Understanding High Interest Rates and Harassment Practices by Online Lending Apps Under Philippine Law

Dear Attorney,

I hope this letter finds you well. I am writing to seek legal advice regarding a situation involving an online lending application that charges an extraordinarily high interest rate. When I tried to request a cancellation of my loan, the company did not respond to my request. Instead, they began engaging in practices I perceive as harassment—repeated messages that threaten actions which appear designed to intimidate me. They are pressuring me to pay amounts that seem disproportionate to what I initially borrowed. I am deeply concerned about my rights and legal recourse under Philippine law.

As a borrower, I believe I have a right to fair, transparent, and lawful treatment. I do not wish to disregard any valid obligation I may have, but I also want to protect myself from potential abusive or illegal collection practices. I would greatly appreciate any guidance on how I should proceed, including what laws and regulations protect borrowers from exorbitant interest rates and from harassment by creditors. Thank you for your time, and I look forward to your advice.

Sincerely,
A Concerned Borrower

3. LEGAL ARTICLE ON PHILIPPINE LAW

Disclaimer: The discussion below is for general informational purposes and should not be taken as a substitute for individualized legal advice. Seek consultation with a qualified attorney for advice tailored to your specific situation.

I. Introduction

Online lending platforms have risen dramatically in popularity due to their convenience and accessibility. However, certain unscrupulous entities have exploited this trend by imposing unreasonably high interest rates, opaque fee structures, and aggressive collection strategies that border on harassment. Philippine law offers protection to borrowers through various statutes and regulations aimed at preventing usurious interest rates and abusive collection methods. Yet, borrowers often remain unaware of their rights. This article aims to shed light on the relevant laws and regulations concerning the imposition of high interest rates and creditor harassment, particularly in the context of online lending apps.

II. Governing Laws and Regulatory Bodies

  1. The Lending Company Regulation Act of 2007 (Republic Act No. 9474)

    • RA 9474 governs the organization and operation of lending companies. Under this law, lending companies must be duly registered with the Securities and Exchange Commission (SEC). Lending companies are required to disclose finance charges clearly, including interest rates and other fees.
    • Section 7 of RA 9474 mandates that lending companies provide borrowers with a written statement of the loan’s principal amount, total charges, and effective interest rate. By requiring transparency, the law seeks to empower borrowers to make informed decisions.

  2. Bangko Sentral ng Pilipinas (BSP) Circulars

    • Although the Anti-Usury Law (Act No. 2655) has effectively been suspended in terms of interest rate ceilings, BSP sets guidelines on what constitutes reasonable interest rates through its circulars. In general, the BSP defers to market conditions, but it encourages lenders to adopt responsible lending practices.
    • Circulars sometimes address microfinance and small loans, placing certain limitations on interest rates. However, for many online lending platforms, the absence of a strict statutory rate cap has allowed them to impose interest rates that can become exorbitant.

  3. Consumer Act of the Philippines (Republic Act No. 7394)

    • While the Consumer Act primarily addresses consumer product safety and fair trade, its principles on transparency, fair dealing, and consumer protection can also guide practices in the financial sector.
    • The general policy is that creditors should not engage in unfair or deceptive acts and practices, which include hiding fees or misrepresenting the terms of the loan.

  4. Cybercrime Prevention Act of 2012 (Republic Act No. 10175)

    • In cases where online lenders use information and communications technology to harass, shame, or threaten borrowers, the Cybercrime Prevention Act may come into play.
    • The law penalizes cyber libel, online threats, and other forms of cyber harassment.

  5. Data Privacy Act of 2012 (Republic Act No. 10173)

    • Online lending apps typically collect sensitive personal data (e.g., phone contacts, photos, identification documents). Lenders who misuse or unlawfully disclose this data may be in violation of the Data Privacy Act.
    • The National Privacy Commission (NPC) has previously penalized certain online lending apps for publicly shaming borrowers and unauthorized use of personal information.

III. Interest Rate Regulations and the Concept of Usury

  1. Historical Background of Usury Laws

    • The Anti-Usury Law once set a cap on interest rates. However, through Central Bank (now BSP) Circular No. 905 (Series of 1982), the imposition of ceilings on interest rates was lifted. This effectively liberalized interest rates, allowing creditors and borrowers to agree on rates without a strict statutory maximum.
    • This liberalization, however, does not grant lenders the unbridled right to impose unconscionable rates. Courts still apply the principle of equity in determining whether a rate is inordinately high.

