Law Summary
Interest Rate Limits for Secured Loans (Registered Real Estate)
- Maximum interest rate capped at 12% per annum when the loan or forbearance is secured wholly or partly by a mortgage on duly registered real estate or documents conveying such interest.
- Mutual building and loan societies may charge up to 18% per annum including premiums, interest, and fines.
Interest Rate Limits for Unsecured Loans
- For loans or forbearance not secured by registered real estate or similar instruments, maximum interest rate allowed is 14% per annum.
Interest Rate Limits for Pawnbrokers
- Pawnbrokers or their agents may charge:
- 3% per month for loans less than 100 pesos.
- 2% per month for loans between 100 and 500 pesos.
- 14% per annum for loans exceeding 500 pesos.
- Defined as licensed pawnbrokers with establishments open to the public.
Computation of Interest
- Compound interest disallowed unless explicitly agreed upon.
- Absent agreement, debts claimed judicially draw interest at 6% per annum.
Recovery of Excessive Interest Paid
- Debtors who paid interest exceeding legal limits may recover full amount of interest paid, plus costs and attorney's fees.
- Recovery actions must be initiated within two years from payment.
- No obligation to refund interest collected in advance if the loan is paid early and interest does not exceed applicable rate limits (10-12% per annum).
Void Contracts for Usurious Interest Rates
- Contracts reserving or securing interest above prescribed limits are void.
- Clerical errors without intent to evade provisions do not void contracts.
- Protects innocent purchasers of negotiable mercantile paper from voidance unless part of usurious transactions.
- Original payers retain right to recover excessive interest paid plus costs and fees in litigation.
Loans Payable in Agricultural Products or Commodities
- Loans payable in kind (agricultural products, seeds, other commodities) are void unless appraisal of products at current local market price is provided at obligation maturity.
- Debtors may recover excessive interest paid in products or value thereof, with court-awarded costs and attorney's fees, if action brought within two years.
- Lender may still charge lawful interest rates (not exceeding limits) in money.
Requirement of Written Answer Under Oath
- Defendants in usury cases must file written answers under oath.
- Failure to do so constitutes admission of complaint facts.
Criminal Penalties for Usury
- Violators subject to criminal prosecution.
- Penalties include fines equal to total interest stipulated or value of commodities agreed as interest.
- Insolvency leads to subsidiary imprisonment.
- For corporations or associations, responsibility and imprisonment extend to managers or administrators in charge.
Repeal of Inconsistent Laws
- All prior laws inconsistent with this Act are repealed.
Effectivity
- The Act takes effect from May 1, 1916.