Latest Stories

BSP circular doesn’t give lenders freedom to raise interest rates


MANILA, Philippines—The Circular issued by the Bangko Sentral ng Pilipinas (BSP) that effectively removed the ceiling on interest rates does not give lenders the freedom to raise interest rates to the point of haemorrhaging borrowers, the Supreme Court clarified.

In its decision promulgated Jan. 15 but made public Wednesday, the high court dismissed the petition filed by Eduardo Olaguer and the Advocate for Truth in Lending Inc. (AFTIL).

The high court, through Associate Justice Bienvenido Reyes, said even if borrowers and lenders agree on excessive interest rates on debt, it is still not allowed for being immoral and unjust.

Petitioners argued that CB Circular 905 was promulgated without the benefit of public hearing and violated Article 5 of the New Civil Code which states that “acts executed against the provisions of mandatory or prohibitory laws shall be void except when the law itself authorizes their validity.”

They said with the issuance of the Circular, the benchmark 91-day Treasury bills (T-Bills) shot up to 40 percent per annum while banks re-priced their loan rates higher than the T-bills.

But the high court, in its ruling said “stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being contrary to morals, if not against the law.”

The high court pointed out that under Article 1409 of the Civil Code such contracts are considered inexistent and “void ab initio” (void from the beginning) and therefore cannot be ratified nor may the right to set up their illegality as a defense be waived.

Still, the high court said, if interest rates are excessive, lenders are still protected because it will not affect the other terms of the credit.

“The debt due is considered as without the stipulated excessive interest and a legal interest of 12 percent per annum will be added in place of the excessive interest formerly imposed,” the high court said.

Follow Us

Follow us on Facebook Follow on Twitter Follow on Twitter

Recent Stories:

Complete stories on our Digital Edition newsstand for tablets, netbooks and mobile phones; 14-issue free trial. About to step out? Get breaking alerts on your mobile.phone. Text ON INQ BREAKING to 4467, for Globe, Smart and Sun subscribers in the Philippines.

Tags: Advocate for Truth in Lending Inc. , Bangko Sentral ng Pilipinas , BSP , Eduardo Olaguer , Interest Rates , Lenders , lending

Copyright © 2014, .
To subscribe to the Philippine Daily Inquirer newspaper in the Philippines, call +63 2 896-6000 for Metro Manila and Metro Cebu or email your subscription request here.
Factual errors? Contact the Philippine Daily Inquirer's day desk. Believe this article violates journalistic ethics? Contact the Inquirer's Reader's Advocate. Or write The Readers' Advocate:
c/o Philippine Daily Inquirer Chino Roces Avenue corner Yague and Mascardo Streets, Makati City, Metro Manila, Philippines Or fax nos. +63 2 8974793 to 94


  • Drilon denies involvement in pork scam
  • Complex health care system for California’s elderly and poor explained
  • Malang the croc must regain strength before return to swamp, says mayor
  • Palace: Lacson’s version of Napoles testimony to be evaluated
  • Scientists eye iceberg bigger than Guam
  • Sports

  • Guiao summoned by PBA for name-calling incident
  • Promoters Dela Hoya, Arum in talks for Pacquiao-Alvarez—report
  • Benzema guides Madrid to 1-0 win over Bayern
  • Suns’ Goran Dragic win NBA’s Most Improved Player award
  • Heat go up 2-0, hold off Bobcats 101-97
  • Lifestyle

  • Gongs and southern dances star in a workshop at San Francisco Bayanihan Center
  • This woman ate what?
  • Photos explore dynamics of youths’ sexual identity
  • 12th Philippine Food Expo set at the World Trade Center
  • No tourist draw, Malang the croc will remain wild
  • Entertainment

  • Smithsonian wants photos, videos for ‘Day in the Life of Asian Pacific Americans’
  • What Garcia Marquez left behind
  • Has Ai Ai fallen deeply with ‘sireno?’
  • Sony developing live-action Barbie comedy
  • California court won’t review Jackson doctor case
  • Business

  • Metro Pacific acquires stake in Victorias
  • How ‘one percent’ economic elite was uncovered
  • Facebook profits triple as mobile soars
  • Insular Honors Sales Performers at Testimonial Rites
  • Apple increases stock buyback, will split stock
  • Technology

  • Enrile in Masters of the Universe, Lord of the Rings?
  • Top Traits of Digital Marketers
  • No truth to viral no-visa ‘chronicles’
  • ‘Unlimited’ Internet promos not really limitless; lawmakers call for probe
  • Viber releases new design for iPhone, comes to Blackberry 10 for the first time
  • Opinion

  • Editorial cartoon, April 24, 2014
  • Talking to Janet
  • Respite
  • Bucket list
  • JPII in 1981: walking a tightrope
  • Global Nation

  • Obama to visit Filipino soldiers in Fort Bonifacio
  • Fil-Am youth conferences unite under one theme
  • Embassy advisory: Filipinos still need visas to enter US
  • No travel restriction to Mideast, DFA clarifies
  • PH-HK relations repaired, but families of victims still being courted
  • Marketplace