  2. Judicial Perspective on Excessive Interest Rates

    • Philippine courts have repeatedly stated that while parties are free to contract on interest rates, the courts may intervene when the rate is considered “iniquitous or unconscionable.”
    • The Supreme Court has, in multiple decisions, reduced agreed-upon interest rates if it finds them to be extortionate or shocking to the conscience. Although there is no universal rate above which interest is automatically considered usurious, courts often examine the circumstances of each case.

  3. Effective Interest Rate vs. Nominal Interest Rate

    • Online lending apps may advertise a “low nominal rate” but, upon closer inspection, the effective interest rate (the true cost of borrowing after factoring in fees, charges, and compounding) may be astronomically higher.
    • Borrowers need to carefully review the total amount payable, including miscellaneous charges. If the effective interest rate appears disproportionately high relative to conventional lending standards, it may be grounds to claim that the rate is unconscionable.

IV. Collection Practices and Harassment

  1. Legal vs. Illegal Collection Activities

    • Collection activities generally become illegal when they involve intimidation, coercion, or threats to a borrower’s personal safety, reputation, or property that go beyond the lawful assertion of a claim.
    • Practices such as repeated calls at odd hours, shaming tactics on social media, contacting borrowers’ friends or relatives with malicious intent, and threatening criminal cases for purely civil debts are red flags of potentially illegal conduct.

  2. Criminal Liability for Harassment

    • The Revised Penal Code (RPC) covers acts of grave threats, light threats, and unjust vexation. If a lender’s representatives issue threats that instill fear of harm or damage to the borrower’s reputation, these may constitute criminal offenses.
    • If the harassment takes place online or via electronic communication, the Cybercrime Prevention Act could further elevate the offense, especially when digital means are used to publicly shame, defame, or intimidate a borrower.

  3. Data Privacy Violations

    • Some online lending apps require borrowers to grant access to their phone contacts and camera, allegedly for “verification” or “security” purposes. Borrowers may unwittingly allow the app to contact or spam their personal network in the event of default.
    • The unauthorized use of a borrower’s contacts or the disclosure of personal information without consent may violate the Data Privacy Act, especially if done to harass or coerce.
    • The NPC has been proactive in issuing orders to online lending companies that violate privacy rights, such as publicly posting the names and faces of borrowers who are allegedly in default.

  4. Filing Complaints for Harassment

    • Borrowers who experience harassment can file a complaint with local law enforcement, the National Bureau of Investigation (NBI), or the Philippine National Police Anti-Cybercrime Group (PNP-ACG).
    • If the harassment involves a data privacy breach, a complaint can be filed with the National Privacy Commission, which has the power to investigate and penalize violators.
    • If a borrower perceives threats against life or property, immediate reporting to the authorities is crucial for legal protection.

V. Remedies for Borrowers

  1. Negotiation and Settlement

    • The first step is often to communicate directly with the lender in writing, seeking an amicable resolution, such as restructuring the loan or clarifying charges. Maintaining a proper record of all communications can be crucial if disputes escalate.

  2. Filing a Complaint with the SEC

    • If the lending entity is registered with the SEC, borrowers may bring complaints for non-compliance with RA 9474. The SEC can impose penalties or revoke the certificate of authority of lenders who engage in unfair or illegal practices.

  3. Civil Action in Court

    • Borrowers who believe they are being charged unconscionably high interest rates can file a complaint in the appropriate trial court, usually for the annulment or reformation of contract.
    • Courts have the power to reduce interest rates if found to be iniquitous. A judge may declare a portion of the stipulated interest void and impose a more equitable rate.

  4. Criminal Action

    • In cases of grave threats or other related criminal harassment, borrowers may file criminal complaints under the Revised Penal Code.
    • For cyber-libel or other online offenses, a complaint can be lodged with the PNP-ACG or the NBI Cybercrime Division.

  5. Data Privacy Complaint

    • If the online lending platform misused personal data or shared confidential information without lawful basis, a borrower can file a complaint with the NPC.
    • The NPC can order the lender to cease and desist, impose fines, or even recommend criminal prosecution if the acts amount to a violation of the Data Privacy Act.

VI. Legal Standing of Loan Cancellation Requests

  1. Right to Cancel vs. Lender’s Right to Payment

    • The possibility of “canceling” a loan unilaterally is typically not recognized if the lender has already disbursed funds. However, borrowers may request cancellation before funds are released or under certain conditions outlined in the loan agreement.
    • Once a loan is perfected and the borrower has received the proceeds, cancellation usually requires repayment of any portion already disbursed and may involve penalties or processing fees, depending on the contract’s terms.

