Truth in Lending Act (RA 3765)

Concepts/Ideas
RA 3765 is mandated to protect the citizen from lack of awareness of the true cost of credit by
every creditor’s full disclosure of such cost (see enumeration ) with a view of preventing the
uninformed use of credit to the detriment of the national economy and was approved on June 22
1963. Violation of the said law may result in both criminal and civil liabilities.
Enumeration

Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of
the transaction, a clear statement in writing with the following information:
A. The cash price or delivered price of the property or service to be acquired;
B. Down payment and/or trade in, if there is any;
C. The difference between the cash price/service and the down payment/trade in;
D. Non-finance charges;
E. Total amount to be financed;
F. Finance charge expressed in terms of pesos and centavos; and
G. The percentage that the finance bears to the total amount to be financed expressed as a
simple annual rate on the outstanding unpaid balance of the obligation.

Transactions covered:
1. Loan, mortgage, deed of trust, advance, or discount;
2. 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;
3. Rental-purchase contract;
4. Contract or arrangement for the hire, bailment, or leasing of property;
5. Option, demand, lien, pledge, or other claim against, or for the delivery of, property or
money;
6. Purchase, or other acquisition of, or any credit upon the security of, any obligation of claim
arising out of any of the foregoing; and
7. Transaction or series of transactions having a similar purpose or effect.

Penalties in case of violation of the law:

A. Any creditor who violates the law is liable in the amount of ₱100 or in an amount equal to
twice the finance charged required by such creditor in connection with such transaction,
whichever is the greater. The action must be brought within one year from the date of the
occurrence of the violation..
B. The creditor is also liable for reasonable attorney’s fees and court costs as determined by
the court.
C. Any person who willfully violates any provision of this law or any regulation issued
thereunder shall be fined by not less than ₱1,000 or more than ₱5,000 or imprisonment of
not less than 6 months, nor more than one year or both.
 Truth in Lending Act (RA 3765)

Definition of Terms:

Credit - any 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; any 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.

Finance Charge - includes interest, fees, service charges, discounts, and such other charges
incident to the extension of credit as the Board may be regulation prescribe.

Creditor - means any person engaged in the business of extending credit (including 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 agent) who requires as an incident to the extension of
credit, the payment of a finance charge.

Person - means any individual, corporation, partnership, association, or other organized group of
persons, or the legal successor or representative of the foregoing, and includes the Philippine
Government or any agency thereof, or any other government, or of any of its political subdivisions, or
any agency of the foregoing.

Example Scenario:

Case 1

Entrepreneur A is planning to establish a business that requires a hefty capital of 1,000,000

pesos, having a good credit standing, A applied for a business loan in a local bank close to where he
lives. The loan was granted and credited to the deposit account agreed upon. As he checked the
following week to start setting up the business, the bank balance stated an amount of 950,000
pesos, accordingly, the decrease was initiated by a charge as shown in the bank statement. As he
remembered, the bank did not disclose any more charges except for what he paid when he applied
for the loan. A was clueless of the 50,000 charge. Is the local bank liable?

Answer: Yes

Reason:

Bank A failed to explain such 50,000 peso charge, this case is within the bounds of RA 3765
or the Truth in Lending Act, it requires the disclosure of vital information by the creditor of
consummated financial transactions. This includes the charges applied when extending a loan,
which the local bank clearly violates.
 Truth in Lending Act (RA 3765)

Case 2

Villar Bank extended an agricultural loan to the poorest farmers of Nueva Ecija after a
typhoon hit their crops and left them with no other choice. The bank, being aware that these farmers
are not literate with the various stipulations of the said loan, raised the interest from the normal 5
percent to that of 18 percent. The farmers have kept complying with the payments until this left them
being unable to pay the interest and eventually contemplate to sell their farmlands to a real estate
corporation. Is the bank liable for such an act?

Answer: Yes

Reason:

Not only did the bank raised the interest unfairly, but they have not disclosed anything about
the loan. This shows that the bank is liable with the truth in lending act, and will also be liable with an
unfair bank practice.