Dear Attorney,

Good day. I hope this letter finds you well. I am writing to seek guidance regarding a situation where certain individuals offer loans at a significantly high interest rate—specifically around twenty percent (20%) per week. I am concerned about the legality of these transactions and would like to know if there is any recourse under Philippine law to report such practices.

Thank you in advance for your advice. I look forward to receiving your expert opinion.

Respectfully yours,
A Concerned Citizen

LEGAL ARTICLE ON THE PHILIPPINE FRAMEWORK GOVERNING EXORBITANT INTEREST RATES

In the Philippines, lending practices are governed by a combination of laws, administrative regulations, and jurisprudence. Although interest rates are generally left to the agreement of the contracting parties, there remain legal boundaries protecting debtors from unscrupulous lenders. Charging exorbitant interest, such as twenty percent (20%) per week, runs afoul of these general principles and can be subjected to legal scrutiny. This article comprehensively examines the relevant laws, procedural remedies, and enforcement mechanisms that allow concerned citizens to report or challenge oppressive and predatory lending practices in the Philippines.

1. Historical Context: The Anti-Usury Law

The principal legislation historically regulating interest rates in the Philippines is Act No. 2655, commonly referred to as the “Usury Law,” enacted during the American colonial period. This law set ceilings on the interest that lenders could legally impose. However, by virtue of subsequent Presidential Decrees (particularly P.D. No. 116 and 858) and Bangko Sentral ng Pilipinas (BSP) issuances, the statutory interest rate caps were effectively suspended, granting the Monetary Board the authority to prescribe maximum rates. Over time, the BSP has relaxed these caps to allow market forces to set interest rates in most cases.

Despite the suspension of the strict usury ceilings, the Supreme Court of the Philippines has consistently held that courts still possess the power to reduce unconscionable interest rates. Therefore, while lenders may argue that interest rates are a matter of free contract, the courts may exercise judicial discretion to declare an agreed-upon rate void for being excessive.

2. Modern Regulatory Framework: Role of the BSP and SEC

Bangko Sentral ng Pilipinas (BSP)
The BSP, through regulations like Circular No. 799 (and subsequent amendments), prescribes legal interest rates for loans and forbearances in the absence of stipulation. While these regulations primarily apply to bank loans, their overarching principles highlight that interest rates must be reasonable and not oppressive.
Securities and Exchange Commission (SEC)
The SEC regulates lending companies under the Lending Company Regulation Act of 2007 (Republic Act No. 9474). This law requires lending companies to be registered and comply with disclosure requirements, including transparent reporting of fees and interest rates. Although RA 9474 does not outright prohibit imposing high rates, it obligates lending companies to disclose interest rates in a manner that is comprehensible to borrowers.

When lenders operate without the required licenses or impose rates grossly disproportionate to market norms, they may face administrative sanctions. If the lender is not a registered financial institution but carries out lending activities, the SEC can investigate potential violations of the law.

3. Civil Law Remedies Against Exorbitant Interest

Even though the strict ceilings under the Usury Law have been largely rendered inoperative, Article 1229 of the Civil Code grants Philippine courts the power to reduce penalty clauses if they are iniquitous or unconscionable. The same principle has been applied to excessive interest rates in lending contracts. The Supreme Court has repeatedly ruled that such excessive rates are subject to reduction.

A borrower who has been subjected to a high interest rate—such as twenty percent (20%) per week—may bring a civil case to:

Assail the validity of the interest rate – The borrower can argue that the interest rate is unconscionable, citing jurisprudence that entitles courts to reduce interest to a reasonable level.
Recover amounts paid in excess – If the borrower has made payments that surpass the reasonable rate, the courts may order restitution of the overpayment.
Seek damages – If the lender’s abusive or predatory practices caused harm, the borrower may claim moral or exemplary damages, should the factual circumstances warrant such relief.

