Letter to a Lawyer

Dear Attorney,

I am writing to seek your professional guidance and advice regarding certain issues I have encountered with two online lending applications currently operating in the Philippines, known as “Pinoy Peso” and “Pinoy Here.” I am a concerned individual who has reason to believe that these applications may be engaging in unethical, and potentially unlawful, lending and collection practices. Specifically, I am troubled by the possibility that they might be violating borrower rights, employing unfair collection methods, charging exorbitant interest rates or hidden fees, misusing personal data, and failing to adhere to regulatory requirements set forth by Philippine law.

As a concerned citizen, I would like to know what steps I should take to report these suspected violations, and how best to protect my own interests, as well as the interests of other borrowers who may have been affected. I seek your counsel on the appropriate government agencies or regulatory bodies to approach, the relevant legal provisions that may apply, the standards of evidence needed, and any potential remedies or recourses available to victims of these unfair practices.

Thank you for your time and expertise. I look forward to your guidance on how to proceed, as I wish to ensure that justice is served and that these lending platforms are held accountable for their actions.

Sincerely,
A Concerned Borrower

Legal Article on Philippine Law Regarding Unlawful Lending Application Practices

Introduction

The rapid growth of financial technology (FinTech) in the Philippines has given rise to a proliferation of online lending applications—some of which have been accused of unscrupulous business practices, including exorbitant interest rates, unfair debt collection methods, misuse of borrower data, and general non-compliance with Philippine regulatory standards. This legal article will comprehensively explore the applicable laws, regulations, jurisprudence, and enforcement mechanisms governing the online lending sector in the Philippines. It will also examine the rights and protections afforded to borrowers, the legal obligations and ethical duties of lending companies, and the recourse available to consumers who believe they have been wronged by these entities.

Regulatory Framework of Lending in the Philippines

The Lending Company Regulation Act of 2007 (Republic Act No. 9474):
RA 9474 serves as the principal legislation governing lending companies in the Philippines. Enacted to regulate the establishment and operation of lending firms, this law requires all lending companies to obtain a certificate of authority from the Securities and Exchange Commission (SEC). Key provisions include:
- Registration and Licensing Requirements: Lending companies must be registered with the SEC and must secure a Certificate of Authority to Operate (CA). Without such authority, any lending activity is considered illegal.
- Compliance with Disclosure Requirements: Lending companies are required to truthfully disclose terms of loans, including interest rates, fees, and charges. Any misrepresentation or failure to provide transparent loan terms may be sanctioned.
- Interest Rate Limitations: While RA 9474 does not specify exact interest caps, the Bangko Sentral ng Pilipinas (BSP) and the SEC have issued circulars and guidelines to set ceilings or encourage “reasonable” interest rates. Lending companies charging usurious rates can be subject to penalties.
The Truth in Lending Act (Republic Act No. 3765):
This law mandates all lenders—whether traditional banks, financing companies, or online lending apps—to provide clear, accurate, and understandable information about the cost of credit. Borrowers must be informed of the nominal interest rate, effective interest rate, and any other fees prior to entering into a loan agreement.
BSP Circulars and SEC Memoranda:
The BSP, as the central monetary authority, and the SEC, as the corporate regulator, issue circulars, rules, and guidelines to ensure compliance and protect consumer interests. In recent years, the SEC has issued several notices and memoranda governing online lending platforms, requiring them to register as lending or financing companies and imposing penalties for violations. Additionally, certain memorandum circulars address unfair debt collection practices and outline borrower complaint mechanisms.
Consumer Act of the Philippines (Republic Act No. 7394):
The Consumer Act protects consumers, including borrowers of financial products, from deceptive, unfair, and unconscionable sales acts or practices. Online lenders may be held liable under the Consumer Act if they engage in misleading advertising, hidden charges, or inadequate disclosure of terms that harm consumer interests.
Data Privacy Act of 2012 (Republic Act No. 10173):
Lending applications often require borrowers to provide personal, sensitive, and financial information. The Data Privacy Act and its implementing rules and regulations, enforced by the National Privacy Commission (NPC), ensure that personal information is collected, processed, stored, and used lawfully, fairly, and securely. Unauthorized use or disclosure of personal data by lending apps—such as contacting a borrower’s acquaintances without consent—can result in administrative fines and even criminal liability.

Licensing Requirements and SEC Oversight

Lending companies that operate without a valid Certificate of Authority from the SEC are considered illegal lenders. Online lending applications are subject to the same requirements. The SEC has been vigilant in issuing advisories against unauthorized lending companies and has ordered the shutdown of numerous online lending apps that fail to comply with registration and licensing rules.

Borrowers dealing with unlicensed lenders may have limited recourse in a traditional sense, since unlicensed lenders are not easily traceable through official regulatory channels. However, borrowers can file complaints directly with the SEC, NPC, or BSP. These regulatory bodies have established online complaint portals, hotlines, and email addresses to facilitate the reporting of illegal lending activities.

Interest Rates and Usury Concerns

The Philippines no longer has a general usury law that fixes a maximum interest rate for all loans. Presidential Decree No. 116, which used to cap interest rates, was effectively deregulated by Central Bank Circular No. 905 in 1983. Instead, interest rates are now determined by market conditions and are subject to reasonableness and fairness standards as interpreted by courts. Courts can nullify unconscionable interest rates. The Supreme Court has, in a number of cases, reduced exorbitant interest rates to more reasonable levels. Online lending apps charging extremely high interest rates or adding predatory fees may be deemed to have committed an unfair or unconscionable practice, subjecting them to possible legal action.

