Dear Attorney,

I hope this message finds you well. I am seeking legal advice concerning an urgent matter involving an online lending company. Recently, I took out a loan from this online lending platform, but due to financial difficulties, I have been unable to meet my payment obligations on time. Today, I received a phone call from their representatives, demanding that I pay a minimum of PHP 10,000 before the day ends.

Their representative also threatened that if I fail to comply, they would escalate the matter to our local barangay for further action. This threat has caused me considerable stress and confusion, and I am unsure of how to handle the situation. Could you please advise me on what legal steps I can take to protect myself from potential harassment or unfair practices by this lending company?

I am aware that there are laws protecting consumers, but I would greatly appreciate your legal expertise on what specific actions I can take in response to these threats. I am particularly concerned about whether they are within their rights to involve the barangay in a debt collection issue.

Thank you for your time and assistance.

Sincerely,

A Borrower Concerned About Harassment

Understanding the Legal Framework Around Online Lending, Debt Collection, and Consumer Protection

As concerns over online lending practices and the harassment tactics employed by certain lenders become increasingly common, it is crucial to explore the various aspects of the Philippine legal system that offer protection to consumers facing such issues.

In this article, we will delve into the following key topics:

The Nature of Online Lending and Regulatory Requirements
Harassment in Debt Collection: What Is Considered Unlawful?
Involving the Barangay: Can Lenders Legally Do This?
Legal Remedies Available to Borrowers
The Role of Government Agencies: The SEC and DTI in Lending Regulation
Alternative Dispute Resolution Mechanisms
The Legal Consequences for Lenders Engaging in Unlawful Collection Practices

1. The Nature of Online Lending and Regulatory Requirements

Online lending platforms have rapidly expanded in the Philippines, providing quick and easy access to credit through mobile applications and websites. Many Filipinos, particularly those who are underserved by traditional financial institutions, turn to these online lending companies for their credit needs.

However, despite their convenience, online lending platforms must adhere to various laws and regulations, specifically:

Republic Act No. 9474 (The Lending Company Regulation Act of 2007) – This law governs lending companies and mandates that these businesses secure the necessary license from the Securities and Exchange Commission (SEC) before they can operate. Online lenders are not exempt from this regulation, meaning they too must be licensed and follow all applicable laws related to consumer credit.
The Truth in Lending Act (R.A. 3765) – This law requires lenders to disclose clear and complete terms about loan agreements, including interest rates, fees, and other charges. Any lack of transparency on the part of lenders regarding loan terms may constitute a violation of consumer rights.

The borrower should check if the online lending company in question is duly licensed and complies with these requirements. An unlicensed lender may face serious penalties, and its collection efforts could be rendered illegitimate under Philippine law.

2. Harassment in Debt Collection: What Is Considered Unlawful?

Harassment by debt collectors, including online lending companies, is strictly prohibited under the Revised Penal Code (RPC), the Cybercrime Prevention Act of 2012 (RA 10175), and SEC Memorandum Circular No. 18, Series of 2019.

The SEC Memorandum Circular No. 18-2019 specifically addresses the abusive debt collection practices of financing companies and lending companies, including online lenders. The circular clearly prohibits:

Use of profane or abusive language
Threats of violence or harm to the borrower
Publication of names or personal information of borrowers who allegedly refuse to pay debts
Public shaming of borrowers on social media platforms
Unauthorized communication with third parties such as employers, relatives, or friends of the borrower

In your case, the threat made by the lending company representative to escalate the matter to the barangay could fall under unlawful debt collection practices if such threats are intended to cause undue distress or embarrassment. Moreover, if this escalation is meant to publicly shame you, it would likely be considered a violation of your privacy rights.

3. Involving the Barangay: Can Lenders Legally Do This?

Debt collection, by its nature, is a civil matter rather than a criminal one. The barangay’s involvement in resolving personal disputes is typically limited to matters under its jurisdiction, such as minor conflicts between neighbors.

