Dear Attorney,
I am concerned about the interest rates and harassment tactics of a certain lending company. After borrowing a small amount, the interest increased rapidly, almost doubling the original loan in just a few days. Additionally, the lender's representatives have been sending threatening messages and repeatedly harassing me via text. Is this legal, and what are my options to address this issue?
— Distressed Borrower
Insights
In the Philippines, the legal concept of usury and harassment in lending transactions is central to your concern. Here’s an in-depth exploration of these issues:
1. Usury and Lending Interest in the Philippines
Usury refers to the charging of exorbitant or unreasonable interest rates on loans, which was regulated in the Philippines under the Usury Law (Act No. 2655). However, with the issuance of Central Bank Circular No. 905 in 1982, the interest ceilings were effectively lifted, allowing parties to agree on the interest rate applicable to loans and forbearance of money. As a result, there is no longer a statutory limit on interest rates, except that they should not be unconscionable.
When is Interest Unconscionable?
Though the Usury Law's interest rate limits have been removed, the courts have ruled on various occasions that interest rates can still be declared unconscionable. This usually happens when the agreed interest rate is so excessive that it shocks the conscience or violates moral and public standards of fairness.
In cases such as Medel vs. Court of Appeals (G.R. No. 131622, November 27, 1998), the Supreme Court invalidated an agreed interest rate of 66% per annum, stating it was "unreasonable and excessive." Courts will also consider the circumstances of the borrower, including economic vulnerability or an unequal bargaining position when entering the loan contract.
2. Predatory Lending and Harassment
Beyond high interest rates, lenders must also comply with regulations against abusive collection practices. The Lending Company Regulation Act of 2007 (R.A. No. 9474) governs lending companies and mandates that they should conduct their businesses fairly and with transparency.
Harassment by lenders, such as threatening text messages, repeated calls, and public shaming, may constitute a violation of a borrower’s rights under various laws, including the Revised Penal Code and the Cybercrime Prevention Act of 2012 (R.A. No. 10175). Threatening or intimidating messages could qualify as grave threats (Article 282, Revised Penal Code) or unjust vexation (Article 287, Revised Penal Code), depending on the nature of the communication.
3. Consumer Protection and Borrower Rights
In 2016, the BSP (Bangko Sentral ng Pilipinas) issued Circular No. 1048, which aimed to promote fair treatment in financial consumer transactions. The circular set guidelines that require transparency in loan agreements, such as the disclosure of the total cost of borrowing, including all fees, charges, and interest rates.
Under the Lending Company Regulation Act and other pertinent regulations, lenders are prohibited from engaging in unfair collection practices, such as:
- Using or threatening violence or other criminal means to harm the borrower.
- Harassing borrowers with incessant phone calls or messages.
- Publicly shaming or sharing the borrower’s information without consent, in violation of Data Privacy Act of 2012 (R.A. No. 10173).
4. Remedies Available to Borrowers
If a borrower believes they have been subjected to excessive interest rates or harassment, they have several remedies:
a. Filing a Complaint with Regulatory Authorities
Borrowers may file complaints with regulatory bodies such as the Securities and Exchange Commission (SEC), which has jurisdiction over lending companies, or the BSP if the lender is a bank. The SEC is tasked with investigating complaints of unfair lending practices and enforcing the provisions of the Lending Company Regulation Act.
b. Seeking Judicial Relief
Borrowers can file civil suits in court to contest unconscionable interest rates. If a court finds the interest to be excessive, it can modify or reduce the interest rate to a reasonable level based on prevailing jurisprudence. In cases of harassment, borrowers may file criminal cases against lenders for acts that violate the Revised Penal Code or other special laws such as the Anti-Violence Against Women and Their Children Act (R.A. No. 9262), if applicable.
c. Alternative Dispute Resolution
Borrowers may also opt for mediation or arbitration if such mechanisms are available in the loan contract, as an alternative to lengthy court proceedings.
5. Ethical Lending and Financial Literacy
A broader solution to issues of unfair lending practices is promoting financial literacy among consumers. Borrowers must be informed of their rights and the proper channels to address complaints. Likewise, lenders must adhere to ethical standards by offering fair loan terms and avoiding exploitative or abusive tactics.
Understanding these legal concepts will help borrowers assert their rights and seek appropriate remedies when faced with unconscionable interest rates and harassment. The law seeks to strike a balance between protecting financial institutions' interests and shielding consumers from exploitation.