Abstract
This article surveys everything a Philippine lawyer or informed borrower needs to know when an online lending platform (OLP) (a) imposes a “7 % per-day penalty” on an overdue loan and (b) later has its SEC lending or financing company license revoked. It stitches together the statutory framework, Bangko Sentral ng Pilipinas (BSP) and Securities and Exchange Commission (SEC) rules, Supreme Court doctrine on unconscionable interest, recent enforcement actions, and the practical consequences for both lender and borrower. Citations refer to Philippine laws, regulations, and leading cases; no external databases were consulted, per the user’s instruction.
1. Governing Legal and Regulatory Framework
| Instrument | Key Provisions Relevant to Online Lending & Penalties |
|---|---|
| Civil Code (1949) Arts. 1956-1959 (stipulation of interest); Art. 1229 (courts may reduce iniquitous or unconscionable penalties); Arts. 1306 & 1409 (contracts vs. law/public policy are void). | |
| Act No. 2655 (Usury Law) as amended; ceilings suspended by Central Bank Circ. 905-82, but unconscionability still policed by courts. | |
| Republic Act (RA) 9474 Lending Company Regulation Act of 2007 & RA 8556 Financing Company Act | SEC registration & ongoing compliance; power to suspend/revoke for “highly prejudicial” practices. |
| BSP Memorandum M-2022-039 (impl. by SEC MC 03-2022) | Caps: for loans ≤ ₱10 000 and tenor ≤ 4 mos, interest + all fees ≤ 15 %/month; penalties ≤ 0.5 %/day; total effective rate ≤ 6 %/month for renewals. |
| RA 11765 Financial Consumer Protection Act (FCPA) (2022) | Gives BSP & SEC joint power to nullify abusive terms, issue refunds, and impose administrative fines up to ₱10 million + twice the gain. |
| NPC Circular 20-01 & Data Privacy Act (RA 10173) | Prohibit “contact-scraping” and public shaming in collection; violators risk criminal prosecution and revocation of permits. |
| Consumer Act (RA 7394) & RA 10365 (AML Act amendment) | Deceptive advertising, fraud, or coercive collection may also give rise to criminal liability. |
2. The 7 %-Per-Day Penalty: Why It Is Presumptively Void
- Mathematical reality – 7 % × 365 days ≈ 2 555 % simple annual rate.
- Regulatory cap – SEC MC 03-2022 flatly limits penalties to 0.5 % per day (≈ 182 %/yr) for small-value online loans. Any stipulation above the ceiling “shall be void for the excess.”
- Civil Code Art. 1229 – Even where no specific ceiling applies, courts routinely strike down interest or penalties “so unconscionable that the mind revolts” (Medel v. CA, G.R. 131622, Nov 27 1998, where 66 % p.a. was reduced to 12 % p.a.). A fortiori, 2 555 % cannot stand.
- Public-policy test – The Supreme Court (Spouses Abella v. People, G.R. 195166, Jan 10 2018) voided a 10 % monthly penalty as “contrary to morals and public policy.”
- Criminal exposure – Imposing or collecting an unlawful charge despite SEC/BSP directives can amount to “willful violation of regulatory orders” under RA 9474 §11, punishable by up to ₱100 000 fine and 20 years’ imprisonment.
3. Effect of SEC Revocation on Existing Loan Contracts
| Question | Legal Answer | Practical Note |
|---|---|---|
| Is the borrower automatically freed from paying principal? | No. The underlying mutuum (loan) remains a civil obligation (Art. 1157 Civil Code). | The lender stands only as an unlicensed creditor; it loses the privilege to carry on business, not its civil receivable. |
| What about interest and penalties? | Charges that violate caps or are unconscionable are void for the excess; the borrower may still owe a reasonable rate set by court (often 6 % p.a. under BSP CB Circular 799). | Many courts, using Medel and Eastern Shipping formula, cut both interest and penalties to 6 % p.a. from date of default. |
| Can the lender still collect? | It may sue in court but cannot continue lending operations or use harassing collection. A revocation order normally includes a cease-and-desist against all collection outside judicial processes. | Collection letters after revocation often become exhibits in SEC contempt or NPC data-privacy cases. |
| Are payments after revocation refundable? | Amounts applied solely to void penalties or usurious interest are recoverable under Art. 1411 (in pari delicto is relaxed when public policy is served). | Borrower must file a civil action for refund or raise it as counter-claim if sued. |
4. Enforcement Landscape (2019 - 2025)
The SEC has published at least five waves of revocation and CDOs (Cease & Desist Orders) against OLPs charging triple-digit APRs—e.g., Cash Tayo Online / PondoPeso (2019), JoyCash / Pesobuffet (2020), Realm Shifters Lending’s “LoanChamp” (2022), and Fast Fortune Lending’s “PesoRedeeem” (2023). Each order cited:
- Exorbitant rate/penalty structures (often 1 %–7 % per day).
- Public shaming collection practices.
- False address or nominee directors on SEC records.
Revocation triggers were usually complaints filed with the SEC Corporate Governance and Finance Department (CGFD), the National Privacy Commission, and the NBI Cybercrime Division.
