A Comprehensive Guide on Addressing Harassment and Excessive Interest Rates by Online Lending Companies under Philippine Law

LETTER TO AN ATTORNEY

Dear Attorney,

I hope this letter finds you well. I am writing on behalf of a relative, who has been receiving harassing messages and even death threats from an online lending company. The principal amount of the loan has already been fully paid, but the lender insists on charging an exorbitant daily interest rate of approximately PHP 200 per day, which in my understanding is unreasonably high. The situation has escalated to the point where my relative feels threatened and intimidated, and we are seeking guidance on the most appropriate steps to resolve this matter under Philippine law.

Specifically, we would like to know if there are legal measures to contest the excessive interest, given that both the principal and what seems to be a more than sufficient portion of interest have already been paid. Moreover, we wish to understand our rights and potential remedies against harassment and threats. If possible, we would also appreciate advice on addressing any privacy violations that may have occurred, as well as the best avenues to file complaints should these threats continue.

Thank you for your time and consideration, Attorney. We look forward to your expert guidance on how to protect our rights and achieve a fair resolution.

Sincerely,

[Concerned Relative]

INTRODUCTION

Online lending has become a popular and convenient option for many Filipinos who need quick funds. However, abuses and unscrupulous practices, including excessive interest rates and harassment tactics, can leave borrowers feeling trapped and threatened. The situation described—where a lender continues to demand hefty daily interest after the principal has been fully paid—raises critical questions about the legal framework for lending, interest ceilings, debt collection, and the protections available to borrowers under Philippine law.

This comprehensive guide provides an overview of the relevant statutes and regulations, including the Anti-Usury Law, the Lending Company Regulation Act of 2007, the Truth in Lending Act, and consumer protection laws. It also covers possible legal remedies against harassment, threats, and privacy breaches. Although this article aims to be thorough and accurate, it does not constitute formal legal advice. Individuals facing similar circumstances are encouraged to consult with a licensed attorney to receive guidance tailored to their specific situations.

OVERVIEW OF PHILIPPINE LENDING REGULATIONS

  1. Basic Concepts

    • Principal: The amount of money borrowed. Once the borrower repays the principal, the loan’s foundational obligation is substantially fulfilled, absent other arrangements.
    • Interest: The fee charged by the lender for the use of the borrowed funds. In the Philippines, there is no single uniform interest cap set by law in every case, but existing laws and regulations provide frameworks to prevent unconscionable and abusive rates.

  2. Regulatory Environment

    • Bangko Sentral ng Pilipinas (BSP): Regulates banks and other financial institutions. However, many online lending apps or companies might not be registered banks but can be regulated under other authorities.
    • Securities and Exchange Commission (SEC): Oversees lending companies under the Lending Company Regulation Act (R.A. No. 9474). The SEC can impose sanctions on lending companies engaged in abusive or unauthorized practices.
    • Department of Trade and Industry (DTI): Handles general consumer complaints and can assist with certain consumer issues.

  3. Online Lending Apps

    • The rise of online platforms created new challenges for regulators. While legitimate fintech solutions can streamline lending, unscrupulous operators exploit gaps in technology and regulation.
    • Borrowers must confirm whether the lending entity is duly registered, check user reviews, and read the terms and conditions carefully before taking any loan.

PROVISIONS ON INTEREST RATES IN THE PHILIPPINES

Historically, the Philippines had the Anti-Usury Law (Act No. 2655) which once placed an absolute cap on interest rates. Over time, the Monetary Board was granted the authority to set interest ceilings. Ultimately, usury ceilings were effectively lifted by the Central Bank Circular No. 905 (Series of 1982), meaning interest rates are largely market-driven, subject to the principle that they must not be unconscionable or in contravention of law, morals, or public policy.

However, the Supreme Court has consistently ruled that courts can reduce excessive interest rates. Under the Civil Code of the Philippines, particularly on obligations and contracts, if the interest rate is found to be unconscionable, it can be declared void or reduced to a reasonable figure. While there is no fixed statutory cap across all private lending transactions, parties retain the right to question an exorbitant rate in court.

THE ANTI-USURY LAW (ACT NO. 2655)

  1. Historical Context

    • Enacted to protect borrowers from exploitation by predatory lenders imposing extortionate interest rates.
    • The law gave the Monetary Board of the BSP the power to prescribe maximum rates of interest.

  2. Lifting of Usury Ceilings

    • Central Bank Circular No. 905 effectively lifted the limits on interest rates.
    • Despite this deregulation, the Supreme Court in numerous cases has upheld the principle that unconscionable interest rates are still unenforceable.

  3. Judicial Intervention

    • Courts have the authority to strike down or reduce grossly excessive interest rates.
    • If a lender charges a 200-peso daily interest on a relatively small principal, this rate could be scrutinized and challenged in court, especially if the borrower can show that the lender’s charge is abusive.

