Usury and Unconscionable Interest Rates

With the suspension of the Usury Law and the removal of interest ceilings, the parties are generally free to stipulate the interest rates to be imposed on monetary obligations. As a rule, the interest rate agreed by the creditor and the debtor is binding upon them. This rule, however, 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.


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.

16 thoughts on “Usury and Unconscionable Interest Rates

  1. Romy Escarilla

    How about the 7% interest/penalty imposed by collection agencies of some credit card companies on delinquent accounts? I informed them of my intention to pay my account on installment. They insisted that if the installment is for one year, they will charge 7% interest per month, maybe because they know that the Usury Law is now inexistent. I requested for a fair interest rate, a lower rate based on the remaining balance. They refused to listen. Perhaps they would want to see me in court. Is there an alternative for me?

  2. Atty. Fred

    Others talk directly with people from the credit card company, although most have been told to discuss the matter with the collection agency because the account had already been referred to that agency. Still, there are instances when a credit card company directly responds to proposals, so it’s worth the try. The “see me in court” option that you mentioned should be the last recourse.

    As to the reasonableness of the 7%, this is gauged by taking into consideration all the surroundng circumstances (e.g., amount of loan, amount of previous interests/penalties charged and paid, etc.). I cannot ask for these details (specifics of your case) and give an opinion, as it would be tantamount to a legal advice. I hope you understand that ethical considerations prohibit us from doing that. Nevertheless, this general issue may be covered in our subsequent articles.

  3. lawenthusiast

    hi, some lending institutions charge more than 12% per annum rates and at times charge penalties for failure to pay on time on top of interest, could you say this is unconsionable? will the courts temper this? can’t just exhorbitant penalty substitute the payment of

  4. Atty. Fred Post author

    As mentioned above, whether a particular rate is unconscionable depends on the facts of each case. Interests and penalties are different, and may be separately considered valid (or invalid) depending on the circumstances.

  5. Pingback: Lending interest rates at Atty-at-Work

  6. lianlhen

    my mother has been indebted with 50k and was charged 8% for interest monthly. She was able to pay 61k from mar 2005-july 2006 on her own list. however now that the attorney in fact of the creditor is now claiming the money they have lend, i found out from the personal notebook of the creditor that my mother still pays during 2007. due to this i found out that she have paid more than 61k.

    as agreed upon by the creditor and my mother, our house has been the collateral. however the house is located at a government-owned land, and the rights holder is not my parents but my grandmother. another thing the house is conjugal and my father has no knowledge regarding the debt and the collateral made by my mother.

    my questions are:
    1. is the contract valid regarding the house as collateral without my father’s approval and signature?

    2. Can we appeal on court regarding the amount my mother have paid and for reconsideration of the interest rate being unconscionable?

  7. pibarra

    hi….just want to ask I have a loan with a lending company. The interest is from 14% and now it goes down to 12.5% a month. Is this legal? I mean the interest really is so high…..problem is I’m having a hard time paying……and they said that they will send a demand letter….Please advise….

  8. annalyn vasquez

    gud day, i hope you can give me legal advice, i have a credit amounting to P1500.00 and the interest is 20% every 10 days this credit goes until now, as i remember this start last nov. 2011, at first i pay P1680.00, P600.00 of this is for the 20 days interest which is 40%, P80.00 is for the interest’s interest, i gave this payment to my co maker but before i gave the money to her I have her signed the written agreement that as a co maker she received my payment. without my knowledge my co maker did not remitted my payment. she says instead shell pay for it and have the responsibilities on the money, the person where we lend the money don’t agreed she says i’m still the one who are responsible for the payment of the said money, but on the contract we signed it stated that if i didn’t pay my credit my co maker is the one who will pay for it. and until now were paying the interest, but because of the big interest she didn’t afford to pay continuously and now shes suing us, can u give us legal advice, did she has the right to sue us? what will we do.

  9. Eric


    I believe a friend of mine, who is a CAFGU, secured a usurious rate of a PhP 30,000-loan payable in one year.

    The interest rate is 5.4% monthly on the principal which nets to PhP 1620.00/month multiply by 12 months, this totals to PhP 19,440.00.

    I intend to help my friend with the right and legal payments including for the interest rates that is consciolable and not usurious.

    I understand that the creditor has already violated certain provisions set by our law. What would you suggest for me to proceed with the settlement of this debt and and with the addressing of this violation: to what authority shall I bring this matter so that this despicable practice is for once concluded by those who take advantage of the misfortunes of others.

    My friend has already covered for 6-month worth of paying his debt and the equivalent monthly interests by having his ATM card held by the debtor.

    Your advise is utmost solicited.

    Thank you and warm regards,


  10. MeiMei

    Dear Attorney,

    I am an OFW who borrowed 15000pesos payable in 1 month from a lending agency which was referred by my recruitment agency. At first they charged me 16957NT around 24000pesos but I disputed and they lowed down to 15240NT (around 22000pesos) which is still I find very excessive. Is the interest they charged reasonable according to the law? What is the maximum interest rate allowed for lending agencies? By the way, it was very late when I found out that I need to pay such amount because they did not informed me before they released the money. And unfortunately, I have used the money to pay the balance of my placement fee.

    I would highly appreciate any advice/opinion you could give us.

  11. Maria

    My case is different.
    I want to take a loan shark to court.
    I owed this person 70k for more than 2yrs. paying her 10% interest per month. Actually that lead to that 70k because she added up the interest of it every time I failed to pay inprevious months. The interest itself is hard on me when until then I have difficulty paying it.
    Now I want to pay her gradually without paying that much interest every month by taking her to court.
    How can I do that to start with?
    Thank you.

  12. bimbo

    can you please give me a clarification and goverment law regarding with my loan interest..i got 65,000 pesos loan lending, payable by 6 months and this became monthly payment is morethan 14K, is this legal interest policy by the lending corporation..please reply..thanks

  13. Tataliknow

    Borrowers beware, usury law was disabled.
    And legally if you agreed to borrow at a certain percentage, be it more than 12% is legal; because you had “agreed” in a contract or any written form.
    The 12% is imposed if there is no agreed interest rate and there is no written proof of agreement.

  14. Dennis

    Dear Atty,

    May katanungan lang po ako dahil nagloan po ako sa isang lending company ng 200,000 nakapagbayad ako ng 2 months worth 67,000 pesos dahil gusto ko na syang ifull payment on the third month hindi ho sila pumayag na hanggang sa third month lang na interest yung babayaran ko gusto nila pabayaran yung 5 months na interest na aabot sa 74,000+ humingi ho ako ng kopya kung paano nila kinalculate yung amount kaso ho ang binigay nila ay table of amortization hindi ko ho maintindihan kung paano ho ganon kalaki yung interest ni wla man lang break down sa binigay na data. so umabot ho ng higit isang taon kasi nasa ibang bansa na kami. ang sabi nila nagpapataw daw ho sila ng 7 percent per day sa penalty charge lang ho yang. binasa ko yung lending rules sabi ho dapat nka stipulate kung paano dapat ito nakadisclose sa umutang. anu po ba ang dapat kung gawin dito atty sana po maliwanagan nyo po ang aking isipan tungkol dito. Salamat po and God bless.


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