also poses significant regulatory and consumer protection challenges in the Philippines. With the Usury Law’s ceilings suspended, excessive interest rates can still be struck down by the courts on grounds of unconscionability. Government agencies—led by the Securities and Exchange Commission and supported by the National Privacy Commission—actively oversee online lending platforms to curb abusive practices.

While there is no absolute cap on interest rates for non-bank lenders, the principle of equity and fairness underpins modern jurisprudence, allowing courts to protect borrowers against exploitative lending terms. Moving forward, stronger enforcement of transparency requirements, stricter penalties for illegal or unethical debt-collection practices, and more comprehensive consumer financial education will be key to ensuring a fair online lending landscape in the Philippines.

Key References

Act No. 2655 (Usury Law)
Lending Company Regulation Act of 2007 (RA 9474)
Financing Company Act of 1998 (RA 8556)
Data Privacy Act of 2012 (RA 10173)
Cybercrime Prevention Act of 2012 (RA 10175)
Medel v. Court of Appeals, G.R. No. 131622 (1998)
Spouses Solangon v. Salazar, G.R. No. 125944 (2005)
SEC Memorandum Circulars No. 18 & 19, Series of 2019

Disclaimer: This article is intended for general informational purposes only and does not constitute legal advice. If you need specific guidance, consult a qualified legal practitioner familiar with Philippine laws and regulations.