Dear Attorney,

Good evening, Attorney. I am reaching out to seek advice regarding a concern about a financial transaction. I entered into a loan agreement, but I have noticed that the interest being charged on my loan seems excessively high. Additionally, I am being pressured to make payments even though my account is not yet overdue. I feel this is unfair and would like to know whether I can file a complaint about this situation. What steps should I take, and under which legal provisions in the Philippines can I pursue this matter? Thank you very much for your guidance.

Sincerely,
A Concerned Borrower

Legal Protections Against Excessive Interest Rates and Unjust Collection Practices in the Philippines

The issue raised involves two significant concerns under Philippine law: (1) excessive interest rates in loan agreements and (2) abusive collection practices by creditors or lenders. Both of these are regulated under various laws, legal doctrines, and jurisprudence aimed at protecting borrowers from predatory lending practices. This article discusses the legal remedies available to address such concerns, relevant laws, and the proper procedures to seek redress.

I. Excessive Interest Rates in Loan Agreements

1. Legal Limits on Interest Rates

Philippine law generally recognizes the freedom to contract, allowing parties to agree on the terms of a loan, including the interest rate. However, this freedom is not absolute. The courts and regulatory bodies have intervened to prevent exorbitant interest rates that are considered unconscionable.

Article 1306 of the Civil Code: While parties may establish stipulations in contracts, these must not be contrary to law, morals, good customs, public order, or public policy.
Jurisprudence on Usurious Interest: In cases such as Medel v. Court of Appeals (G.R. No. 131622, 1998), the Supreme Court struck down interest rates of 66% per annum as "excessive, iniquitous, and unconscionable." The Court ruled that interest rates must be reasonable and fair, reflecting public policy against usurious practices.
Bangko Sentral ng Pilipinas (BSP) Circulars: The BSP previously regulated interest rates through the Usury Law (Act No. 2655). While the Usury Law was effectively suspended by Presidential Decree No. 116, lenders must still comply with reasonable and fair terms. Excessive interest rates may be challenged as a violation of good faith and fair dealing.

2. How to Identify Unconscionable Interest Rates

An interest rate may be considered excessive or unconscionable when:

It imposes undue financial hardship on the borrower.
It is grossly disproportionate to prevailing market rates.
It constitutes a breach of public policy, good customs, or morals.

If the interest rate is deemed excessive, the borrower can challenge its enforceability by filing a complaint with the courts.

II. Abusive Collection Practices

1. The Role of the Financial Institutions Regulation

Under Republic Act No. 3765, also known as the Truth in Lending Act, creditors are required to:

Disclose the full terms and conditions of the loan, including interest rates, fees, and payment schedules.
Act transparently in all loan-related transactions.

Any practice that pressures borrowers to pay prematurely or through harassment may violate this Act.

2. The Prohibition of Harassment Under the Lending Company Regulation Act

Republic Act No. 9474, or the Lending Company Regulation Act of 2007, prohibits lending companies from engaging in unfair collection practices. These include:

Threats, intimidation, or harassment.
Public shaming of borrowers.
Unauthorized contact with borrowers’ employers, family members, or friends to force payments.

Borrowers who experience harassment can file a complaint with the Securities and Exchange Commission (SEC), which has jurisdiction over lending companies.

3. Protections under the Revised Penal Code

If the creditor’s actions amount to coercion or threats, the borrower may file criminal charges for:

Grave coercion under Article 286 of the Revised Penal Code.
Unjust vexation under Article 287 of the Revised Penal Code.

These provisions address abusive or high-pressure tactics that infringe on the borrower’s rights.

III. Filing a Complaint

1. Administrative Complaints

Borrowers can report predatory lending and unfair collection practices to the following agencies:

Securities and Exchange Commission (SEC): For violations by lending companies.
Bangko Sentral ng Pilipinas (BSP): For concerns involving banks and financial institutions.

Complaints should include:

Loan documents.
Evidence of excessive interest rates (e.g., computation of the interest rate compared to the principal amount).
Proof of harassment or undue collection efforts (e.g., text messages, emails, or recordings).

2. Filing a Civil Case

Borrowers may file a civil case to:

Declare the excessive interest rate void under the Civil Code.
Seek damages for any losses or emotional distress caused by abusive collection practices.

The borrower may request the court to reduce the interest rate to a reasonable level or nullify it entirely if it violates public policy.

3. Criminal Complaints

If the creditor engaged in harassment or coercion, the borrower may file criminal charges before the local prosecutor’s office. Supporting evidence, such as witness testimonies or documented harassment, is crucial.

IV. Remedies and Damages

1. Legal Remedies

Nullification of Excessive Interest Rates: Courts may strike down unconscionable interest rates, reducing them to a just and equitable level.
Damages: Under Article 2208 of the Civil Code, moral and exemplary damages may be awarded to borrowers who suffered harassment or undue distress.

2. Injunctions Against Harassment

Borrowers may seek a court injunction to prevent further harassment or abusive collection practices.

V. Practical Steps for Borrowers

Review Your Loan Agreement: Examine the terms and conditions, focusing on the interest rate, fees, and payment schedule.
Document Harassment: Keep a record of all communications with the creditor. Save text messages, emails, or call recordings that show harassment or undue pressure.
Seek Legal Advice: Consult a lawyer to evaluate the legality of the interest rate and collection practices.
File a Complaint with Regulatory Bodies: Submit evidence to the SEC or BSP, depending on the creditor’s nature.
Consider Alternative Dispute Resolution: Mediation may resolve the issue without resorting to litigation.

VI. Conclusion

Borrowers facing excessive interest rates and undue collection pressure have legal remedies under Philippine law. By understanding the applicable laws, seeking professional advice, and utilizing the proper channels, borrowers can protect their rights and challenge predatory practices effectively. Always ensure that any financial transaction is entered into with full knowledge of the terms and conditions, and never hesitate to assert your legal protections when these are violated.