Common Illegal Lending Practices in the Philippines


The financial landscape of the Philippines has undergone significant transformation over the years, opening up new opportunities for individuals seeking financial assistance.

However, amidst the array of legitimate financial institutions, a troubling trend has emerged – the rise of loan sharks and their exploitative practices. These unscrupulous lenders target vulnerable individuals in dire need of quick cash, trapping them in a cycle of insurmountable debt.

In this review, CashLoanPH delves deep into the common illegal lending practices prevalent in the country, shedding light on the far-reaching consequences they inflict on borrowers’ lives and the broader economy.

Imposing Exorbitant Interest Rates

At the heart of the predatory lending menace lies the practice of loan sharks imposing exorbitant interest rates that often soar above 100%. These lenders prey on the desperation of borrowers, who, due to various reasons, lack access to traditional banking and credit facilities. They promise swift financial solutions without revealing the hidden burden of astronomical interest rates, leaving borrowers struggling to meet ever-mounting repayments.

These exorbitant interest rates do not just lead to a cycle of debt; they also undermine the nation’s economic growth. As borrowers find themselves burdened with sky-high interest payments, their disposable income is severely limited, hampering their ability to spend on goods and services, thereby impacting overall consumption and economic activity.

Collateral Demands: A Race against Dignity and Identity Theft

In their quest for securing their advantage, loan sharks unscrupulously demand collateral, often taking advantage of borrowers’ precarious situations. Surrendering vital documents like ATM cards and government-issued IDs becomes the norm, as borrowers feel they have no other choice but to comply.

Handing over an ATM card grants loan sharks unauthorized access to the borrower’s bank account, allowing them to make unauthorized withdrawals and manipulate funds. The consequences of such actions can be dire, plunging borrowers into a deeper financial crisis.

Moreover, the surrender of government-issued IDs can have severe repercussions, exposing borrowers to identity theft and fraudulent activities conducted under their names. The aftermath of identity theft can be a long and daunting process, leaving individuals grappling with financial and emotional distress.

Absence of Formal Loan Contracts: The Peril of Ambiguity

The lack of formal loan contracts is another hallmark of illegal lending practices in the Philippines. By operating without a proper lender-borrower agreement, loan sharks skirt legal regulations and exploit borrowers’ vulnerability.

The absence of a legally binding document detailing terms and conditions leaves borrowers susceptible to arbitrary changes in repayment terms, causing confusion and anxiety. Additionally, the lack of formal contracts diminishes borrowers’ rights and legal protections, making it challenging for them to seek redress in case of disputes.

Lack of Proper Documentation: Losing Track of Repayments

Loan sharks, often operating in the shadows, frequently fail to maintain accurate records of borrowers’ repayment transactions. The lack of transparent documentation makes it difficult for borrowers to track their repayments, determine outstanding balances, or identify any additional charges imposed by the lenders.

This lack of documentation further perpetuates the cycle of debt, as borrowers may unknowingly overpay or fall victim to dubious accounting practices. Furthermore, it limits borrowers’ ability to prove their repayment history, exposing them to harassment and aggressive debt collection tactics.

Unfair Debt Collection Practices: The Toll on Borrowers’ Mental Health

The debt collection practices employed by loan sharks are nothing short of harrowing. In their relentless pursuit of repayment, these lenders resort to offensive language, intimidation, and outright harassment. Borrowers find themselves at the receiving end of threats and emotional abuse, leading to significant mental distress and anxiety.

Public disclosure of borrowers’ personal information adds another layer of humiliation, leaving individuals vulnerable to social stigmatization. The constant fear of aggressive debt collectors looms large, making it difficult for borrowers to maintain stable lives and financial well-being.

Regulatory Challenges and the Way Forward

While the Securities and Exchange Commission (SEC) has issued Memorandum Circular No. 18 s.2019 to address unfair debt collection practices, its impact remains limited. A significant portion of loan sharks continues to operate without licenses, evading regulatory scrutiny and perpetuating their exploitative activities.

To combat predatory lending practices effectively, a multifaceted approach is essential. Stronger regulatory frameworks, increased public awareness campaigns, and enhanced financial literacy initiatives are key components to safeguarding borrowers’ rights and curbing the menace of illegal lending.


The scourge of predatory lending practices in the Philippines presents a daunting challenge to the nation’s financial stability and the well-being of its citizens. The rampant imposition of exorbitant interest rates, the surrender of collateral and vital documents, the absence of formal contracts, the lack of proper documentation, and the use of unfair debt collection practices combine to create a vicious cycle of debt and despair for borrowers.

To break free from this cycle and create a fair and inclusive financial landscape, concerted efforts are required from policymakers, regulatory bodies, financial institutions, and civil society. Only through collaborative action can the Philippines ensure that vulnerable individuals are protected, financial dignity is upheld, and the nation’s economic growth is sustained.

5/5 - (6 votes)
CashLoanPH Changed status to publish 24/07/2023