Short answer. Article 1961 of the Civil Code directs that usurious contracts are governed by the Usury Law and other special laws, insofar as these are not inconsistent with the Civil Code. The Bangko Sentral ng Pilipinas and lending regulations also impose separate controls on interest rates charged by banks and lending companies.
What the law says
Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code.
Civil Code, Article 1961 — Usurious Contracts Are Governed by the Usury Law. Read the full provision →
What Article 1961 establishes
Article 1961 of the Civil Code is the Civil Code's gateway to the Usury Law. It provides that contracts charging excessive interest are not left entirely to the general rules on contracts — they are specifically governed by the Usury Law and other special laws, as long as those laws do not conflict with the Civil Code. This means a borrower facing an abusive interest rate has both the Civil Code and specialized legislation as potential grounds for relief.
The Usury Law and its current status
The Usury Law (Act No. 2655, as amended) set ceilings on interest rates for different types of loans. However, the Bangko Sentral ng Pilipinas later lifted those statutory ceilings through Circular No. 905, effectively suspending the Usury Law's numerical caps. This does not mean a lender can charge any rate without consequence. Courts retain the authority to reduce interest rates that are found to be unconscionable or contrary to morals, public order, or public policy under the Civil Code's general provisions on obligations and contracts.
Rates that courts may strike down
Even without a fixed statutory ceiling, Philippine courts have consistently reduced interest rates found to be iniquitous or unconscionable. A rate that shocks the conscience — particularly on consumer or informal loans where the borrower had little bargaining power — may be reduced to a reasonable level. The burden of proving the rate is unconscionable falls on the borrower, but documenting the circumstances of the loan (pressure, lack of alternatives, very high nominal rate) strengthens the argument.
Lending companies and online lenders
If your loan is from a lending company, a financing company, or an online lending platform, additional regulations apply beyond the Civil Code and Usury Law. The Securities and Exchange Commission regulates lending companies and has issued orders capping interest and penalty charges on certain types of consumer loans. If you believe a regulated lender is charging beyond permitted rates, a complaint can be lodged with the appropriate regulatory body. Article 1961 situates all of this within a single framework: the Usury Law and special laws operate together with the Civil Code, not separately from it.
Steps to consider
If you are dealing with an interest rate you believe is excessive, gather your loan documents — the contract, disclosure statements, and payment records — and compare the stated rate to what you have actually been charged. A lawyer can assess whether the rate is potentially unconscionable, whether any applicable regulation has been violated, and what remedies are available, including negotiation, a formal complaint with a regulator, or a court action to have the rate reduced.