LENDING COMPANY REGULATION ACT OF 2007 (R.A. NO. 9474)

  1. Scope and Objective

    • Governs companies engaged in lending.
    • Seeks to regulate interest rates, service fees, and other charges.
    • Grants the SEC the power to penalize and sanction lending companies that violate the provisions of the law or the implementing rules and regulations (IRR).

  2. Registration Requirements

    • Lending companies must register and obtain a Certificate of Authority to Operate.
    • Operators of online lending platforms must also comply with disclosure and licensing requirements under this Act.

  3. Prohibited Practices

    • Harassment, threats, or any form of harmful debt collection practice.
    • Use of misinformation, deception, or false representation.
    • Public shaming of borrowers, unauthorized disclosure of personal data, and other unethical tactics.

  4. Role of the SEC

    • The SEC closely monitors registered lending companies.
    • Complaints regarding unethical collection practices may be submitted to the SEC, which can investigate, and if appropriate, penalize offending parties.

THE TRUTH IN LENDING ACT (R.A. NO. 3765)

  1. Purpose

    • Ensures meaningful disclosure of credit terms to protect consumers from a lack of awareness regarding loan costs.
    • Mandates lenders to provide clear information on finance charges, interest rates, and other fees before the loan agreement is signed.

  2. Disclosure Requirements

    • Lenders must itemize and explain interest, penalties, and other charges.
    • Borrowers are given an opportunity to understand the total cost of credit.
    • Any hidden or undisclosed charges can be contested.

  3. Practical Application

    • If the daily interest charge was not clearly disclosed or if it is hidden in the fine print, a borrower may allege violation of the Truth in Lending Act.
    • The act also grants regulators the power to sanction non-compliant lenders.

CONSUMER PROTECTION AND OVERSIGHT

  1. Consumer Act of the Philippines (R.A. No. 7394)

    • Though primarily addressing product safety and trade practices, it also promotes fair consumer credit transactions and consumer welfare.
    • Consumers may invoke the law’s general protections to bolster complaints against unscrupulous lenders.

  2. Data Privacy Act of 2012 (R.A. No. 10173)

    • Online lenders may violate privacy rights if they post personal information on social media or contact the borrower’s relatives, friends, or employers without consent.
    • The National Privacy Commission (NPC) can penalize companies that mishandle or unlawfully disclose personal data.

  3. Cybercrime Prevention Act of 2012 (R.A. No. 10175)

    • Harassment or threat messages delivered through electronic means may constitute cyberstalking or online harassment.
    • Criminal charges may be brought against lenders using threats or intimidation via digital channels.

REMEDIES FOR HARASSMENT AND THREATS

  1. Criminal Remedies

    • Grave Threats (Article 282 of the Revised Penal Code): If threats involve serious harm or violence, the perpetrator can be criminally liable.
    • Libel or Slander (Articles 353–355 of the Revised Penal Code): If the lender publicly shames the borrower with defamatory statements, criminal or civil actions for libel or slander may be appropriate.
    • Unjust Vexation (Article 287 of the Revised Penal Code): Persistent, unjustified harassment causing mental or emotional distress can lead to criminal liabilities.

  2. Civil Remedies

    • Injunction: Borrowers can request the court to issue an injunction, preventing the lender from continuing abusive collection methods.
    • Damages: Where harm is established (e.g., emotional distress, reputational damage, or privacy violations), the borrower can seek moral, nominal, and even exemplary damages.

  3. Administrative Complaints

    • Securities and Exchange Commission: If the lender is regulated by the SEC, a formal complaint can be lodged. The SEC may investigate and revoke or suspend the lender’s license.
    • National Privacy Commission: Borrowers can complain if their personal information has been misused or shared without consent.
    • Local Authorities: Reporting harassment to the local police or barangay might deter further threats. They can document complaints, summon the parties, and provide initial mediation.

STEPS TO ADDRESS ILLEGITIMATE LENDING PRACTICES

  1. Document Everything

    • Retain copies of loan agreements, payment receipts, screenshots of threatening messages, and any other communications with the lender.
    • This evidence is crucial for proving the existence of harassment, threats, or improper interest charges.

  2. Verify Lender Legitimacy

    • Check if the online lending company is registered with the SEC.
    • If the lender is unregistered, it raises serious questions about the validity of the loan terms and the lawfulness of their collection methods.

  3. Send a Formal Demand Letter (If Appropriate)

    • A formal letter to the lender can clarify that the borrower considers the principal and any reasonable interest to be fully paid.
    • State your position that daily interest of PHP 200 is excessive and unconscionable.
    • Request cessation of harassment and emphasize willingness to settle any legitimate residual amount (if any) under lawful terms.

