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loan, is NOT usury, which relates to compensation for the future use of credits, where such loan or renewal or forbearance is secured in whole or in part
money. by a mortgage upon real estate the title to which is duly registered, or by any
Construction of the law document conveying such real estate or an interest therein, than twelve per
a. Usury provisions which are penal in nature are to be strictly construed. centum per annum or the maximum rate prescribed by the Monetary Board and
in force at the time the loan or renewal thereof or forbearance is granted:
b. Prospective or retrospective operation usury statues will be construed
Provided, That the rate of interest under this section or the maximum rate of
to be prospective only, and not retrospective. Contracts which were not interest that may be prescribed by the Monetary Board under this section may
usurious under the law in effect at the time it was executed cannot be likewise apply to loans secured by other types of security as may be specified by
rendered usurious by a subsequent change in the law. the Monetary Board.
HOWEVER, usury statutes which do not impair the obligation of contracts by Sec. 3. No person or corporation shall directly or indirectly demand, take, receive
making contracts legal which were illegal at their inception may or agree to charge in money or other property, real or personal, a higher rate or
constitutionally be made retrospectively. greater sum or value for the loan or forbearance of money, goods, or credits
where such loan or forbearance is not secured as provided in Section two hereof,
Section 1. The rate of interest for the loan or forbearance of any money goods, or than fourteen per centum per annum or the maximum rate or rates prescribed by
credits and the rate allowed in judgments, in the absence of express contract as to the Monetary Board and in force at the time the loan or forbearance is granted.
such rate of interest, shall be six per centum per annum or such rate as may be
prescribed by the Monetary Board of the Central Bank of the Philippines for that Interest defined.
purpose in accordance with the authority hereby granted. It is the compensation allowed by law or fixed by the parties for the loan or
forbearance of money, goods or credits.
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate
or rates of interest for the loan or renewal thereof or the forbearance of any Kinds of interest
money, goods or credits, and to change such rate or rates whenever warranted by 1. Simple interest: I = PRT
prevailing economic and social conditions.
that for which is paid for the principal at a certain fixed or stipulated by the
In the exercise of the authority herein granted, the Monetary Board may
parties
prescribe higher maximum rates for loans of low priority, such as consumer loans 2. Compound interest: ( )
or renewals thereof as well as such loans made by pawnshops finance companies
that which is imposed upon interest due and unpaid. The accrued interest is
and other similar credit institutions although the rates prescribed for these
institutions need not necessarily be uniform. The Monetary Board is also
added to the principal sum and the whole is treated as a new principal upon
authorized to prescribe different maximum rate or rates for different types of which the interest for the next period is calculated.
borrowings, including deposits and deposit substitutes, or loans of financial 3. Legal Interest: 6% per annum or 12% per annum
intermediaries. that which the law directs to be charged in the absence of any agreement as
to the rate between the parties
Sec. 2. No person or corporation shall directly or indirectly take or receive in
money or other property, real or personal, or choses in action, a higher rate of 6% per annum applies when: payment of indemnities as damages in form
interest or greater sum or value, including commissions, premiums, fines and of interest at 6% per annum, in connection to delay in performance of the
penalties, for the loan or renewal thereof or forbearance of money, goods, or
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obligation arising therefrom other than those involving loan or forbearance a. 12% per year, if loan is secured, in whole or in part, by a
of money, goods or credit (Art. 2209) mortgage upon a real estate with a Torrens Title; or any agreement
12% per annum applies when: 1) loans, 2) forbearance of any money, goods conveying such real estate or an interest therein.
or credit, 3) judgments involving such loans or forbearance, in the absence b. 14% per year, if loan is not secured
of express agreement as to such rate of interest c. that prescribed by the Monetary Board of Central Bank
Under CB Circular No. 817 (promulgated July 21, 1981):
4. Lawful interest 1. not exceeding 16% per annum, including commissions, premium, fees
that which is the law allows or does not prohibit rates within the and other charges for secured loans of 365 days or less
maximum prescribed by law 2. not exceeding 18% per year, if such loans are unsecured
5. Unlawful or usurious interest 3. if the maturity of the loan is more than 365 days, the interest shall not be
That which is paid or stipulated to be paid beyond the maximum rate fixed subject to any ceiling
by law
Determination of existence of usury.
NOTE: 1. corrupt agreement must be present
The legal rate of interest for the loan or forbearance of any money, goods or 2. Where consideration of loan is property of service of uncertain value
credit and the rate allowed in judgments, in the absence of express 3. Form of contract not conclusive
contract as to such rate, shall be 12% per annum.
