Dear Attorney,

I hope this letter finds you well. I would like to seek your advice regarding a recent concern. I attempted to apply for a loan through a lending application but decided to cancel my application before they granted approval. I immediately sent them a request to withdraw or cancel the application, but I am unsure of the implications or my legal standing in this situation. Could you please help me understand my rights and obligations regarding this matter? Your expertise on the relevant legal provisions under Philippine law would be greatly appreciated.

Thank you for your guidance.

Sincerely,
A Concerned Borrower

Comprehensive Legal Discussion on Canceling Lending Applications in the Philippines

Under Philippine law, transactions involving lending institutions and borrowers are governed by various statutes, including the Civil Code of the Philippines, Republic Act No. 3765 (Truth in Lending Act), Republic Act No. 9474 (Lending Company Regulation Act of 2007), and Republic Act No. 10173 (Data Privacy Act of 2012). Additionally, rules on contractual obligations, data protection, and consumer rights play a pivotal role in such cases.

This article provides a detailed examination of the legal issues that arise when a borrower decides to withdraw or cancel a lending application before its approval.

1. Borrower’s Right to Withdraw or Cancel a Lending Application

A. No Binding Contract Without Approval

In general, under Articles 1318 and 1319 of the Civil Code, a contract is perfected only when there is consent, a lawful object, and a cause. In lending applications, an application alone does not constitute a binding agreement. Until the lender communicates its approval and the borrower accepts the terms, there is no perfected contract.

Thus, withdrawing an application prior to its approval does not establish liability for breach of contract. The applicant exercises their right to terminate a pre-contractual relationship.

B. Pre-Approval Cancellation Under Republic Act No. 3765

The Truth in Lending Act ensures transparency in lending practices. Borrowers must be informed of the loan's terms before approval. If you cancel before receiving these terms, you are not bound by any financial obligation. Lending institutions cannot enforce penalties or fees for withdrawal if no explicit contract exists.

C. Freedom to Contract

The principle of autonomy in contracts, under Article 1306 of the Civil Code, allows parties to freely agree on terms. Without a perfected loan agreement, neither party can impose obligations on the other. Cancelling the application merely exercises the borrower’s right to refrain from engaging in the contractual relationship.

2. Data Privacy Considerations

Under the Data Privacy Act of 2012, the lending app’s handling of your personal information is subject to strict regulations. Key provisions include:

Lawful Processing: Lending institutions must ensure that personal data is processed lawfully, fairly, and transparently.
Right to Withdraw Consent: Section 16 of the Act empowers data subjects (borrowers) to withdraw consent for data processing at any stage.
Retention and Deletion: Lending apps cannot retain your personal data indefinitely. If your application is cancelled, you may request deletion of your data under your right to be forgotten (Section 16(c)).

3. Obligations of Lending Institutions

A. Duty to Acknowledge Cancellation

Upon receiving a cancellation request, lenders are obligated to act in good faith (Article 19, Civil Code). Failure to acknowledge or process a cancellation could constitute a breach of good faith or lead to liability for damages under Article 20.

B. Prohibition Against Harassment

The Lending Company Regulation Act prohibits abusive practices. If the lender attempts to coerce you into continuing the application, they may face administrative sanctions under the law.

C. Transparency in Fees

Section 5 of the Truth in Lending Act mandates disclosure of all charges. If a cancellation incurs a fee, it must be explicitly stated in the terms you initially reviewed. Otherwise, imposing such a fee would be unlawful.

4. Remedies Available to the Borrower

A. File a Complaint with Regulatory Bodies

You may file a complaint with:

The Securities and Exchange Commission (SEC) for violations of the Lending Company Regulation Act.
The National Privacy Commission (NPC) for data privacy violations.

B. Legal Remedies Under the Civil Code

If the lender unlawfully processes your data or demands undue payments, you may seek damages under Articles 19-22 of the Civil Code.

C. Consumer Rights Protection

You may also invoke consumer protection laws, such as the Consumer Act of the Philippines, to address any misleading practices by the lender.

5. Pre-Contractual Liability

In exceptional cases, lenders may claim culpa in contrahendo (pre-contractual negligence) if the borrower’s cancellation caused them damage. However, lenders must prove the following:

The borrower acted in bad faith during negotiations.
The lender incurred financial losses as a direct result of the cancellation.

This doctrine is rarely invoked in Philippine jurisprudence for loan applications, especially when no terms have been finalized.

6. Practical Steps for Borrowers

To ensure a smooth cancellation process:

Send a Formal Request: Use written communication (email or letter) to document your request to cancel.
Follow Up: Request written confirmation from the lender that your application has been cancelled.
Check Your Data Rights: Ask for assurance that your personal information will not be retained or misused.
Retain Documentation: Keep copies of all correspondence for future reference.

7. Case Studies and Legal Precedents

Philippine case law on pre-contractual withdrawal is limited, but principles from analogous cases offer insights:

Contracts vs. Offers: In Ang Yu Asuncion v. Court of Appeals (G.R. No. 109125), the Supreme Court clarified that negotiations or offers, until perfected into a contract, do not create enforceable obligations.
Data Privacy Enforcement: The NPC has penalized entities for mishandling withdrawn applications under the Data Privacy Act.

Conclusion

The withdrawal of a loan application prior to approval is within your legal rights and does not incur liabilities in the absence of a perfected contract. Lending institutions are obligated to respect your decision and process your cancellation in compliance with Philippine laws. Further, they must handle your personal data responsibly under the Data Privacy Act.

If you encounter difficulties, consult an attorney or report any violations to the appropriate regulatory body. Proactively asserting your rights ensures fair treatment and protects your interests in lending transactions.