Interest rate caps for small, short-term loans

The Securities and Exchange Commission (SEC) has issued Memorandum Circular 14, Series of 2025, setting the ceilings on interest, penalties, and total costs for small, short-term consumer loans.

The rules apply to unsecured, general-purpose loans not exceeding P10,000 and with tenors of up to four months, beginning 1 April 2026 for all new, renewed, or restructured loans.

The circular limits the effective interest rate to 12 percent per month, while penalties for late payment or non-payment are capped at five percent per month of the outstanding scheduled amount.

In addition, the SEC has imposed a total cost cap: All combined interest, fees, charges, and penalties may not exceed 100 percent of the amount borrowed, regardless of how long the loan remains outstanding. A P5,000 loan should never cost more than P10,000 in total.

The SEC has also strengthened its anti-circumvention rules. Any attempt to evade the ceilings, whether through restructuring or repackaging, splitting loan amounts, recharacterizing fees, shifting the loan tenor, simulated collateral or sham guaranties, disguised charges, or any analogous scheme, will constitute a violation of the memorandum circular.

These reforms are not unique to the Philippines. Many countries with visible micro-lending sectors impose interest rate caps to curb predatory lending, particularly where access to credit depends less on credit history and more on immediate financial need.

The objective is not to eliminate short-term lending, but to ensure that credit remains accessible without becoming exploitative.

Placing reasonable limits makes loan costs more predictable, allowing borrowers to plan repayments without fear of a sudden or disproportionate escalation.

But any cap is only as effective as the agency that enforces it. The SEC has been sharpening its regulatory posture over the last few years.

It has revoked the licenses of non-compliant lenders, ordered the shutdown of abusive online lending platforms and, in coordination with law enforcement, seized servers used to run illegal digital lending operations.

The SEC is also working with the National Telecommunications Commission (NTC) and major app marketplaces to remove lending applications linked to unregistered or revoked entities and prevent them from reappearing under new or disguised branding.

Enforcement has likewise expanded to cover abusive collection practices, public shaming, harassment, and unauthorized access to a borrower’s contact list. A critical goal of the SEC is to ensure that these caps do not push borrowers toward unregulated or underground lenders.

Formal credit must remain accessible, predictable, and transparent. The new ceilings form part of a broader effort to make legitimate borrowing safer without shutting the door to those who rely on small loan facilities for urgent needs.

The circular will also be subject to periodic review, giving the SEC room to adjust ceilings and guidelines based on market behavior, borrower experiences, and emerging risks in both physical and digital lending channels.

Consumer protection requires consistency, vigilance, and sustained regulatory presence. With MC 14, the SEC strengthens fairer lending terms — enforced by strong and ongoing oversight — toward a system where consumers are protected and confidence in the financial market is strengthened.