Is "5-6" informal lending legal in the Philippines?
Last updated: 2026-07-10 · Educational content; not legal advice.
Short answer
"5-6" lending is not illegal merely because of its rate — the Usury Law's interest ceilings were suspended by Central Bank Circular 905 (1982), so there is no automatic cap. What makes most "5-6" operators illegal is that anyone in the business of lending must register with the SEC and hold a Certificate of Authority under RA 9474 §4; an unregistered lender is operating in violation of that law (penalty: fine ₱10,000–₱50,000 or 6 months–10 years imprisonment, RA 9474 §12). Courts can still void the 20% flat charge as unconscionable under Civil Code Art. 1306 (Medel v. CA, 1998). LabanPH can help you report an unregistered informal lender.
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Frequently asked
Is 20% interest by itself illegal?
Not per se — there is no fixed statutory ceiling since CB Circular 905 (1982). But a rate can be struck down case-by-case as unconscionable; in Medel v. CA the Supreme Court reduced a 5.5%-per-month rate, and lower rates have been reduced since.
So why are most '5-6' lenders illegal?
Because they lend as a business without the SEC Certificate of Authority that RA 9474 §4 requires. Operating unregistered is the violation — independent of the rate.
Can I get the excess interest back?
If a court finds the rate unconscionable, it recomputes the loan at the legal interest of 6% per annum (Nacar v. Gallery Frames, 2013) and payments beyond that can be credited to principal or refunded.
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