5. Borrower Remedies and Defensive Toolkit
| Scenario | Recommended Legal Action | Forum & Basis |
|---|---|---|
| Harassment or privacy breach (contact-scraping, threats) | File complaint-affidavit under RA 10173 §25-26 and NPC Circular 16-01 | National Privacy Commission; penalties up to ₱5 million + imprisonment for officers. |
| Demand to pay 7 %/day | Reply with notice of dispute invoking SEC MC 03-2022 & Art. 1229; offer to pay principal + lawful interest (≤ 0.5 %/day before Aug 2022 cap, ≤ 6 %/yr after). | SEC CGFD mediation or Small-Claims court (A.M. 08-8-7-SC). |
| Lender sues despite revocation | Raise counterclaim for attorney’s fees, moral damages for abusive collection; move to dismiss or strike out void interest. | Regular trial court; cite revocation order as public document. |
| Need to clear credit record | After settling lawful amount, request SEC-endorsed certificate of full payment and dispute negative info with CIC (Credit Information Corp.) | CIC Rules §7; FCPA §5(g). |
6. Impact on the Lender and Its Officers
- Civil liability – Officers who “knowingly assented to patently unlawful acts” (Rev. Corp. Code §30) are solidarily liable with the corporation.
- Administrative fines – SEC may impose up to ₱1 million + ₱10 000/day of continuing violation per company; BSP may impose separate fines if the OLP used a bank channel.
- Criminal liability – Willful violation of SEC order is punished under RA 8799 §73 and RA 9474 §11. Convicted officers face perpetual disqualification from corporate office.
- Tax consequences – Void interest or penalties must be reversed in income; BIR may assess deficiency taxes if the amounts were previously booked as finance income.
7. Comparative Benchmarks
| Country | Typical Statutory Cap on Penalties | Comment |
|---|---|---|
| Philippines | 0.5 % per day (15 %/month interest-inclusive cap) — SEC MC 03-2022 | Applied only to loans ≤ ₱10 000, tenor ≤ 4 months. |
| Indonesia | 0.8 % per week penalty – OJK Regulation 77/2016 | Stricter than PH in absolute terms. |
| Vietnam | 0.15 % per day statutory ceiling under Civil Code 2015 Art. 468 | |
| Kenya | Total Cost of Credit calculator; penalties rolled into APR; usury if APR > 400 % p.a. | Illustrates global convergence toward caps on digital-loan penalties. |
8. Draft Boilerplate Defense Letter (For Borrowers)
Subject: Dispute of Unconscionable Penalties / SEC Revocation No. ___
Dear [Lender],
I acknowledge a principal balance of ₱____ on Loan ID ____. However, your demand for “7 % daily penalty” is void under:
- SEC Memorandum Circular 03-2022 (max 0.5 %/day);
- Article 1229, Civil Code (penalties may be reduced when “iniquitous or unconscionable”); and
- SEC Order dated ____ revoking your lending license.
I tender ₱____, representing principal plus 6 % p.a. judicial interest, in full settlement. Continued attempts to collect void charges or to contact my phone contacts will be referred to the National Privacy Commission and the SEC Enforcement and Investor Protection Department.
Sincerely,
[Borrower]
Borrowers should send this via registered mail or email with read-receipt, preserving evidence of tender.
9. Litigation & Jurisprudence Snapshot
| Case | Ratio Decidendi on Interest/Penalty | Applied Here |
|---|---|---|
| Medel v. CA (G.R. 131622, 1998) | 5.5 %/month interest void for being unconscionable; reduced to 12 % p.a. | 7 %/day is even more unconscionable; courts likely slash to 6 % p.a. |
| Castro v. Tan (G.R. 168940, Jan 13 2016) | 5 %/month penalty struck down; interest may subsist even if penalty void. | Supports segregating principal + lawful interest from void penalty. |
| Spouses Abella v. People (2018) | 10 %/month penalty “immoral & violative of public policy”; criminal estafa conviction retained. | Indicates possible criminal liability for OLP officers. |
| Nacar v. Gallery Frames (G.R. 189871, Aug 13 2013) | Judicial interest rate = 6 % p.a. | Default fallback rate when contract rate is void. |
10. Compliance Checklist for Legitimate OLPs (Post-2024)
- SEC Lending/Financing Company Certificate visibly posted inside the app & website.
- Interest + all fees disclosed in APR form before disbursement; in-app calculator mandatory.
- Cap adherence: max 15 %/month total cost; 0.5 %/day penalty ceiling.
- Data-minimum design: collect only name, ID, selfie, and two contact references (NPC Circular 21-02).
- Collections Code of Conduct: no profanity, no threat, no contact of persons other than borrower except once to ascertain location.
- Complaint channel manned 9 a.m.–5 p.m., Monday–Friday, Philippine holidays excluded.
- BSP consumer assistance icon linking to chatbot or hotline (“#CFPB” under FCPA IRR).
- Independent audit of algorithmic credit-scoring model for discrimination and transparency.
Failure in any item may be deemed “unsafe or unsound practice” warranting suspension or revocation.
11. Key Take-Aways
- A 7 % daily penalty is patently void under both SEC caps and Civil Code unconscionability doctrine.
- License revocation does not extinguish the principal debt but strips the lender of business legitimacy and collection privileges.
- Borrowers have multi-layered remedies—SEC administrative action, NPC privacy complaints, civil actions for refund, and possible criminal prosecution of abusive officers.
- Courts routinely reform interest to 6 % p.a. once a rate is declared excessive.
- OLPs that wish to survive the regulatory purge must realign with SEC MC 03-2022, FCPA, and global best practice on consumer protection.
Suggested Citation (Bluebook style)
[Your Name], Overdue Online Loan, Revoked License & the 7 Percent Daily Penalty in Philippine Law, (Apr. 26, 2025) (unpublished manuscript, on file with author).
Prepared April 26 2025, Manila, Philippines.