Republic Act No.

3765: Truth in Lending Act

Overview
Republic Act No. 3765, also known as the “Truth in Lending Act”, is a law requiring the disclosure
of finance charges in connection with the extension of credit. This is a summary of the Truth in Lending
Act.
What is the policy behind the Truth in Lending Act?
The declared policy behind the law is to protect the people from lack of awareness of the true cost
of credit by assuring full disclosure of such cost, with a view of preventing the uninformed use of credit to
the detriment of the national economy.
Who are covered under the Truth in Lending Act?
The law covers any creditor, which is defined as 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.
In that definition, what is meant by “credit”?
It means 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.
In the same definition, what is meant by a “finance charge”?
A finance charge includes interest, fees, service charges, discounts, and such other charges
incident to the extension of credit as may be prescribed by the Monetary Board of the Bangko Sentral ng
Pilipinas through regulations.
What are the information required to be furnished to the debtor or borrower?
The creditor or lender is required to inform the debtor or borrower of the following facts:
 (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.
When and how should these information be furnished to the debtor or borrower?
The information enumerated above must be disclosed to the debtor or borrower prior to the
consummation of the transaction. The information must be clearly stated in writing.
What is the effect on the obligation in case of violations to the Truth in Lending Act?
The contract or transaction remains valid or enforceable, subject to the penalties discussed below.
What are the penalties in case of violation?
1. Any 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 such transaction, 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.
2. The creditor is also liable for reasonable attorney’s fees and court costs as determined by the court.
3. Any 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.

What is a contract?
Contracts are legally binding agreements between two or more parties and they are at the center
of every professional relationship. Whether it’s a renewal, lease agreement, or a new sales deal, a contract
will set out the conditions and agreed on terms for the parties involved.
Essential Elements of a Contract
1. Meeting of the minds
2. Consideration
 Something of value was promised in exchange for the specified action or nonaction. This can
take the form of a significant expenditure of money or effort, a promise to perform some
service, an agreement not to do something, or reliance on the promise. Consideration is the
value that induces the parties to enter into the contract.
 The existence of consideration distinguishes a contract from a gift. A gift is a voluntary and
gratuitous transfer of property from one person to another, without something of value
promised in return. Failure to follow through on a promise to make a gift is not enforceable as a
breach of contract because there is no consideration for the promise.
3. Acceptance
 The offer was accepted unambiguously. Acceptance may be expressed through words, deeds or
performance as called for in the contract. Generally, the acceptance must mirror the terms of
the offer. If not, the acceptance is viewed as a rejection and counteroffer.
 If the contract involves a sale of goods (i.e. items that are movable) between merchants, then
the acceptance does not have to mirror the terms of the offer for a valid contract to exist, unless:
(a) the terms of the acceptance significantly alter the original contract; or
(b) the offeror objects within a reasonable time.
Credit Line – preparatory contract, unconsummated