4. Potential Criminal Liability

Although high interest rates alone do not automatically constitute a criminal offense, certain lending practices that involve fraud, intimidation, or harassment in collecting debts may trigger criminal liability. For instance:

Estafa (Swindling) under Article 315 of the Revised Penal Code: If the lender employed deceit from the outset, misrepresentations, or other fraudulent means to induce the borrower to accept the loan, criminal liability may arise.
Threats or Coercion under the Revised Penal Code: Collectors using violence or intimidation to force payment of a usurious loan can be held criminally liable for grave or light threats, depending on the circumstances.
Unauthorized Lending or Violation of Lending Company Regulation Act: Under RA 9474, individuals or entities operating as lending companies without registering with the SEC commit violations that can give rise to penalties, including imprisonment and fines.

5. Government Agencies to Approach

A concerned citizen who wishes to report unscrupulous lending practices—specifically, an interest rate of twenty percent (20%) weekly—may direct their complaints to the following agencies:

National Bureau of Investigation (NBI) – The NBI has jurisdiction to investigate alleged illicit activities. If there are indications of fraud or other criminal behavior, a complaint can be filed with the NBI’s Anti-Fraud or White Collar Crime Division.
Philippine National Police (PNP) – For immediate complaints regarding threats, intimidation, or harassment by lenders, the local police may provide assistance.
Securities and Exchange Commission (SEC) – If the individuals or entities charging excessive weekly interest operate as unregistered lending companies, the SEC can initiate investigations and impose sanctions or revoke licenses.
Department of Justice (DOJ) – If the complaint appears to have a criminal dimension, the DOJ may evaluate and prosecute the case upon filing of appropriate charges.

A complaint should be carefully documented, indicating the agreed interest rates, payment schedules, receipts, communications, or any evidence of harassment. Providing corroborative evidence enhances the credibility of the complaint and enables investigative agencies to assess potential statutory violations more thoroughly.

6. The Complaint Process and Importance of Evidence

To ensure the best possible outcome, a complainant should:

Gather Documentary Evidence: Loan agreements, promissory notes, receipts, text messages, or any written documentation of the agreed-upon interest rate and the lender’s conduct.
Record Harassment or Threats: If the lender uses unlawful means to collect payment (e.g., threatening messages, public shaming, or intimidation), these should be documented through screenshots, voice recordings (where permissible), or sworn statements from witnesses.
Coordinate with the Authorities: Filing a formal complaint entails presenting the evidence to the relevant agency, whether it is the SEC, NBI, or local police. One might also file a barangay complaint if the lender is within the same locality, although the barangay’s capability to address the issue is more informal and conciliatory.
Consult a Lawyer: Professional counsel is indispensable to properly articulate one’s claims, determine the appropriate cause of action—civil, criminal, or both—and ensure that evidence is methodically presented.

7. Legal Basis for Reducing or Nullifying Excessive Interest

Under Philippine jurisprudence, interest rates are subject to the principle of mutuality of contracts and public policy constraints. Article 1306 of the Civil Code allows parties broad freedom to stipulate terms as long as they do not run counter to law, morals, good customs, public order, or public policy. The Supreme Court has repeatedly considered excessively high interest rates as potentially violative of these principles.

In Medel v. Court of Appeals (G.R. No. 131622, November 27, 1998), for example, the High Court reduced a 66% annual interest rate to a more reasonable 12% per annum, stating that when the rate is “shocking to the conscience,” it becomes unconscionable, therefore justifying judicial reduction. Applying the same standard, an interest rate of 20% per week (equivalent to 80% per month or 1040% per annum) would likely be found to be unconscionable.

8. Consequences for Lenders Violating Philippine Law

When a lender imposes interest rates that are unconscionably high or employs illegal means of collection, they may face:

Civil Liability: The courts can declare void or reduce the interest stipulations, order restitution of excess interest paid, and impose damages.
Administrative Penalties: If operating under the purview of the SEC or BSP, a lender might face fines or license revocation.
Criminal Charges: Should there be any fraudulent representation, violence, or intimidation, the lender might be criminally liable under the Revised Penal Code or RA 9474.

Furthermore, lenders that harass borrowers into repaying loans through public shaming, digital harassment, or threat of violence could be found liable for violations under the Revised Penal Code provisions on threats, coercion, slander, or unjust vexation, among others, depending on the specific acts committed.

