ONLINE LOANS WITH UNJUST DEDUCTIONS IN THE PHILIPPINES
A 2025 legal primer for borrowers, lenders, compliance officers, and counsel
1 | Why the problem matters
Mobile “instant-cash” apps have put micro-credit in the pockets of at least 45 million Filipinos, but many platforms still slice off sizeable “processing fees,” advance interest, or mandatory insurance before the borrower ever sees the money. A ₱5 000 loan that arrives as only ₱3 500—and must still be repaid in seven days with interest—is the classic scenario regulators now label “unjust deductions.” citeturn1view0
2 | Typical forms of unjust deduction
| How it is labelled in the app | What makes it unlawful |
|---|---|
| “Service/processing fee” equal to 10 – 30 % of principal, deducted upfront | Violates the Truth-in-Lending Act’s requirement that all finance charges be disclosed and that the borrower receive the net cash stated in the Loan Disclosure Statement (LDS). citeturn9search0 |
| Advance or pre-computed interest | Hides the true APR; capped together with all other costs at 100 % of principal under SEC Memorandum Circular 3-2022. citeturn1view0 |
| “One-time insurance” or “credit-investigation fee” that the borrower cannot refuse | May be struck down as unconscionable under Civil Code Art. 1229 and recent Supreme Court rulings. citeturn15view0turn18search4 |
Red flag: if (Cash disbursed + total scheduled payments ≠ amounts in the LDS) the contract is prima-facie defective. citeturn2view0
3 | Complete legal framework
| Level | Key instruments | Core rule on deductions |
|---|---|---|
| Constitution | Art. III (due process, privacy); Art. XII §6 (regulation of private enterprise) | State duty to curb abusive profit-making. citeturn1view0 |
| Statutes | • Truth-in-Lending Act (RA 3765, 1963) • Consumer Act (RA 7394) • Lending Company Regulation Act (RA 9474) • Financial Products & Services Consumer Protection Act (RA 11765, 2022) | Mandatory cost disclosure; prohibition of “excessive or unreasonable fees.” citeturn9search0turn8search1 |
| Sectoral regulations | • SEC MC 18-2019 (unfair debt collection) • SEC MC 3-2022 (100 % total-cost cap; ban on hidden or upfront deductions) • BSP Circular 941/1096 (digital-lending disclosure; cooling-off) | Caps, disclosure templates, and personal liability of officers. citeturn1view0 |
| Data privacy | Data Privacy Act (RA 10173) + NPC Circular 20-01 | Harvesting contacts or shaming borrowers to force payment is punishable by up to 6 years’ jail and ₱5 M fines. citeturn1view0turn14view0 |
| Civil Code & jurisprudence | Arts. 19-21 (abuse of rights), 1229, 1390, 1409; cases Medel v. CA (1998) and SC Press Release, 19 Dec 2023 | Courts routinely nullify interest/fees that are “shocking to conscience.” citeturn18search4turn15view0 |
4 | Enforcement landscape (2024-2025 snapshot)
| Regulator | What to complain about | Powers & recent activity |
|---|---|---|
| SEC – Financing & Lending Division | Hidden or excessive fees; unlicensed app | Cease-and-Desist, license revocation, fines up to ₱1 M per violation. citeturn3view0 |
| National Privacy Commission (NPC) | Contact-list scraping, debt-shaming | Stop-Processing Orders; app-store takedowns; fines up to ₱5 M. OLA complaints fell from 197 (2021) to 114 (2022) but still form 41 % of all privacy cases. citeturn14view0 |
| Bangko Sentral ng Pilipinas (BSP) | Banks or e-money lenders deducting undisclosed fees | Orders restitution; may impose ₱200 k-per-day administrative fines. citeturn1view0 |
| Courts / Prosecutors | Civil nullification, damages, or criminal cases (grave threats, cyber-libel, falsification) | First criminal conviction for online debt-shaming handed down by RTC Makati in 2024 (1 yr 8 mos prison & ₱300 k moral damages). citeturn3view0 |
5 | Borrower remedies
- Administrative – File a verified SEC or NPC complaint within 180 days of discovering the violation (forms online; no filing fee). citeturn3view0
- Civil – Ask courts to (a) reduce or cancel the fee/interest, (b) order refund, (c) award moral & exemplary damages; sums up to ₱400 000 may be brought in Small-Claims Court without a lawyer. citeturn3view0
- Criminal – Collectors and corporate officers can face prosecution for cyber-libel (RA 10175), unlawful processing (RA 10173), grave threats, falsification, or even VAWC if the harassment targets women/children. citeturn1view0
6 | Compliance checklist for online-lending platforms (2025 update)
- Licence & capital – SEC Certificate of Authority; ≥ ₱1 M paid-up (₱50 M if foreign-majority).
- Disclosure – Show LDS before disbursement; highlight net cash, APR, and total repayment.
- Cost cap – Aggregate of interest + penalties + fees must never exceed 100 % of principal (MC 3-2022).
- No upfront deductions except a reasonable documentary-stamp tax passed through at cost.
- Data minimisation – Do not require phone-book access; retain only name, address, ID, and device ID.
- Collection conduct – Max two calls/day; no profanity, threats, or mass-text blasts; calls only 7 a.m.–9 p.m. (MC 18-2019).
- Consumer-assistance desk – 24/7 chat or hotline; resolve disputes within 15 days per RA 11765 IRR. citeturn3view0
7 | Legislative & policy horizon
- House Bill 6776 / Senate Bill 1366 – “Online Lending Regulation & Penalties Act” (passed House 2nd reading, 13 Mar 2025) would criminalise debt-shaming per se and impose treble restitution. citeturn3view0
- NPC Draft “Fintech Code of Conduct” (2024-02) – tighter rules on AI-based credit scoring and automated denials. citeturn3view0
- Google Play / Apple AppStore policies – since 2021 ban OLA apps that request SMS or contact permissions or fail to display government licence numbers. citeturn3view0
8 | Practical tips for borrowers
- Demand the LDS and compare it with the cash you actually receive.
- Screenshot every screen, SMS, and chat—even deleted ones are recoverable by subpoena.
- Block harassing numbers but save voicemails and messages; they are admissible digital evidence.
- Alert friends that forwarding defamatory messages strengthens a future libel claim.
- File complaints quickly—regulatory prescriptive periods are short. citeturn3view0turn14view0
9 | Key take-aways
- Unjust deductions are no longer a grey area: the SEC’s 100 % total-cost cap and outright ban on hidden or upfront deductions mean that the net cash must equal the disclosed principal minus only reasonable, fully itemised costs.
- Personal liability is real: directors, “beneficial owners,” and even third-party collectors can be sued or jailed.
- Borrowers have multiple venues—administrative, civil, and criminal—and can recover damages without hiring counsel in small-claims courts.
- The compliance burden is technology-neutral: whether the loan is booked by a bricks-and-mortar lender or a purely digital app, the same consumer-protection and data-privacy rules apply.
Disclaimer: This primer is for information only and is not a substitute for personalised legal advice.