For a debt collection matter, however, lenders do not usually have the right to involve barangay officials unless the borrower and lender voluntarily agree to settle the matter through the barangay conciliation process as outlined in the Katarungang Pambarangay Law (Chapter VII of the Local Government Code of 1991). This law primarily facilitates amicable settlements of disputes within communities. Nonetheless, lenders cannot coerce borrowers into resolving civil disputes through barangay mediation.

If the lender attempts to bypass formal legal proceedings by seeking barangay intervention without mutual consent, it could be viewed as harassment and a violation of the proper legal process. Debt disputes should generally be resolved either through small claims courts or other lawful avenues, not by intimidating the borrower with barangay escalation.

4. Legal Remedies Available to Borrowers

If you believe that the online lender is violating your rights by engaging in harassing collection practices, there are several remedies available to you:

Filing a Complaint with the Securities and Exchange Commission (SEC): As the regulatory body overseeing lending companies, the SEC handles complaints against lending companies, particularly those violating the rules on debt collection practices. Filing a complaint with the SEC can result in the investigation of the lender’s conduct and potential penalties for the company.
Filing a Complaint with the National Privacy Commission (NPC): If the lender has unlawfully disclosed your personal information, such as threatening to report your debt to unauthorized third parties, you may file a complaint with the NPC under the Data Privacy Act of 2012.
Civil Action for Damages: You may also consider filing a civil suit for damages under the Civil Code of the Philippines (Article 19, 20, and 21), which provides legal remedies for persons who suffer damage or injury as a result of another party's unjust and malicious conduct. This applies if the lender’s actions are proven to have caused mental or emotional distress.
Issuing a Cease and Desist Letter: Through legal representation, a cease and desist letter may be issued to the lending company, demanding that they stop all harassment and unlawful collection practices. Failure to comply could further bolster your legal claims against the lender.

5. The Role of Government Agencies: The SEC and DTI in Lending Regulation

The Securities and Exchange Commission (SEC) plays a critical role in regulating and monitoring lending companies. Through its Lending Companies and Financing Companies Division, the SEC ensures that companies comply with existing laws, including fair and lawful debt collection practices. As a borrower, you are encouraged to report any violations by the lender to the SEC.

The Department of Trade and Industry (DTI) also offers consumer protection services, which can assist in cases involving deceptive or unfair practices in financial transactions, including lending agreements. The DTI’s Consumer Protection Group (CPG) helps enforce consumer rights under the Consumer Act of the Philippines (RA 7394).

6. Alternative Dispute Resolution Mechanisms

In cases where disputes between borrowers and lending companies arise, alternative dispute resolution (ADR) mechanisms may be utilized to settle the matter amicably. These include:

Mediation and Arbitration: Both parties can agree to undergo mediation or arbitration to settle their disputes without resorting to litigation. This process is often faster and less costly than going to court.
Barangay Conciliation: Although the lending company cannot unilaterally involve the barangay in debt disputes, both parties may choose to undergo barangay conciliation as a voluntary ADR option. However, this is not common for formal loan disputes.

7. The Legal Consequences for Lenders Engaging in Unlawful Collection Practices

Lenders who engage in unlawful debt collection practices face serious legal consequences. The SEC Memorandum Circular No. 18-2019 provides for the imposition of fines and penalties on lenders found guilty of violating debt collection rules. In extreme cases, the SEC may revoke the lending company’s license to operate.

Additionally, if the lender is found to have breached data privacy laws or engaged in harassment that caused undue distress to the borrower, they may face criminal and civil liabilities under the Data Privacy Act and the Revised Penal Code.

Conclusion

As a borrower, you are entitled to legal protections against harassment and unlawful debt collection practices. Online lending companies must adhere to strict regulations, and any violation of your rights can be addressed through various legal avenues. If you believe that the lender is threatening or harassing you, you may file complaints with regulatory agencies, consider civil action for damages, or seek legal assistance to protect your rights.

It is recommended to consult with a lawyer to further discuss your options and to assess whether the lending company's conduct constitutes a violation of your legal rights.