Dear Attorney,

I recently encountered a situation with a loan app. I filled out a form to check the loan offer, but the app disbursed money directly to my account without my consent. After seven days, the repayment amount doubled. I did not agree to such terms. Can this be considered a scam? What are my legal options to address this situation?

Concerned Borrower

Insights

Unauthorized loan agreements, especially via online platforms, have become a growing concern in the Philippines. These incidents typically involve apps or websites that offer fast cash loans, but proceed without obtaining the proper consent of the borrower regarding the terms and conditions of the loan. This raises multiple legal issues involving consumer protection, contract law, and regulations governing lending practices.

Legal Nature of Consent in Loan Agreements

Consent is a fundamental requirement in any valid contract under the Civil Code of the Philippines. Under Article 1318, a contract is void without consent, a definite subject matter, and a lawful cause. In lending transactions, mutual consent between the borrower and lender must be established clearly. Both parties should agree to the amount, interest rate, repayment period, and other conditions.

In the case described, if the borrower did not explicitly consent to the disbursement of funds or the terms of repayment, the agreement may be considered void or unenforceable. Furthermore, Article 1330 of the Civil Code states that consent must be free from intimidation, violence, undue influence, fraud, or mistake. If the borrower feels that they were misled or tricked into accepting the loan, this could invalidate the agreement.

Consumer Protection Under the Lending Company Regulation Act

Republic Act No. 9474, also known as the Lending Company Regulation Act of 2007, provides a framework to protect borrowers from abusive lending practices. All lending companies must be registered with the Securities and Exchange Commission (SEC) and follow strict guidelines concerning loan agreements and interest rates.

If a lending company or online platform fails to disclose loan terms or engages in deceptive practices, this could constitute a violation of the law. For instance, Section 8 of R.A. 9474 mandates that the borrower must be informed of the loan’s interest rate and other charges before disbursement. Additionally, SEC Memorandum Circular No. 18 (Series of 2019) addresses the issue of unfair collection practices, including harassing tactics used by some lending apps to pressure borrowers.

Borrowers can file complaints with the SEC or the Department of Trade and Industry (DTI) if the lending app is found to be engaging in illegal practices. The Anti-Cybercrime Group of the Philippine National Police (PNP) can also be tapped for scams perpetrated through online means.

The Truth in Lending Act

Republic Act No. 3765, also known as the Truth in Lending Act, complements the Lending Company Regulation Act by requiring creditors to provide full transparency about the loan terms. According to the law, the lender must disclose the following details:

Finance charges, including interest and fees
Annual percentage rate
Total repayment amount
Schedule of payments

If these details were not provided or were misrepresented to the borrower, the creditor may be held liable under the Truth in Lending Act. Borrowers can use this as a basis to challenge the loan terms or file a formal complaint.

Usury Law and Interest Rates

Although the Usury Law has been effectively rendered obsolete by Central Bank Circular No. 905, interest rates in the Philippines are still subject to regulation. In 2021, the Bangko Sentral ng Pilipinas (BSP), through Memorandum No. M-2021-071, imposed caps on interest rates for lending apps. Specifically, the monthly interest rate should not exceed 6% for general loans. Any interest charged beyond this ceiling may be considered excessive, and the lender could face legal penalties.

In the situation described, where the repayment amount doubles within seven days, the interest rate could easily be seen as exorbitant and may fall under predatory lending practices. Predatory lending occurs when a lender imposes unfair and abusive loan terms that exploit the borrower, which can include exorbitant interest rates and hidden fees. If this applies, the borrower can seek legal recourse.

Remedies for Victims of Unfair Loan Agreements

File a complaint with the SEC – If the lending company is registered and engages in illegal or predatory practices, borrowers can file a complaint with the Securities and Exchange Commission.
Report to the BSP or DTI – For issues regarding interest rates or disclosure violations, complaints may be raised with the Bangko Sentral ng Pilipinas or the Department of Trade and Industry.
Initiate Small Claims Action – For borrowers who seek the recovery of unjust payments, filing a small claims case in Metropolitan Trial Courts is a fast and cost-effective legal remedy. Small claims courts handle cases that do not require extensive litigation, including cases involving unauthorized loans and abusive lending practices.
File a Criminal Case – If fraud or any form of deceit is involved, borrowers may file a criminal case under Article 315 (Swindling) of the Revised Penal Code. This law penalizes anyone who uses false pretenses to obtain money or credit from others.
Anti-Scam Complaints – Borrowers who suspect they have fallen victim to a scam, especially those involving apps that engage in deceptive practices, can file a complaint with the Anti-Cybercrime Group of the Philippine National Police (PNP) or the National Bureau of Investigation (NBI) Cybercrime Division.

Conclusion

Unauthorized and unfair lending practices, particularly through online platforms, are illegal under Philippine law. Borrowers are protected by various consumer protection laws, such as the Lending Company Regulation Act, the Truth in Lending Act, and existing criminal statutes on fraud. If consent was not obtained or if the lending terms were misleading or abusive, the borrower may have grounds to invalidate the agreement and take legal action.

It's essential for borrowers to know their rights and seek legal assistance when they feel that they have been unfairly treated or scammed.