Amendment to Usury Law on Interest Rates

Act No. 3998 limits the interest rates and other charges that may be demanded, taken, received, or agreed to be charged for loans and forbearance not secured under the Usury Law’s rules.
Act No. 3998 penalizes violations through criminal prosecution and authorizes civil recovery for the usurious excess.

Section 1 amends Section 3 of Act No. 2655 to impose a general cap of 14% per annum for loans or forbearance not secured as provided in Section 2 of Act No. 2655.
Section 1 prohibits a person or corporation from directly or indirectly demanding, taking, receiving, or agreeing to charge a higher rate or greater sum or value than 14% per annum for such unsecured loans or forbearance.
Section 1 applies to the charge for the loan or forbearance of money, goods, or credits.

Section 2 amends Section 4 of Act No. 2655 to impose pawnshop interest limits by amount of the pawned sum:
- 2.5% per month when the sum lent is less than 100 pesos.
- 2% per month when the sum lent is 100 pesos or more, but not exceeding 500 pesos.
- 14% per annum when the sum lent is more than 500 pesos.
Section 2 restricts pawnshop coverage: a pawnbroker or pawnbroker’s agent is treated as such for the benefits of the Act only if the pawnbroker is duly licensed and has an establishment open to the public.
Section 2 prohibits pawnbrokers and their agents from dividing the pawn offered by a person into two or more fractions to collect interest greater than permitted.
Section 2 prohibits pawnbrokers and their agents from requiring the pawner to pay an additional charge as insurance premium for the safekeeping and conservation of the article pawned.

Section 3 amends Section 6 of Act No. 2655 to allow recovery when the creditor has taken or received more than the allowed rate or greater sum or value for the loan, renewal, or forbearance.
Section 3 authorizes the debtor to recover the whole interest, commissions, premiums, penalties and surcharges paid or delivered.
Section 3 requires that recovery is with costs and attorneys’ fees and that the amount is in such sum as may be allowed by the court.
Section 3 imposes a deadline: an action must be brought within two years after the payment or delivery.
Section 3 provides an advance-payment limitation: the creditor is not obliged to return interest, commissions, and premiums collected in advance for a period of not more than one year when the debtor pays the obligation before it is due, provided those interest, commissions, and premiums do not exceed the rates fixed in the Act.

Section 4 amends Section 7 to declare void all covenants and stipulations in conveyances, mortgages, bonds, bills, notes, and other contracts or evidences of debts, and in deposits of goods or other things, that stipulate, charge, demand, reserve, secure, take, or receive a higher rate or greater sum or value than allowed.
Section 4 preserves validity for harmless errors: no merely clerical error in computation of interest, made without intent to evade the Act, renders the contract void.
Section 4 protects certain negotiable paper: it does not prevent an innocent purchaser of a negotiable mercantile paper (usurious or otherwise) from acquiring it for valuable consideration before maturity, when the purchaser has no intent to evade the Act and the purchase is not part of the original usurious transaction.
Section 4 preserves debtor recourse in that protected case: the maker of the note retains the right to recover from the original holder the whole interest paid and, in case of litigation, costs and attorneys’ fees as may be allowed by the court.

Section 5 amends Section 10 to provide that violation of the Act is subject to criminal prosecution, without prejudice to the proper civil action.
Section 5 provides that on conviction, the guilty person is sentenced to a fine of not less than 50 pesos nor more than 500 pesos, or imprisonment of not less than 30 days nor more than 1 year, or both, at the discretion of the court.
Section 5 requires return of the entire usurious amount: the convicted person must return the entire sum received as interest to the party aggrieved.
Section 5 provides a subsidiary imprisonment rule for nonpayment: if the return is not paid, the offender suffers subsidiary imprisonment at the rate of one day for every two pesos.
Section 5 imposes corporate liability: for corporations, associations, societies or companies, the manager, administrator or gerente, or the person who has charge of management or administration of the business, is criminally responsible for violations.

Section 1 replaces Section 3 of Act No. 2655 to set the general unsecured loan usury limit at 14% per annum.
Section 2 replaces Section 4 of Act No. 2655 to set pawnshop rate tiers, and adds pawn-division and insurance-premium prohibitions.
Section 3 replaces Section 6 of Act No. 2655 to specify civil recovery, the two-year suit period, and the one-year advance-payment protection when payment is made before due.
Section 4 replaces Section 7 of Act No. 2655 to declare usurious interest clauses void, preserve clerical-error exceptions, and protect innocent purchasers of negotiable mercantile paper while preserving maker recovery.
Section 5 replaces Section 10 of Act No. 2655 to set criminal penalties, mandatory return of interest, subsidiary imprisonment, and corporate officer responsibility.