With the suspension of the usury law and the removal of interest rate ceilings, the parties are in principle free to set interest rates on monetary bonds. As a rule, the interest rate agreed between the creditor and the debtor is binding on them. However, this rule is not absolute. In this context, the conclusion is that the usury law is still in force because the Monetary Board was empowered on the basis of this law to abolish interest rate ceilings. Without this law, the Monetary Board would not have been able to issue its Circular No. 805. Some argue, which I also agreed with earlier, that Circular No. 805 merely suspended the effect of the 12% and 14% ceilings initially set by law. In my view, Circular No. 805 not only suspended these penalties, but even replaced them. The circular made no reference to a suspension. Moreover, there is nothing to prevent the Monetary Board from imposing interest rates other than those of 12% and 14% in the future, and this has indeed occurred.
There is debate about the effectiveness of usury laws after U.S. Supreme Court decisions and laws gave financial institutions the ability to circumvent borders. The decisions of the High Court in Marquette National Bank v. First of Omaha Corp. allowed credit companies to charge customers who were out of state at the same interest rates that companies could charge in the states where they were incorporated. In my previous article, I pointed out that with the suspension of the usury law due to the series of circular CB 905 of 1982, the parties to a loan agreement are free to set the interest rate. However, if the agreed interest rate is unscrupulous, the courts can strike it down. Even if they are knowingly and willfully accepted, unscrupulous interest rates are zero from the outset because they violate “morality and law.” The introduction of the Delaware Financial Center Development Act, which largely removed restrictions on fees and interest that can be levied on consumer credit in the state, reinforced the desire of financial institutions to locate there. Banks only had to set up subsidiaries or meet other conditions to incorporate in the state in order to benefit from the law and thus circumvent usury laws in other states. In response to this activity, other states have amended their usury laws to allow local financial institutions to charge interest rates on an equal footing with non-government lenders. An interest rate of 2.5% per day is truly unscrupulous. The Bangko Sentral is expected to cap interest rates on consumer loans and payday loans, and Congress is expected to deal with reviving the anti-usury law.
The Philippines had an anti-usury law that set an upper limit on the interest rate on loans. However, it was suspended in 1983 and efforts to revive the law failed in Congress. He was dismissed because he believed the court could decide whether or not an interest rate in a loan agreement was acceptable once a case was before it. But everyone knows how slowly the wheels of justice move forward in this part of the world and how the cost and effort of such litigation can end up being even more costly than the question of money. The Supreme Court had already stated in previous rulings that the usury law was effectively repealed by Central Bank Circular No. 905 as of January. 1, 1983, and the fact that the parties to a loan agreement had wide leeway in agreeing on an interest rate “gives nothing in the said circular to Carte Blanche lenders to raise interest rates to a level which either enslaves their borrowers or leads to a haemorrhage of their assets. Fixed interest rates are illegal if they are unscrupulous. Credit card companies generally have the advantage of being able to charge interest rates authorized by the state where the company was founded, rather than following usury laws that apply in the states where borrowers live. Similarly, nationally chartered banks may apply the highest interest rates allowed by the State in which the institution was established. By incorporating into states such as Delaware or South Dakota, these lenders have historically enjoyed greater leeway made possible by those states` flexible usury laws.
A legislator has called for the immediate adoption of a law that will set a ceiling on the interest rates charged to credit institutions. House Bill 4917, drafted by Representative Teodoro Casi`ntiled;o (Party list, Bayan Muna), stipulates that all credit institutions must charge an interest rate not exceeding one percent per month or 12 percent per annum on loans or any leniency of money, property or credit. “According to the law, people who, in desperation, are willing to pay exorbitant interest to take out a loan are helped and protected,” Casiño said. Casiño said the law, known as the “Interest Regulation Law,” will end the notorious practice of imposing an interest rate of 3.75% or even 10% per month on credit institutions, which is unscrupulous, oppressive and harmful to the public`s economic interests. “This will discourage and punish unscrupulous individuals who profit from the misfortunes of others. Likewise, it will encourage and help retail investors and entrepreneurs to apply for loans and help improve the conditions of competition between large and small investors,” Casiño said. Casiño said that the stated policy of the state is to protect, promote and regulate people`s economic interests. Casiño stated that Republic Act 2655, also known as the “usury law,” sets the legal interest rate on lending or leniency of money, property, or credit when such a loan, renewal, or omission is secured, in whole or in part, by a mortgage on property whose title is duly registered. In the absence of an express contract for such an interest rate, it is 12% per year. “Therefore, any amount of interest paid or payable in excess of the amount established by law is considered usury and illegal,” Casiño said.
However, Casiño said that when the Central Bank of the Philippines, now renamed Bangko Sentral ng Pilipinas, issued Circular 905, series of 1982, suspending RA 2655, it removed the interest rate ceiling. “With the suspension of the usury law and the lifting of interest rate ceilings, banks and other credit institutions are free to charge higher interest rates that would raise the debt to an outrageous amount more than three times the main debt,” Casiño said. Credit institutions include credit card companies, pawnshops, savings and credit associations, credit unions, cooperatives or individuals. Violations are punishable by a fine of 50,000 pesos and/or six months` imprisonment. In the United States, each state is responsible for establishing its own usury laws. While these types of financial activities may fall under the Constitution`s trade clause, Congress has not traditionally focused on usury. The government considers the collection of usury by violent means to be a federal offence. Sources: Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation (G.R.
No. 139290, May 9, 2006); Development Bank of the Philippines v. Court of Appeal; Garcia v. Court of Appeal; Medel v. Court of Appeal; Security Bank and Trust Company v RTC Makati; spouse Solangon v. Salazar; Cuaton v. Salud; Ruiz v. CA; Eastern Shipping vs. Court of Appeals, G.R.
No. 97412, July 12, 1994. What about the 7% interest and penalties charged by the collection agencies of some credit card companies on accounts in default? I informed them of my intention to pay my account in installments. They insisted that if the rate is one year, they will charge 7% interest per month, perhaps because they know the usury law no longer exists. I asked for a fair interest rate, a lower interest rate based on the remaining balance. They refused to listen. Perhaps they would like to see me in court. Is there an alternative for me? I understand that the creditor has already violated certain provisions of our legislation. What would you suggest to me to proceed with the payment of this debt and the fight against this violation: what authority must I bring this case before so that, exceptionally, this despicable practice is ended by those who profit from the misfortunes of others? Delaware, in particular, is often chosen as the founding state of many financial institutions because of its freedom to charge interest rates.
About half of domestic loans in the United States.