9. Role of Contracts vs. Public Policy

The principle of freedom of contract is generally upheld under Philippine law. However, no contract is absolute if it violates public policy. Courts have consistently ruled that while parties may agree on an interest rate, they cannot disregard fundamental fairness and equity. When interest rates border on criminal or immoral exaction, courts have not hesitated to declare such stipulations null and void.

Additionally, lenders who do not disclose the effective interest rates, additional fees, or other hidden charges contravene standard consumer protection laws. The Consumer Act of the Philippines (R.A. No. 7394) may provide certain remedies to borrowers who can show deceptive practices, though it predominantly covers product and service quality rather than bank or credit regulations. Nonetheless, the principle of safeguarding consumers from unfair and unconscionable trade practices supports the notion that interest rates must be clearly disclosed and must not be abusive.

10. Practical Steps to Report and Seek Relief

Initial Demand Letter: A borrower who deems the interest rate excessive might send a formal demand letter (through counsel, if possible) to the lender, seeking renegotiation or reduction of the interest rate.
Filing a Complaint with the SEC: If the lender is operating as a lending company without proper registration, or if they are registered but violating RA 9474, the borrower or concerned citizen can file a complaint or report.
Barangay Conciliation: For minor disputes or when the borrower and lender reside in the same municipality, the dispute may initially be referred to the barangay under the Katarungang Pambarangay Law before elevating it to the courts. However, for serious matters involving potential criminal liability, direct recourse to the proper investigation agencies is advisable.
Filing a Criminal Complaint: If there is evidence of fraud, intimidation, or illegal collection practices, the borrower can file a complaint before the Prosecutor’s Office. The Prosecutor will conduct a preliminary investigation to determine probable cause for the filing of a criminal case in court.
Initiating a Civil Case: Should the borrower merely wish to invalidate or reduce the interest stipulation and recover overpayments, a complaint for sum of money or damages may be filed. This is premised on Philippine jurisprudence that empowers courts to modify unconscionable terms.

11. Impact of Case Law on Exorbitant Interest

Jurisprudence has consistently underscored that while the Usury Law has been effectively deregulated, courts retain the inherent authority to determine whether an interest rate is so excessive as to be contrary to morals or public policy. Even if parties voluntarily signed a loan agreement stipulating 20% weekly interest, the courts maintain oversight to prevent inequity and exploitation.

Courts have set no hard threshold, but any interest rate that is manifestly disproportionate to prevailing market standards—commonly recognized as anywhere between 12% to 24% per annum for non-pawnshop consumer loans—may be considered prima facie excessive. Although that range is not strictly codified, it provides a baseline for analyzing unconscionability.

12. Remedies for Aggrieved Borrowers

Judicial Intervention: The borrower may invoke court authority to re-evaluate and reduce the interest.
Mediation and Arbitration: In some instances, the parties might opt for alternative dispute resolution methods before or during litigation.
Complaint to Regulatory Bodies: If the lender is subject to regulation (e.g., a lending company under SEC supervision), borrowers can file administrative complaints that may result in administrative sanctions.
Private Settlements: A borrower, aided by counsel, might negotiate with the lender for more equitable terms.

13. Identifying “Loan Sharking” and Predatory Lending

In everyday parlance, charging a 20% weekly interest is typically associated with “loan sharking.” Although the term “loan sharking” does not appear as a standalone offense in Philippine law, the practice is encompassed by broader legal and regulatory frameworks addressing unjust or extortionate lending.

Predatory lending often includes the following features:

Absence of proper documentation or transparency.
Exorbitant fees and hidden charges.
Harassment or intimidation to compel borrowers to pay.
Taking advantage of financially distressed or unsophisticated borrowers.

Those who suspect they have been targeted by predatory lending schemes should gather all evidence and consult legal counsel, as these practices can give rise to civil, criminal, and administrative liability.

