Letter to a Lawyer:

Dear Attorney,

I am writing to seek your assistance regarding a challenging financial situation I am currently facing. I availed loans from multiple online lending platforms, and due to their high interest rates and short repayment periods, I have fallen into a cycle of borrowing to repay earlier debts. The terms of the loans are as follows: for every ₱3,500 borrowed, I only receive ₱2,100 after deductions, but the full ₱3,500 must be repaid within seven days. This has resulted in me repeatedly taking new loans just to meet my obligations.

Now, I am unable to keep up with the payments, and the lenders have started to send me harassing messages and threats, such as escalating the issue to their higher departments. I am overwhelmed and fearful of the consequences, especially since I cannot pay the amount due today, let alone the subsequent dues scheduled in the coming days.

I am unsure of my legal options and would like to know how I can handle this situation. Are these lending practices even legal under Philippine law? Can I do anything to protect myself from harassment and address my debt obligations fairly?

I would greatly appreciate your advice on how to move forward.

Sincerely,
A Distressed Borrower

Understanding Philippine Laws on Predatory Lending and Consumer Protection

1. Overview of Lending Practices and Relevant Laws

Online lending platforms have grown in popularity due to their convenience and accessibility. However, some engage in predatory practices, such as charging excessive interest rates, hidden fees, and employing aggressive collection tactics. These practices may contravene several Philippine laws, including:

Republic Act No. 3765 (Truth in Lending Act): This law mandates full disclosure of loan terms, including the effective interest rate (EIR), to ensure borrowers can make informed decisions.
Batas Pambansa Blg. 22 (Anti-Bouncing Check Law): This addresses cases where checks are issued without sufficient funds but does not directly apply to online loans unless post-dated checks were used.
Republic Act No. 7394 (Consumer Act of the Philippines): Protects consumers from unfair and abusive practices.
Republic Act No. 10173 (Data Privacy Act of 2012): Prohibits unauthorized use and disclosure of personal data, which is often violated by online lenders who harass borrowers or contact their personal networks.
Bangko Sentral ng Pilipinas (BSP) Regulations: The BSP regulates lending companies and ensures compliance with fair lending practices.
Securities and Exchange Commission (SEC) Rules: Lending companies must be registered with the SEC and adhere to the Financing Company Act and Lending Company Regulation Act.

2. Predatory Lending: What Is Legal and What Is Not?

Predatory lending refers to unfair and abusive practices by lenders, including:

Excessive Interest Rates: While Philippine law does not prescribe specific caps on interest rates for lending companies, exorbitant rates may be deemed unconscionable under Article 1409 of the Civil Code and may be challenged in court.
Short Repayment Periods: Loans with unrealistically short repayment terms (e.g., seven days) are considered exploitative, particularly when paired with high interest rates and fees.
Hidden Deductions: The practice of disbursing only part of the loan amount (e.g., ₱2,100 out of ₱3,500) while requiring repayment of the full principal violates the Truth in Lending Act, which mandates transparency in charges and deductions.

3. Harassment and Threats by Lenders

The following actions by lenders may be considered illegal:

Harassment or Threats: Repeated, aggressive, or threatening communications, including contacting friends or family, are prohibited under the Revised Penal Code and the Data Privacy Act.
Public Shaming: Some lenders post defamatory content online to coerce repayment. This is punishable under Republic Act No. 10175 (Cybercrime Prevention Act of 2012).
Unlawful Debt Collection Practices: The SEC explicitly prohibits harassment, threats, and intimidation in debt collection.

4. Remedies for Borrowers

Borrowers who are victims of predatory lending or harassment have several legal options:

File a Complaint with the SEC: Borrowers can report unregistered or abusive lending companies to the SEC's Enforcement and Investor Protection Department.
Seek Assistance from the BSP: If the lender is regulated by the BSP, complaints can be filed for non-compliance with lending regulations.
Report Violations of the Data Privacy Act: Borrowers subjected to unauthorized use of personal information may file a complaint with the National Privacy Commission (NPC).
File a Case in Court: Borrowers may seek judicial intervention to declare the loan agreement void if the terms are unconscionable or violate public policy.

5. Practical Steps for Borrowers

Here are actionable steps to address the situation:

Document All Interactions: Save copies of loan agreements, text messages, emails, and other communications.
Verify the Lender’s Legitimacy: Check if the lender is registered with the SEC.
Negotiate Payment Terms: Contact the lender to negotiate a restructuring of the debt with more reasonable terms.
Seek Legal Assistance: Consult a lawyer to evaluate the loan agreement and explore remedies.
File Complaints: Report harassment, excessive interest rates, and violations of the Truth in Lending Act to the appropriate authorities.

6. Filing a Complaint: A Step-by-Step Guide

For SEC Complaints: Prepare evidence of the lender’s practices, such as contracts, screenshots, and communications. File the complaint at the SEC or through its online portal.
For NPC Complaints: Provide evidence of unauthorized use or dissemination of personal information.
For Criminal Complaints: File a case for libel, unjust vexation, or threats at your local prosecutor’s office.

7. How Courts View Unconscionable Contracts

Contracts with predatory terms may be declared void under the Civil Code if they violate the principles of good faith and fairness. Courts examine the following factors:

Whether the interest rate is grossly excessive.
Whether the borrower was forced to accept unreasonable terms due to financial desperation.
Whether the lender disclosed all terms transparently.

8. Bankruptcy and Debt Relief Options

While there is no personal bankruptcy law in the Philippines, borrowers may negotiate with creditors for debt restructuring or settlements. Borrowers can also seek help from organizations specializing in debt counseling.

9. Preventive Measures

To avoid falling into debt traps in the future:

Borrow only from legitimate financial institutions.
Understand the loan’s EIR and repayment terms.
Avoid rolling over loans or borrowing to repay existing debts.

Conclusion

The practices described in your concern may involve violations of Philippine law, including the Truth in Lending Act and Data Privacy Act. You have the right to challenge the terms of the loan, report harassment, and seek legal redress. Consult a lawyer to evaluate your specific circumstances and take the necessary steps to protect your rights.