TRUTH IN LENDING ACT (Republic Act 3765) AND CONSUMER ACT OF THE PHILIPPINES (Republic Act 7394)

(2006 EDITION) DECLARE POLICY OF THE STATE The law declares that it is the policy of the state to protect its citizens from a 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 detriment of the national economy.

DISCLOSURE REQUIREMENTS Before a loan or a sale is consummated, the following disclosure requirements must be made in writing: a. In credit sales 1. 2. 3. 4. 5. 6. 7. Cash price Credit for downpayment or trade-in Total amount to be financed charges not incident to the sale finance charge percentage of the finance charge to the amount to be financed effective interest rate repayment program, and default or delinquency on late payments

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b. In consumer loans COVERAGE OF THE LAWS INVOLVED The old law (R.A. 3765) covered only two groups of transactions, loans of money and sale on installments of property and allied transactions. The new law, called as the Consumer Act of the Philippines, applies to the following transactions (1) credit sale under Sec. 140, (2) open consumer credit plan under Sec. 141; (3) consumer loans not open and consumer credit under Sec. 142; (4) sale of consumer products on installment basis. 1. 2. 3. 4. 5. 6. 7. 8. Amount of credit Charges Amount to be financed Amount of finance charges Effective interest rates Percentage of finance charge to the amount financed Default or delinquency charges, and Description of security

The disclosure requirement is not applicable to bank deposits and insurance contracts. 4blue 95 notes: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 (Consolidated vs. CA, 246 SCRA 195)

Bar Question: 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 on installment bases, 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 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 to you for your signature, and without more, proceeds to arrange the delivery and installation of your new home theater system. You know you will receive a statement on your credit card purchases form the bank containing an option to pay were charged for your purchase. Did Embassy Appliances comply with the provision of the Truth in Lending Act (R.A. 3756)? (2000 Bar) Suggested Answer: (U.P. Law Center): There is no need for embassy Appliances to comply with the Truth in Lending Act. The transaction is not a sale on installment bases. It is the credit card company which allows the buyer to enjoy the privilege of paying the price on installment basis.

Bar Question: In general terms, what does the Truth in Lending Act provide in order to accomplish the declared policy of the state in enacting the same (1969 Bar) Answer: To accomplish the declared policy of the state to protect citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost, a creditor or lender is obliged to provide the debtor or borrower with a statement, before perfection of the contract containing the following: a. b. c. d. Cash price or amount of money received by debtor, Amount credited as down payment; Balance of cash price; Non-finance charges advanced by the creditor or lender; e. Total amount to be financed f. Finance charges in pesos; and g. Percentage of finance charge to total amount to be financed. (2006 Note: Answered under the provisions of the Truth in Lending Law)

PENALTIES FOR NON-DISCLOSURE Under Sec. 147 of the Consumer Act of 1992, the failure by the covered seller or lender to comply with the disclosure statement will subject him to the following penalties: P 1,000 or double the finance charge collected, but not exceeding P3,000. the action should however be filed within one year from the date of violation.

Bar Question: Dana Gianina purchased on a 36-month installment basis the latest model of the Nissan Sentra sedan car form 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 ( R.A. 3755 or 3765). Nevertheless, the conditional deed of sale which the parties executed mentioned that the total amount indicated therein included such fianc charges. a. b. c. Has 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 me availed by Dana? (1991 Bar)

Answer: (a) There is no substantial compliance of the Truth in Lending Act. The law requires that before perfection of the contract, the lender/seller should execute a written disclosure statement containing among others: the amount of finance charges, and the percentage of finance charge to the total cost, and a copy of this statement should be received by the borrower before the perfection of the contract. This was not done in the problem above, the mention in the deed of conditional sale that the consideration therein includes the finance charge is not a compliance of the law. (b) A violation of the Truth in Lending Act will not adversely affect the validity of the contract itself. (c) Because of the violation, Dana may avail of the following remedies: 1) A civil action brought within one year to recover from the seller/lender an amount double the finance charge imposed, but not less than P1000.00 2) A criminal action for willful violation of the law against the seller/lender who if convicted may be imposed a fine ranging from P1,000 to P5,000 or imprisoned for not less than 6 months of both. (4blue 95 Note: Answered under the provisions of the Truth in Lending Law)