Dear Attorney,

I am currently facing a legal issue with a financial institution regarding a cash loan I took out some time ago. I’ve consistently paid on time and complied with all their terms and conditions. One of the terms offered was the ability to take 1-2 payment holidays, which I used for the first time without issue. After complying with their requirements and paying for three months, I applied for the second holiday. However, they denied my request, claiming they do not honor a second payment holiday, despite this being clearly stated in our agreement.

In protest of what I believe to be a breach of contract, I stopped making payments. Since then, I have been subjected to frequent, sometimes hostile, collection calls from their representatives, which have escalated to a demand letter requiring full payment of my outstanding balance. The letter also threatens legal action if I do not comply.

I am unsure how to proceed and would appreciate your guidance on the best course of action. Specifically, I’d like to know if this constitutes a breach of contract on their part and whether their collection practices could be considered abusive or unlawful under Philippine law. Could they legally file a case against me, and what are my options for addressing this situation?

Thank you for your assistance.

Sincerely, A Concerned Borrower

Insights

In the scenario you described, there are several legal concerns that need to be addressed, both in terms of contract law and the regulations governing debt collection in the Philippines.

Potential Breach of Contract
The first issue involves the financial institution's refusal to grant the second payment holiday, which was explicitly stated in the contract. If you can provide documented proof of this contractual term, you may have grounds to claim a breach of contract. In the Philippines, a contract is the law between the parties. The financial institution’s denial of your right to a second payment holiday after fulfilling their requirements could be considered a violation of the contract's terms. You may consider negotiating with the company to resolve the issue amicably or filing a formal complaint with a regulatory agency like the Bangko Sentral ng Pilipinas (BSP), which oversees financial institutions.
Debt Collection Practices
Regarding the collection practices you’ve experienced, the Philippines has laws designed to protect consumers from abusive, oppressive, or unfair practices by debt collectors. Under the Financial Consumer Protection Act and BSP regulations, creditors and their representatives are required to treat borrowers with respect and professionalism. Using abusive language, making threats, or harassing you in any way during the collection process is illegal. You can file a complaint with the BSP or the National Privacy Commission (if personal data misuse is involved), and if the behavior continues, you may seek legal redress.
Demand Letter and Legal Action
The demand letter you received is a standard precursor to legal action in debt-related cases. If the lender does file a case, it could fall under small claims procedures if the amount is within certain limits. Under the Revised Rules on Small Claims Cases, the process is simplified, and no legal representation is required. However, if the claim amount exceeds the threshold, they could pursue a civil case for collection of the debt.
Possible Courses of Action
- Settle or Negotiate: Before litigation, consider negotiating with the lender to clarify the breach of contract and discuss a fair settlement plan. Document all communications for future reference.
- File a Counter-Claim: If the lender proceeds with legal action, you may file a counter-claim for the breach of contract and possibly for damages related to their abusive collection practices.
- Seek Mediation: You can also explore mediation or arbitration, which could be a faster and less expensive resolution.

In summary, it is essential to gather all relevant documents, including the loan agreement, proof of payments, communications with the lender, and any abusive collection practices. This evidence will strengthen your position whether you pursue a breach of contract claim or defend yourself in court. Consulting a lawyer directly will also provide you with tailored advice based on your specific circumstances.