The Truth in Lending Act

The Truth in Lending ActR.A. 3765SPolicy of the LawTo PROTECT the citizens from lack of awareness of the true cost of credit to the user by assuring a FULL DISCLOSURE of such cost with a view of preventing the uninformed use of credit to the detrimental of the national economy.Monetary Board BANGKO SENTRAL NG PILIPINASEntity in charge of implementing the Truth in Lending Act.

PurposesTo protect debtors from the effects of misrepresentation and concealment;To permit them to fully appreciate and evaluate the true cost of their borrowing.CreditorPERSON ENGAGED IN THE BUSINESS OF EXTENDING CREDITincluding any person who as a regular business practice make loans or sells or rents property or services on a time, credit, or installment basis, either as principal or as agentwhorequires as an incident to the extension of credit, the payment of a finance charge.Finance ChargesAmounts to be paid by the debtor incident to the extension of credit such asInterestsFeesService ChargesDiscounts Other charges incident to the to extension of credit as the Board may by regulation prescribe.

Non-finance ChargesAmounts advanced by the a creditor for items normally associated with the ownership of property or the availment of the services purchased which are not incident to the extension of credit.Example: a debtor purchases a car on credit, the creditor may advance the insurance premium as well as the registration fee for the account of the debtor.CreditWITHIN THE SCOPE OF THE ACTAny loan, mortgage, deed of trust, advance, or discount; any conditional sales contract; any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract; CreditWITHIN THE SCOPE OF THE ACTany contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of, any obligation of claim arising out of any of the foregoing; and any transaction or series of transactions having a similar purpose or effect.CreditOUTSIDE THE SCOPE OF THE ACTThose that do not involve the payment of any finance charge by the creditor; andThose in which the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits, insurance contracts, sale of bonds, etc.Obligations of CreditorThe Act imposes upon creditors the obligation of furnishing to each person to whom credit is extended

PRIOR to the CONSUMMATION of the TRANSACTION

a clear statement IN WRITING, called the DISCLOSURE STATEMENT, setting forth, to the extent possible, the following:Disclosure Statement the cash or delivered price of the property or service to be acquired; the amounts, if any, to be credited as down payment and/or trade in; the difference between the amounts in items (a) and (b);Disclosure StatementThe charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit;The amount financed;Disclosure StatementThe finance charge expressed in terms of pesos and centavos;The percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.Non-compliance of ObligationNon-compliance with law does not affect the validity or enforceability of the contract itself.Would authorize thedebtor to recover any interest payment made.Makes the creditor liable fordouble finance charges plus attorneys fees.RemediesDebtor couldrefuse payment of finance chargesIf charges have already been paid, he couldsue to recover the penalty prescribed by law, i.e., P100 or an amount equal to twice the finance charge required by the creditor in connection with such transaction, whichever is greater, except that such penalty shall not exceed P2,000.00 on any credit transaction.Debtor may initiatecriminal proceedingsagainst the creditor.

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Civil action must be brought withinone (1) yearfrom the date of the occurrence of violation.PenaltiesAny creditor who violates the law is liable in the amount of P100 or in an amount equal to twice the finance charged required by such creditor in connection with suchtransaction, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction. The action must be brought within one year from the date of the occurrence of the violation.The creditor is also liable for reasonable attorneys fees and court costs as determined by the court.PenaltiesAny person who willfully violates any provision of this law or any regulation issued thereunder shall be fined by not less than P1,00 or more than P5,000 or imprisonment of not less than 6 months, nor more than one year or both.However, no punishment or penalty under this law shall apply to the Philippine Government or any agency or any political subdivision thereof.Banking institutions

Banks and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of the "Truth in Lending Act" and shall make the true and effective cost of borrowing an integral part of every loan contract." However, this disclosure requirement is not applicable tobank deposits and insurance contracts.SC RulingWhile banks are authorized by Central Bank Circular No. 504 to collect handling charges on loans, the same Circular requires banks to adhere strictly to the provisions of the Truth in Lending Act such that if the promissory note signed by the borrower does not contain a stipulation on the payment of handling charges, the bank cannot charge and collect such handling charges from the borrower. [Consolidated Bank vs. CA, 246 SCRA 193, (1995)]Bar QuestionQ: Dana Gianina purchased on a 36-month installment basis the latest model of the Nissan Sentra sedan car from the Jobel Cars, Inc. In addition to the advertised selling price, the latter imposed finance charges consisting of interests, fees and service charges. It did not, however, submit to Dana a written statement setting forth therein the information required by the Truth in Lending Act (RA No. 3765). Nevertheless, the conditional deed of sale which the parties executed mentioned that the total amount indicated therein included such finance charges.Bar QuestionHas there been substantial compliance of the aforesaid act? If your answer in the foregoing question is in the negative, what is the effect of the violation of the contract? In the event of violation of the Act, what remedies may be availed of by Dana? (Question 18, 1991 Mercantile Law exam)AnswerThere is no substantial compliance of the law because the disclosure requirements must be made in writing specifying the matters mentioned in Sec. 4, RA No. 3765. The amount reflected in the deed of sale is never considered the statementrequired under that law.Noncompliance of that written disclosure does not however affect the validity of sale.AnswerBecause of that violation Dana may avail the following remedies: A civil action may be instituted by Dana against Jobel Cars Inc. for its failure to make a disclosure and such car corporation is liable in the amount of P100.00 or in an amount equal to twice the finance - charge required by the creditor, whichever is greater, but the liability should not be in excess of P2,000.00. Dana may also collect attorney's fees and cost.A criminal action may be instituted. In case of conviction, the creditor shall be fined not less than P1,000.00 nor more than P5,000.00 or imprisoned for not less than six months nor more than one year or both.Bar QuestionQ: Embassy Appliances sells home theater components that are designed and customized as entertainment centers for consumers within the medium-to-high price bracket. Most, if not all, of these packages are sold in installment basis, usually by means of credit cards allowing a maximum of 36 equal monthly payments. Preferred credit cards of this type are those issued by banks, which regularly hold mall-wide sales blitzes participated in by appliance retailers like Embassy Appliances.(Question XX, 2000 Mercantile Law exam)

Bar QuestionYou are a buyer of a home theater center at Embassy Appliances. The salesclerk who is attending to you simply swipes your credit card on the electronic approval machine (which momentarily prints out your charge slip since you have unlimited credit), tears the slip from the machine, hands the same over you for your signature, and without more, proceeds to arrange the delivery and installation of your new home theater system. Bar QuestionYou know you will receive a statement on your credit card purchases from the bank containing an option to pay only a minimum amount, which is usually 1/36 of the total price you were charged for your purchases. Did Embassy Appliances comply with the provisions of the Truth in Lending Act (RA 3765)?AnswerEmbassy is not a creditor under the Truth in Lending Act [which defines a creditor in Section 3 [4] as any person engaged in the business of extending creditwho requires as an incident to the extension of credit the payment of a finance charge], and therefore need not comply with the Act.AnswerThe transaction is not a sale on credit in which the seller is the creditor, i.e., where the amount of the purchase price is financed by the seller. The creditor, if one must be identified, is the bank that issued the credit card by the use of which the buyer is able to pay for his purchase on installment basis. However, the problem did not ask whether or not the bank should comply with RA 3765.