Unfair Debt Collection Practices

One of the most common borrower complaints against online lending apps relates to debt collection methods. Under Philippine law, lending companies are prohibited from engaging in abusive, harassing, or unethical methods of collection. Some prohibited practices include:

Contacting a borrower’s relatives, friends, or employers without permission and disclosing loan details.
Threatening borrowers with harm, arrest, or other illegal acts if they fail to pay.
Using profanity, insults, or humiliating language.
Publicly shaming borrowers through social media, text blasts, or other unauthorized disclosures of personal data.

The SEC and the NPC have both taken a strong stance against these tactics. The SEC Memorandum Circular No. 18, Series of 2019, for example, established a set of rules against unfair collection practices. The NPC has warned online lenders against unauthorized use of borrower data, threatening sanctions for non-compliance. Borrowers who experience harassment can report these incidents to the appropriate agencies and may file civil or criminal cases as warranted.

Data Privacy Violations

The Data Privacy Act requires lending apps to implement robust security measures and to obtain consent for data collection, processing, and sharing. Any misuse of borrower information—such as accessing a borrower’s contact list to harass their friends or family—can lead to administrative fines and criminal charges. The NPC may order the suspension of the operations of a non-compliant entity, initiate investigations, and recommend the prosecution of violators. Borrowers who experience data privacy breaches may file complaints with the NPC, which will investigate and potentially penalize the offending lending company.

Remedies for Borrowers

Borrowers victimized by unscrupulous lending apps may explore several remedies under Philippine law:

Filing a Complaint with the SEC:
Borrowers can report unregistered and non-compliant lending companies to the SEC. The SEC can investigate and impose penalties, such as fines, revocation of certificates of authority, and cease-and-desist orders against the illegal lender.
Complaints with the National Privacy Commission:
If the lending app unlawfully accessed or misused personal information, borrowers can complain to the NPC. The NPC can conduct compliance checks, order corrections, impose penalties, or recommend criminal prosecution.
Contacting the Bangko Sentral ng Pilipinas:
While the BSP primarily regulates banks and other supervised financial institutions, it also issues guidelines relevant to consumer financial protection. Borrowers may report certain unscrupulous lending activities to the BSP, especially if a registered financial institution is involved.
Consumer Protection Assistance via the Department of Trade and Industry (DTI):
The DTI is tasked with implementing the Consumer Act of the Philippines. In situations where lending apps engage in deceptive marketing, hidden charges, or other consumer rights violations, borrowers may seek assistance from DTI.
Filing Civil Cases in Court:
Borrowers can initiate civil lawsuits to recover damages stemming from unfair lending practices, abusive collection methods, or unauthorized disclosure of personal information. Courts have the discretion to reduce unconscionable interest rates, award damages for emotional distress or reputational harm, and order the restitution of unlawful charges.
Criminal Actions:
In severe cases, certain violations—such as grave threats, unjust vexation, or data privacy infractions—may give rise to criminal liability. Borrowers, through their counsel, can seek the assistance of law enforcement to investigate and prosecute offenders.

Evidentiary Considerations

To support a complaint or legal action against an online lending app, borrowers should gather relevant evidence, including:

Loan contracts, electronic or otherwise, and screenshots of loan terms disclosed within the app.
Evidence of messages, calls, emails, or text messages showing harassment, threats, or public shaming by the lending app’s representatives.
Proof of personal data breaches, such as unauthorized contact of personal references or the misuse of personal information for coercive collection methods.
Documented attempts to resolve the issue amicably, if any, to show good faith and openness to settlement before resorting to legal avenues.

Recent Regulatory Developments and Enforcement

In recent years, the SEC has intensified its enforcement actions against illegal lending apps. It has issued cease-and-desist orders to numerous unregistered online lending platforms, conducted inspections, and encouraged borrowers to report non-compliant lenders. Public advisories caution consumers about the risks of transacting with unlicensed entities. Meanwhile, the NPC has been active in investigating complaints about privacy infringements and has collaborated with the SEC to ensure lending apps respect data protection principles.

Consumer Awareness and Education

A critical component in curbing the proliferation of unscrupulous lending activities is consumer education. Borrowers are urged to:

Verify the registration and licensing status of any lending company on the SEC’s official website.
Carefully review loan terms, interest rates, and fees before agreeing to a contract.
Exercise caution when granting apps permissions to access phone contacts or storage.
Immediately report any suspicious or abusive practices to the appropriate authorities.

Government agencies, non-governmental organizations, and consumer advocacy groups have launched information campaigns to help borrowers make informed financial decisions and understand their legal rights.

Conclusion

The legal landscape governing online lending in the Philippines seeks to balance the need for greater financial inclusion and easy access to credit with the imperative of protecting consumers from predatory and abusive lending practices. Key legislations, including RA 9474, RA 3765, and the Data Privacy Act, impose stringent requirements on lending companies and safeguard borrower interests. Regulatory bodies like the SEC, NPC, BSP, and DTI work in tandem to enforce these laws, investigate violations, and hold lenders accountable.

For borrowers who have been victimized by unfair lending practices, remedies abound: from lodging complaints with the SEC or the NPC, to pursuing civil or criminal actions. With increased regulatory vigilance, mounting enforcement actions, and growing consumer awareness, unscrupulous online lending apps are under increasing scrutiny. The interplay of these factors strengthens the legal and regulatory framework that ensures fair play in the Philippine lending sector, deterring lending companies from preying on vulnerable borrowers and encouraging all parties to uphold the highest standards of integrity, transparency, and accountability.