Everybody knows about “5-6” and similar lending schemes. Everybody also knows that, ironically, those who are in financial trouble are forced to accept ridiculously high interest rates – which, in many (almost all?) instances, leads to more trouble (financial or otherwise).
Indeed, with the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest rates to be imposed on monetary obligations. However, while the Supreme Court recognizes the right of the parties to enter into contracts, this rule is not absolute.
In a recent case, the SC again dealt with the validity of interest agreed by the parties, stating that:
Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in another.
In that case, the SC reduced the interest rate from 18% to 12% per annum, noting, among others, that the amount involved has ballooned to an outrageous amount four times the principal debt.
Indeed, there is no hard and fast rule to determne the reasonableness of interest rates. Stipulated interest rates of 21%, 23% and 24% per annum had been sustained in certain cases.
On the other hand, there are plenty of cases when the SC equitably reduced the stipulated interest rates; for instance, from 18% to 10% per annum. The SC also voided the stipulated interest of 5.5% per month (or 66% per annum), for being “excessive, iniquitous, unconscionable and exorbitant, hence, contrary to morals (”contra bonos mores”), if not against the law”. The same is true with cases involving 36% per annum, 6% per month (or 72% per annum), and 10% and 8% per month. In these instances, the SC imposed the legal interest of 12%.
Just to be clear, “legal interest” doesn’t mean that anything beyond 12% is “illegal”. It simply means that in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum.
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Sources: Trade & Investment Development Corporation of the Philippines vs. Roblett Industrial Construction Corporation (G.R. No. 139290, 9 May 2006); Development Bank of the Philippines vs. Court of Appeal; Garcia vs. Court of Appeals; Medel vs. Court of Appeals; Security Bank and Trust Company vs. RTC Makati; Spouses Solangon vs. Salazar; Cuaton vs. Salud; Ruiz vs. CA; Eastern Shipping vs. Court of Appeals, G.R. No. 97412 July 12, 1994. Also posted here.
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Tinkering with internet tools comes with the bonus of better understanding how existing laws apply to the third wave - that of technology, particularly the internet. This is also a great medium to disseminate and discuss ideas across borders, time, color or creed. 
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this is a nice site specially me being a young entrepreneur
that needs the side of the law to move and make the business legal
“But” if unpaid interest is to be compounded monthly then a 5.5% monthly interest would compute to nearly 80% annual interest.
My uncle borrowed money from a “loan shark” and used as collateral their house & lot. He’s been paying partially but the loan has ballooned already due to the exorbitant interest rates. I think he only borrowed P1m-P2m five years ago and has paid since then, P6-P7m but he’s still in debt because of the very high interest (i.e. 6%-7% month or 72%-84% per annum!). Nabaon na sila sa utang and they have sold most of their properties (lot, car, jewelries, another house & lot, etc) but they just can’t catch up with the loan balance because of the interest! How can they get out of this situation?! Napunta na lahat sa loan shark ang kabuhayan nila and there’s a risk now that they will also lose their house & lot because the loan is not yet fully paid.
sana man lang inisip muna ng maigi ng tito mu ang rate .. normal tlga ang risk nah hndi mu mabayaran agad ,, na ubos na ang lahat tuloy ..
That is also my problem… Sobrang laki ang interest.. yung 150k n a inutang nmin in just 18 months naging 500k plus na.
Paano po ba ang pwde nmin gawin… ang mali ko din po eh pumirma kmi sa contract… pero wla nman po nka lagay na 7% ang interest dun. Paalis na po kc ako nun papuntang abroad, kya kapit sa patalim na nag loan kmi sa isang private na tao na ginawa pa nmin colateral yung bahay at lupa nmin. 135k po ang nka lagay sa deed of sale pra sa bahay. D nman po ako pinalad na maging ayos ang trabaho sa ibang bansa, after 2 months na uwi po ako dahil d2 kmi pinag exit nang company na nangako na babalik din o kukunin kmi after 1 month, pero d na po kmi kinuha. Yung 7% na interest months isinama na nya sa principal nung gumawa cya nang contract… at sa 18 months po eh nka compound po ang interest at capital. kya po sobra cyang lumaki.