  4. Seek Legal Advice

    • Consultation with a lawyer is crucial for drafting any communications and determining if a lawsuit is warranted.
    • Legal counsel can advise on practical steps and negotiate with the lender to avoid protracted litigation.

  5. File a Complaint with the Authorities

    • If threats or harassment persist, file a complaint with the police.
    • For data privacy violations, lodge a complaint with the National Privacy Commission.
    • For unethical lending practices, submit a complaint to the SEC.

  6. Consider Court Action

    • If extrajudicial remedies fail, a civil lawsuit may be the next step.
    • The court can provide injunctive relief against further harassment, declare the unfair interest void, and award damages.

EXCESSIVE INTEREST: LEGAL DOCTRINE AND JURISPRUDENCE

  1. Interpretation of Unconscionable Interest

    • Philippine courts follow the doctrine that parties are free to stipulate interest rates, but the courts retain the power to intervene when rates become oppressive or unconscionable.
    • In Medel v. Court of Appeals (G.R. No. 131622, November 27, 1998), the Supreme Court declared 66% per annum interest as exorbitant, reducing it to a more reasonable level.

  2. Test of Reasonableness

    • The courts generally weigh factors such as:
      • The prevailing market interest rate at the time of the transaction.
      • The complexity of the loan.
      • The borrower’s financial capacity and the lender’s degree of risk.
      • The existence of undue influence or fraud.

  3. Burden of Proof

    • The borrower typically must show evidence that the stipulated interest rate is abusive or that they were coerced into consenting.
    • Once proven, the court can apply equitable reductions.

HARASSMENT AND THREATS: LEGAL RAMIFICATIONS

  1. Right to Privacy and Dignity

    • Borrowers retain the right to privacy and human dignity, even after defaulting on a loan.
    • Lenders must adhere to lawful collection practices. Threatening messages, death threats, or posting sensitive personal data violate these rights.

  2. Potential Criminal Liability

    • If the lender commits grave threats, they expose themselves to criminal prosecution under the Revised Penal Code.
    • The same applies to doxing or unauthorized disclosure of personal data under the Data Privacy Act.

  3. Remedies for Emotional and Psychological Harm

    • Borrowers can file civil suits for moral damages if they suffer mental anguish due to constant harassment.
    • Courts may award exemplary damages to deter lenders from repeating similar acts.

PRACTICAL ADVICE FOR BORROWERS FACING THREATS

  1. Stay Calm and Know Your Rights

    • Do not engage in heated exchanges.
    • Politely remind the lender that you are aware of your legal rights and the protective provisions of Philippine law.

  2. Utilize Barangay Mediation

    • Barangay officials can mediate disputes without immediately resorting to formal litigation.
    • This step can provide documentary evidence of good faith attempts to settle.

  3. Avoid Signing New Documents Under Duress

    • Lenders might coerce borrowers to sign new agreements or promissory notes with even higher interest rates.
    • Consult a lawyer before signing any additional documents, especially under threats.

  4. Monitor Digital Footprint

    • If the lending company uses social media to shame or threaten borrowers, gather evidence.
    • Privacy complaints may be filed if personal information is leaked.

  5. Coordinate with Law Enforcement

    • If death threats persist, contact the police or the National Bureau of Investigation’s Cybercrime Division.
    • Provide them with relevant screenshots, call recordings, and other evidence.

CONCLUSION

The Philippine legal framework offers several avenues for borrowers to seek redress against unscrupulous lending practices, excessive interest rates, and the intimidation or harassment that can accompany debt collection. While lenders can legally charge interest for the use of their capital, such interest must remain within reason. Should the principal and a fair interest have already been settled, continuous demands for exorbitant daily interest—compounded by threats—are actionable under both civil and criminal law.

Borrowers should remain vigilant in documenting every interaction, verifying lender legitimacy, and asserting their rights under the Constitution, the Civil Code, and various statutes regulating lending and protecting consumer welfare. By promptly seeking legal advice, exploring administrative remedies with the SEC or the NPC, and reporting egregious conduct to local authorities, borrowers can defend themselves against unfair loan terms and intimidation.

Finally, it is essential to remember that this guide does not replace professional legal counsel. If you or someone you know is caught in a similar predicament, promptly consult a Philippine-licensed attorney who can provide guidance on negotiation, litigation, and the full range of remedies offered by law. Legal processes can be complex, but with diligent documentation, proper legal support, and knowledge of one’s rights, a fair resolution can be reached.

Disclaimer: This article provides general information and does not constitute legal advice. Specific cases vary, and professional assistance from a licensed Philippine attorney is strongly recommended for anyone facing legal disputes or potential litigation.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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