14. Rights of Borrowers Under Threat or Harassment

Borrowers who feel threatened or harassed by unscrupulous lenders have recourse to protective measures:

Protection Orders: In extreme cases of harassment or violence, borrowers may file a complaint with the police and seek assistance or protection.
Criminal Charges: Harassers could be charged under the Revised Penal Code for threats, coercion, or other relevant offenses.
Cybercrime Complaints: If harassment occurs online (e.g., via social media, text messaging), borrowers can seek assistance under the Cybercrime Prevention Act (R.A. No. 10175), especially if the harassment involves doxxing or malicious cyberstalking.

15. Educating the Public and Advocacy

Several advocacy groups, bar associations, and local government units run legal aid clinics or programs to inform citizens about their rights against abusive lending. Education remains key in preventing exploitation. Individuals who suspect they are victims of exorbitant interest rates should not hesitate to approach these organizations for legal guidance.

Community Awareness: Seminars, barangay forums, and partnerships with NGOs help spread information about fair lending practices.
Financial Literacy: Public and private stakeholders encourage financial literacy programs to help potential borrowers understand the implications of high-interest loans and to explore safer, more sustainable sources of credit.
Role of the Media: Investigative journalists and consumer rights segments often expose unscrupulous lenders, thereby prompting regulatory bodies to act swiftly.

16. Procedural Nuances in Filing a Case

Drafting the Complaint-Affidavit: To initiate criminal proceedings, the complainant must prepare a detailed affidavit recounting the facts surrounding the loan transaction, the interest rate, and any illegal acts committed by the lender.
Preliminary Investigation: The Prosecutor evaluates whether there is probable cause to charge the lender in court.
Court Action: If probable cause is found, an Information is filed, and the trial process begins. In civil suits, the plaintiff files a complaint, the defendant files an answer, and the case proceeds under the ordinary rules of court.
Burden of Proof: In criminal cases, the prosecution must prove guilt beyond reasonable doubt. In civil cases, the burden of proof is by preponderance of evidence.

17. Reporting Mechanisms and Whistleblower Protections

Although the Philippines does not have a standalone statute robustly protecting whistleblowers in the private finance sector, employees or insiders who can expose unscrupulous lending activities may approach the SEC or the DOJ. The SEC has broad investigative powers, and those who provide actionable information leading to successful enforcement may be shielded from retaliatory measures under various administrative rules, although no universal whistleblower protection law exists akin to certain foreign jurisdictions.

18. Cross-Border Lending and Online Platforms

With the emergence of online lending platforms, unscrupulous lenders exploit digital channels to circumvent regulations. Some claim to be based abroad but operate locally, imposing usurious rates and humiliating collection tactics. While the SEC has cracked down on unauthorized online lending applications, the borderless nature of the internet complicates enforcement. Concerned citizens, however, can still file complaints with local authorities if the harm occurs in the Philippines or if the lender has a local presence, office, or agent.

19. Significance of Proper Legal Representation

Although this article provides general insights, the complexities of each case underscore the necessity of a lawyer’s expertise. A seasoned attorney can determine the best course of action—be it civil litigation, criminal proceedings, or administrative complaints—while ensuring adherence to procedural rules. Legal counsel can also help evaluate the feasibility of negotiated settlements or alternative dispute resolution.

20. Conclusion: Vigilance Against Predatory Lending

In conclusion, while the Anti-Usury Law’s fixed cap on interest rates has been mostly lifted, Philippine courts still guard against usurious and unconscionable interest rates. Twenty percent (20%) interest per week is exceptionally high and can be challenged through various legal avenues. Borrowers or concerned citizens can file complaints with the SEC, the DOJ, the NBI, or the PNP, especially if there is evidence of fraud, unlicensed lending, or harassment. When faced with such unjust exactions, it is essential to document all transactions, seek legal advice, and remain aware of one’s rights under Philippine law. Through legal channels, the rule of law continues to uphold fairness and sanction those who exploit the financially vulnerable.

Ultimately, the system is designed to maintain a balance between legitimate lending practices and the public interest. Any party who encounters or witnesses the imposition of exorbitant rates—like twenty percent (20%) every week—should not hesitate to invoke the remedies discussed above. By reporting and acting on these predatory practices, borrowers help strengthen consumer protections, discourage abusive behavior, and preserve the integrity of the country’s credit ecosystem.