Ako po ang nang sanla sa pamamagitan nang special power of attorney nang mga kapatid ko na yung ibang perma eh ginawa ko nlang, hindi cla ang pumirma.
Nagigipag usap na po kmi sa pinag sanlaan nmin kung pwede na bawasan ang interest sa 300k, dhil yun lang po ang kya sa panibaging loan sa banko na, na mas maliit ang interest at mas mahabang bayaran.
Isa pa pong iniisip ko eh yung mga na release ko na cheke sa knila, dhil pinag open mo nya ako nang checking account at pina pirma nang mga amount na wlang date sa pangalan nila. 6 ba 7k pra sa 6 months na interest at isang 150k pra sa pirncipal.
Paano po kya ang gagawin ko?
Does this apply to fines for late rental payments?
gaya din po ng iba, naka utang din po ng 15k ang aking kapatid and for 2 months naging 20k na po utang nya dahil sa laki ng interest. willing naman po magbayad ang kapatid ko kaya lang nawalan po sya ng trabaho. plano po sana nya na hulog hulogan nya ang 20k for 1 year pero sana hindi na magpatong ng interest sa 20k para maubos na nyang byaran ang utang. pwede po ba yon? wala naman pong agreement na pinirmahan sila sa nagpautang sa kanila..
ganun talaga yun mga neng ako nagpapalending ako may umutang ng 50k 10 months babayadan naging 100k ang dapat kase kapag hhiram kau ng pera sa mga gaya namin na private lender dapat alam nyo ang pinapasok nyo
Your right ces!
how nice of you showing your extortionist and greedy side,
no one does that here anymore.
I have indebted to a sari-sari store whom the owner is a mother and had died for several years, now her son wants me to pay back all my debts. Does he has the right to collect and sue me ?
@peter
Huwag kang balasubas at manunuba. Bayaran mo ang inutang mo. Oo, may karapatan ang anak na singilin ang utang mo. Isa iyon sa minana niya mula sa yumaong ina.
nainspire po ako basahin itong mga comments nyo,kaya gusto ko ndin po magtanong…ano po b ang puede kong gawin,nakautang din po ako s lending at 2 pa dhil s kinakailangang makabayad ako s aking placement fee,s kadahilanang tiwala nmn ako s agency ko,basta pirma n lng ako ng pirma sa lahat ng dapat pirmahan,pinag open din nila ako ng account para magkatseke ako at pinapirmahan din po s akin..ngayon ang problema ko po ay nagkadelay delay po ako ng payments ko s kadahilanang personal,willing nmn po ako bayaran ang nilending ko,kso pinipilit ako ng 2ng lending n doblehin ko ang bayad ko hanggang s makahabol ako s duedate,hindi ko nmn po magawa dhil sagad n po ang pmbyad ko s kanila..ngayon po ay tinatawagan nila ako at pinadadalhan ng demand letter..sobra n po nakakaapekto s trabaho ko,kc wla n nga ako maibigay s pamilya ko,sinagagad pa ako ng husto ng lending,d cla mapakiusapan…d ko nmn po sila tatakbuhan..paano po kya ang aking gagawin..nag iisa po ako dito ,wla po ako nakikilala pang kaibigan s 9mos n pagtatrabaho ko dito..kya ng mabasa ko po ito ay d n ako nagdalawang isip ..bka sakaling matulungan nyo ako..salamat po…
MORE POWER!!!
ask ko lng po. ano po ang masasabi nyo sa profitabilty ng mga lenders in case na maerestore ang usury law?
iwasan ng mangutang sa mga lender..yung mga lender adik sa pera…
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