  2. Constructive or Partial Payment for Settlement

    • If a borrower decides to settle partially to cover the principal but disputes the interest rate, it is important to specify in writing that the payment is made under protest regarding the unconscionable portion of the charges. This preserves the borrower’s right to question those charges later.

  3. Good Faith and Equity Considerations

    • Courts place a premium on good faith. Borrowers who attempt to settle or negotiate in good faith, yet face unreasonable lender conduct, strengthen their position.
    • Judges may reduce or even nullify certain fees if they believe the lender acted in bad faith or if the interest rates are grossly disproportionate to industry standards.

VII. Practical Advice for Borrowers Facing Harassment

  1. Document Everything

    • Save screenshots of messages, emails, or social media posts that could constitute harassment or unauthorized disclosure of personal information.
    • Keep copies of loan agreements, payment records, and communication logs as evidence, should you decide to pursue a complaint.

  2. Exercise Caution When Sharing Personal Data

    • Read the fine print of any app’s permissions on your device. Limit granting access to your contacts, camera roll, or social media accounts unless absolutely necessary.
    • Immediately revoke access if the app uses your data in violation of your agreement or the law.

  3. Seek Legal Assistance Early

    • A consultation with a reputable lawyer can help you understand your rights and potential remedies before the problem escalates.
    • Legal counsel can also draft cease-and-desist letters to put the lender on notice of their unlawful behavior.

  4. Consider Community Resources

    • Various government offices, such as the Department of Trade and Industry (DTI), the SEC, the NPC, and even local government units, may have programs or committees offering mediation and assistance.
    • Non-governmental organizations and consumer advocacy groups can provide guidance or even legal aid if you qualify.

  5. Maintain Calm and Seek Support

    • Harassment can be stressful and emotionally draining. Remain calm, do not engage in hostile exchanges, and rely on your support network—family, friends, or professional advisers—for assistance.
    • Seek counseling or mental health support if the harassment causes severe anxiety or emotional harm.

VIII. Frequently Asked Questions

  1. Can I sue a lending company for charging too much interest?

    • Yes. If you believe the interest is unconscionable, you can file a civil case for annulment or reformation of the stipulation on interest. The court will determine whether to reduce the interest rate to a more reasonable level.

  2. What if the lender threatens to file a criminal case for non-payment?

    • Generally, debt collection is a civil matter. Non-payment of a debt is not automatically a criminal offense, unless there is fraud or other criminal activity involved. Threats of filing criminal charges to force payment may constitute harassment or extortion if baseless.

  3. Is it legal for a lender to access my phone contacts and call my friends or relatives?

    • If you specifically gave consent in the app’s terms of service, the lender might argue they have your permission. However, the scope of this consent must not violate the Data Privacy Act. Unauthorized or excessive disclosure can result in penalties for the lender.

  4. How can I report an online lending app for harassment?

    • You may file a complaint with the PNP Anti-Cybercrime Group, the NBI Cybercrime Division, and/or the NPC if data privacy is involved. You can also report the app to the SEC if it operates as a lending company without a proper license or in violation of lending laws.

  5. What agency handles complaints about privacy violations?

    • The National Privacy Commission enforces data privacy regulations and can impose penalties or recommend criminal charges for serious breaches.

IX. Conclusion

The rapid rise of online lending platforms in the Philippines has introduced convenience, but also significant risks, particularly in the form of exorbitant interest rates and harassment tactics. Borrowers who encounter abusive collection methods or suspect they are being charged disproportionate interest should know that multiple legal mechanisms exist to protect their rights. From lodging complaints with regulatory bodies like the SEC and the NPC, to filing civil or criminal actions in court, individuals are not without recourse.

Philippine law endeavors to maintain a balance between safeguarding lenders’ legitimate financial interests and protecting borrowers from exploitative practices. Although the absence of strict interest caps gives lenders some flexibility, it does not condone the charging of unconscionable rates or abusive collection methods. A borrower facing harassment or unjust charges should act promptly—by documenting evidence, consulting a lawyer, and reporting violations to the proper authorities. In the end, maintaining clear, open communication and a good-faith approach can be instrumental not only in resolving loan disputes, but also in ensuring that borrowers’ rights and dignity remain protected.

Note: This document is for general informational and educational purposes only and does not constitute legal advice. For specific concerns, particularly if harassment and privacy violations have already occurred, always consult a qualified lawyer who can provide guidance tailored to your situation.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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