When UL not applicable
Judgments in litigation involving loans or forbearance of any money, goods 1. the rental in contract of lease
or credit, or to cases where money is transferred from one person to 2. a bona fide sale
another and the obligation to return the same or a portion thereof is 3. the increase in price of the things old as a result of a sale on credit
adjudged. 4. a bona fide pacto de retro venta
*Any other kind of monetary judgments which has nothing to do with nor Sec. 4. No pawnbroker or pawnbroker's agent shall directly or indirectly stipulate,
involving loans of forbearance of any money does not fall within the charge, demand, take or receive any higher rate or greater sum or value for any
coverage of the UL. Cases beyond the scope of CB Circular 416 are governed loan or forbearance than two and one-half per centum per month when the sum
by Art 2209 which considers interest a form of indemnity for the delay in lent is less than one hundred pesos; two per centum per month when the sum
lent is one hundred pesos or more, but not exceeding five hundred pesos; and
the performance of an obligation.
fourteen per centum per annum when it is more than the amount last mentioned;
or the maximum rate or rates prescribed by the Monetary Board and in force at
Interest Rates; the time the loan or forbearance is granted. A pawnbroker or pawnbroker's agent
Under the Usury Law: shall be considered such, for the benefits of this Act, only if he be duly licensed
1. Legal rate 12% per year and has an establishment open to the public.
2. Maximum rate
It shall be unlawful for a pawnbroker or pawnbroker's agent to divide the pawn
offered by a person into two or more fractions in order to collect greater interest
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than the permitted by this section. of the maximum rate prescribed by the Monetary Board, or, in default thereof,
whenever the debt is judicially claimed, in which last case it shall draw six per
It shall also be unlawful for a pawnbroker or pawnbroker's agent to require the centum per annum interest or such rate as may be prescribed by the Monetary
pawner to pay an additional charge as insurance premium for the safekeeping and Board. No person or corporation shall require interest to be paid in advance for a
conservation of the article pawned. period of more than one year: Provided, however, That whenever interest is paid
in advance, the effective rate of interest charged by the creditor shall not exceed
Interest that can be charged by a pawnshop the equivalent of the maximum rate prescribed by the Monetary Board.
1. 2 per month when the sum lent is not more than 2000 Compound interest is allowed in 2 cases:
2. 18% per year when the sum lent is more than 2,000 1. when there is express written stipulation to that effect or, in default
In addition to interest charges, pawnshops may impose a maximum service thereof
charge of P5.00, but in no case to exceed 1% of the principal loan. 2. upon judicial demand and this is so even if the contract be silent upon
this point. The debtor is not liable to pay compound interest even after
Dividing pawn in several fractions is now allowed judicial demand where there is no stipulation for the payment of interest
The purpose is to prevent the collection of interest in excess of the rate
permitted by Sec 4 of UL The compounding may be made annually, semi-annually, or monthly
depending on the agreement
Sec. 4-a. The Monetary Board may eliminate, exempt from, or suspend the
effectivity of, interest rate ceilings on certain types of loans or renewals thereof Demandability of compound interest
or forbearances of money, goods, or credit, whenever warranted by prevailing 1. Agreement to charge interest in interest
economic and social conditions. 2. Judicial demand to pay debt with interest stipulated in contract
Sec. 4-b. In the exercise of its authority to fix the maximum rate or rates of Right of creditor to charge advance
interest under this Act, the Monetary Board shall be guided by the following:
1. one year or less It is permissible for the creditor to charge interest in
1. The existing economic conditions in the country and the general requirements
advance corresponding to not more than one year whatever the duration
of the national economy; may be.
2. The supply of and demand for credit; The contract is usurious because by deducting or paying in advance the
interest at the time of the loan, the principal sum is thereby reduced with
3. The rate of increase in the price levels; and the result that the lender is compensated for the use of the amount which
he has not loaned and so the borrower pays a rate greater than that
4. Such other relevant criteria as the Monetary Board may adopt. allowed by law on the sum that he actually receives.
Sec. 5. In computing the interest on any obligation, promissory note or other
2. more than one year essentially usurious. However, the interest may be
instrument or contract, compound interest shall not be reckoned, except by
agreement: Provided, That whenever compound interest is agreed upon, the
taken in advance for more than one year as long as the effective rate of
effective rate of interest charged by the creditor shall not exceed the equivalent interest charged by the credit shall not exceed the equivalent of the
maximum rate prescribed by the MB.
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Sec. 11. All Acts and parts of Acts inconsistent with the provisions of this
Act are hereby repealed.
Sec. 12. This Act shall take effect on the first day of May, nineteen
hundred and sixteen.