or stipulated to be paid in

excess of that fixed by law.

Usury Law
(Act 2655, as amended by
Presidential Decree No. 116)
The Usury Law is Act 2655, as
amended by Presidential Decree No.
116, which provides, among others,
that the legal rate of interest for the
loan or forbearance of any money,
goods or credits, where such loan or
renewal or forbearance is secured in
whole or in part by a mortgage upon
real estate the title to which is duly
registered, in the absence of express
contract as to such rate of interest,
shall be 12% per annum. Any
amount of interest paid or stipulated
to be paid in excess of that fixed by
law is considered usurious, therefore
unlawful.
However, pursuant to Central
Bank Circular No. 905, adopted on
22 December 1982, the Supreme
Court declared that the Usury law is
now "legally inexistent".It should be
clarified that CB Circular No. 905 did
not repeal nor in anyway amend the
Usury Law but simply suspended the
latter's effectivity. Usury has been
legally
non-existent
in
our
jurisdiction. Interest can now be
charged as lender and borrower may
agree upon.

Usury is defined as:

Contracting for or receiving
something in excess of the
amount allowed by law for
the forbearance of money,
goods or things in action.
Any amount of interest paid

Elements:
1. Loan or forbearance.
2. An understanding between the
parties that the loan shall or
may be returned.
3. Unlawful intent to take more
than the legal rate for the use
of money.
4. Taking or agreeing to take for
the use of the loan of
something in excess of what is
allowed by law.
Applies:
A. Loan
B. Forbearance the contractual
obligation of the creditor to forbear
during a given period to require the
debtor, payment of an existing debt
then due and payable.
Puprpose for the protection of
borrowers from the imposition of
unscrupulous lenders who take
undue advantage of the necessities
of others.
Background
Taking of excessive interest
for the loan of money has
been
regarded
with
abhorrence
from
the
earliest times prohibited
by the ancient laws of the
Chinese and Hindus, the
Mosaic Law of the Jews, by
the Koran, by the Athenians
and by the Romans and has
been frowned upon by
distinguished
publicists
throughout all the ages.
The early American colonial
usury acts were modeled
after the English act, the

rate of interest allowed

being usually higher. These
early enactments adopted
the penalty for usury fixed
by the statue of the mother
country. The tendency of
subsequent statutes has
been steadily to mitigate
the punishment inflicted on
the usurer.
The illegality of usury is
now wholly a creature of
legislation. The Philippine
statute on the subject is Act
No. 2655. It is a drastic law
following in many respects
the
most
advanced
American
Legislation.
Central Bank Circular No.
905 simply suspended the
effectivity of the Usury Law,
it did not repeal or in any
way suspend the Usury
Law. Only a law can repeal
another law.

Usury Law
The Usury Law is Act 2655,
as amended by Presidential
Decree No. 116, which
provides, among others,
that the legal rate of
interest for the loan or
forbearance of any money,
goods or credits, where
such loan or renewal or
forbearance is secured in
whole or in part by a
mortgage upon real estate
the title to which is duly
registered, in the absence
of express contract as to
such rate of interest, shall
be 12% per annum. Any
amount of interest paid or
stipulated to be paid in
excess of that fixed by law

is
considered
usurious,
therefore unlawful.
Usury
law
has
been
enacted for the protection
of the borrower from the
imposition of unscrupulous
lenders who are ready to
take undue advantage of
the necessities of others. It
forms a part of the public
policy of the state, and is
intended
to
prevent
excessive charges for the
loan of money.
It proceeds on the theory
that a usurious loan is
attributable
to
such
inequality in the relation of
the lender and borrower
that
the
borrowers
necessities deprive him of
freedom in contracting and
place him at the mercy of
the lender.
Pursuant to Central Bank
Circular No. 905, adopted
on 22 December 1982, the
Supreme Court declared
that the Usury law is now
"legally inexistent". Under
the authority.
SECTION 1.
The
rate
of
interest,
including
commissions,
premiums, fees and other
charges, on a loan or
forbearance of any money,
goods,
or
credits,
regardless of maturity and
whether
secured
or
unsecured, that may be
charged or collected by any
person, whether natural or
juridical,
shall
not
be
subject to any ceiling
prescribed
under
or
pursuant to the Usury Law,

as amended.
Interest compensation allowed by
law of fixed by the parties for the
loan or forbearance of money, goods
or credits
Forbearance the contractual
obligation of the creditor to forbear
during a given period to require the
debtor, payment of an existing debt
then due and payable.
Kinds
1. Simple Interest certain rate
fixed by the parties
2. Compound Interest imposed
upon interest due and unpaid or
accrued interest

It should be clarified that CB

Circular No. 905 did not repeal nor in
anyway amend the Usury Law but
simply
suspended
the
latter's
effectivity. Usury has been legally
non-existent in our jurisdiction.
Interest can now be charged as
lender and borrower may agree
upon.

Interest Rates under the Usury

Law:
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.

3. Legal Interest when law

directs to be charged in the absence
of any agreement as to the rate
between the parties. (As per Sec. 1
6% per annum from the date of
the rendition of judgment and not
the filing of the complaint)

Exception:
Stipulated
interest rates are illegal if
they are unconscionable
and the Court is allowed to
temper interest rates when
necessary

4. Lawful Interest which the law

allows or does not prohibit, rate of
interest
within
the
maximum
prescribed byh law

Usury Law
Legal Rate 12% per annum
Maximum Rate 12% per annum if
loan is secure, 14% if not secure

5. Unlawful Interest which is

paid or stipulated to be paid beyond
the maximum fixed by law.

Central Bank Circular

1. Not exceeding 16% per annum
2. Not exceeding 18% if such loans
are unsecured

SECTION 2.
The rate of interest for the
loan or forbearance of any
money, goods or credits
and the rate allowed in
judgments, in the absence
of express contract as to
such rate of interest, shall
continue to be twelve per
cent (12%) per annum.

3. If the maturity is more than 365

days, the interest shall not be
subject to any ceiling
Interest Rate Ceiling

The Usury Law had been

rendered legally ineffective

by Resolution No. 224

dated 3 December 1982 of
the Monetary Board of the
Central Bank, and later by
Central Bank Circular No.
905 which took effect on 1
January
1983.
These
circulars
removed
the
ceiling on interest rates for
secured
and
unsecured
loans
regardless
of
maturity. The effect of
these circulars is to allow
the parties to agree on any
interest
that
may
be
charged on a loan. The
virtual repeal of the Usury
Law is within the range of
judicial notice which courts
are bound to take into
account. Although interest
rates are no longer subject
to a ceiling, the lender still
does not have an unbridled
license to impose increased
interest rates. The lender
and the borrower should
agree on the imposed rate,
and such imposed rate
should be in writing.