REPUBLIC ACT No.

3765
AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE
CHARGES IN CONNECTION WITH EXTENSIONS OF
CREDIT.

"Truth in Lending Act."

POLICY:

It is hereby declared to be 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.

Aims to protect the public from lack of awareness of the true

cost of credit by requiring from the creditor the disclosure of
full information incident to a credit transaction.

Definition of terms.

a. Person means any individual, partnership, corporation,

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 any of its political
subdivisions, or any agency of the foregoing.

b. Cash price or delivered price, in case of trade

transactions, is the amount of money which would
constitute full payment upon delivery of property (except
money) or service purchased at the bank’s place of
business. In the case of financial transactions, cash price
represents the amount of money received by the debtor
upon consummation of the credit transaction, net of
finance charges collected at the time the credit is
extended (if any).

c. Down Payment represents the amount paid by the debtor

at the time of the transaction in partial payment for the
property or service purchased.
d. Trade-in represents the value of an asset agreed upon by
the bank and debtor, given at the time of the transaction
in partial payment for the property or service purchased.

e. Non-finance charges correspond to the amounts

advanced by the bank for items normally associated with
the ownership of the property or of the availment of the
service purchased which are not incident to the extension
of credit. For example, in the case of the purchase of an
automobile on credit, the creditor may advance the
insurance premium as well as the registration fee for the
account of the debtor.

f. Amounts to be financed consist of the cash price plus

non-finance charges less the amount of the down
payment and value of the trade-in.

g. Finance charge includes interest, fees, service charges,

discounts, and such other charges incident to the
extension of credit.

h. Simple annual rate is the uniform percentage which

represents the ratio between the finance charge and the
amount to be financed under the assumption that the
loan is payable in one (1) year with single payment upon
maturity and there are no upfront deductions to
principal.

OBLIGATION OF CREDITORS TO PERSONS TO WHOM

CREDIT IS EXTENDED:

Any creditor shall furnish to each person to whom credit is

extended, prior to the consummation of the transaction, a
clear statement in writing setting forth, to the extent
applicable and in accordance with rules and regulations
prescribed by the Board, the following information:

(1) the cash price or delivered price of the property or service

to be acquired;
(2) the amounts, if any, to be credited as down payment
and/or trade-in;
(3) the difference between the amounts set forth under
clauses (1) and (2);
(4) the 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;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and
centavos; and (7) 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

COVERED AND EXCLUDED TRANSACTIONS:

Banks are required to strictly adhere to the provisions of

R.A. No. 3765, otherwise known as the “Truth in Lending
Act”, and shall make the true and effective cost of borrowing
an integral part of every loan contract.

The following regulations shall apply to all banks engaged

in the following types of credit transactions:

a. Any loan, mortgage, deed of trust, advance and discount;

b. 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;
c. Any rental-purchase contract;
d. Any contract or arrangement for the hire, bailment, or
leasing of property;
e. Any option, demand, lien, pledge, or other claim against,
or for delivery of, property or money;
f. Any purchase, or other acquisition of, or any credit upon
security of any obligation or claim arising out of any of
the foregoing; and
g. Any transaction or series of transactions having a similar
purpose or effect.
 The following categories of credit transactions are outside
the scope of these regulations:

(1) Credit transactions which do not involve the payment of

any finance charge by the debtor; and
(2) Credit transactions 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.

CONSEQUENCES OF NON-COMPLIANCE WITH

OBLIGATION

(a) Any creditor who in connection with any credit

transaction fails to disclose to any person any information
in violation of this Act or any regulation issued thereunder
shall be liable to such person in the amount of P100 or in
an amount equal to twice the finance charged required by
such creditor in connection with such transaction,
whichever is the greater, except that such liability shall not
exceed P2,000 on any credit transaction. Action to recover
such penalty may be brought by such person within one
year from the date of the occurrence of the violation, in any
court of competent jurisdiction. In any action under this
subsection in which any person is entitled to a recovery, the
creditor shall be liable for reasonable attorney's fees and
court costs as determined by the court.

(b) Except as specified in subsection (a) of this section,

nothing contained in this Act or any regulation contained in
this Act or any regulation thereunder shall affect the validity
or enforceability of any contract or transactions.

(c) Any person who willfully violates any provision of this Act
or any regulation issued thereunder shall be fined by not
less than P1,00 or more than P5,000 or imprisonment for
not less than 6 months, nor more than one year or both.

(d) No punishment or penalty provided by this Act shall

apply to the Philippine Government or any agency or any
political subdivision thereof.
(e) A final judgment hereafter rendered in any criminal
proceeding under this Act to the effect that a defendant has
willfully violated this Act shall be prima facie evidence
against such defendant in an action or proceeding brought
by any other party against such defendant under this Act as
to all matters respecting which said judgment would be an
estoppel as between the parties thereto.

DECIDED CASES:

The creditor’s failure to comply with these requirements

does not mean that the debt is forgiven, or that the goods
purchased on credit or installment basis are deemed fully
paid. The transactions remain valid and enforceable. The
lender, however, will have no right to collect such charge or
increases thereof, even if stipulated in the promissory note
(Development Bank of the Philippines vs Arcilla, 462  SCRA
599).

In one case decided by the Supreme Court, although the

creditor failed to state the penalty charges in the disclosure
statement, the penalty charges were upheld because the
borrower signed a promissory note detailing the penalty
charges. Since the promissory note was signed on the same
date as the disclosure statement, and the promissory note is
an acknowledgment of a debt and commitment to repay it
on the date and under the conditions that the parties agreed
on, the same is a valid contract.
In another case, the Supreme Court held that a promissory
note which grants the creditor the power to unilaterally fix
the interest rate means that the promissory note does not
contain a clear statement in writing of the finance charge.
Such provision is illegal not only because it violates the
principle of mutuality of contracts but it also contravenes
the Truth in Lending law (UCPB vs Veloso, 530 SCRA 567).
In case there is a violation, the borrower may file a civil case
for recovery of damages in the amount of Php 100 or of
twice the finance charged required by the creditor,
whichever is greater, but not to exceed P2,000. A criminal
case may also be filed against the creditor. The action to
recover the penalty should be brought within one year from
the date of the occurrence of the violation and may be
instituted by the aggrieved private person separately and
independently from the criminal offense.