R.A._3765_Truth_in_Lending_Act_.pdf

R.A.
3765
Truth in Lending Act
OVERVIEW:
1. Purpose
2. Obligation of creditors to persons to whom credit is extended
3. Covered and excluded transactions
4. Consequences of non-compliance with obligation
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.
POLICY OF THE LAW

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.
I. PURPOSES
• To protect debtors from the effects of misrepresentation and concealment; (for them to
evaluate their own finances)
• To permit them to fully appreciate and evaluate the true cost of their borrowing
Monetary Board (BSP)

• Is the entity in charge of implementing the Truth in Lending Act
CREDITOR
• 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 (credit card system)
FINANCE CHARGES
• Amounts to be paid by the debtor incident to the extension of credit such as:
o Interests
o Fees
o Service charges
o Discounts
o Other charges incident to the extension of credit as the Board may by regulation
prescribe
NON-FINANCE CHARGES
• Amounts advanced by the creditor for items normally associated with the ownership of
property or the availment of the services purchases 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
This study source was downloaded by 100000882802383 from CourseHero.com on 03-26-2024 09:30:15 GMT -05:00 By Aira Jaimee S. Gonzales – BSA3
https://www.coursehero.com/file/79857683/RA-3765-Truth-in-Lending-Act-pdf/
R.A. 3765
II. Obligation of creditors to persons to whom credit is extended
The 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
(1) the cash 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 in items (a) and (b);
(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 amount financed;
(6) the finance charge expressed in terms of pesos and centavos;
(7) 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.
III. Covered and excluded transactions
CREDIT (within the scope of this law)
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.
The following regulations shall apply to all banks engaged in the following types of credit
transactions:
1. Any loan, mortgage, deed of trust, advance and discount;

2. 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;
3. Any rental-purchase contract;
4. Any contract or arrangement for the hire, bailment, or leasing of property;
5. Any option, demand, lien, pledge, or other claim against, or for delivery of, property
or money;
6. Any purchase, or other acquisition of, or any credit upon security of any obligation or
claim arising out of any of the foregoing; and
7. Any transaction or series of transactions having a similar purpose or effect.
R.A. 3765
CREDIT (outside the scope of this law)

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.
IV. Consequences of non-compliance with obligation

• Non-compliance with law does not affect the validity or enforceability of the contract
itself.
• Would authorize the debtor to recover any interest payment made.
• Makes the creditor liable for double finance charges plus attorney’s fees.
REMEDIES
• Debtor could refuse payment of finance charges
PRESCRIPTION
• Civil action must be brought within one (1) year from the date of the occurrence of
violation
PENALTIES
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 P1,000 or more than P5,000 or imprisonment of
not less than 6 months, nor more than one year or both.
(1,000 – 5,000; 6 months – 12 months)
4. 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 to bank deposits and insurance
contracts.
R.A. 3765
SC RULING
• While 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)]
DISCUSSION QUESTIONS
Question: Are fine prints compliant to this law?
Answer: Yes, there is a substantial compliance because there is still a disclosure.
Question: Are usurious Interests covered by this law?

Answer: The law does not prohibit the use of usurious interests. The debtor and creditor can
agree on any interest rate.
BAR QUESTIONS
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.
QUESTION ANSWER
A. Has there been A. There is no substantial compliance of the law because the
substantial compliance disclosure requirements must be made in writing specifying the
of the aforesaid act? matters mentioned in Sec. 4, RA No. 3765. The amount reflected
in the deed of sale is never considered the statement required
under that law.
B. If your answer in the B. Noncompliance of that written disclosure does not however
foregoing question is in affect the validity of sale.
the negative, what is the
effect of the violation of
the contract?
C. In the event of C. Because of that violation Dana may avail the following
violation of the Act, what remedies:
remedies may be (a) A civil action may be instituted by Dana against Jobel
availed of by Dana? 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
R.A. 3765
not be in excess of P2,000.00. Dana may also collect
attorney's fees and cost.
(b) 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.
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.
• You 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.
• You 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)?
Answer:
• Embassy 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 credit...who
requires as an incident to the extension of credit the payment of a finance charge”],
and therefore need not comply with the Act.
• The 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.
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R.A.

POLICY OF THE LAW

Monetary Board (BSP)

III. Covered and excluded transactions

CREDIT (within the scope of this law)

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

CREDIT (outside the scope of this law)

IV. Consequences of non-compliance with obligation

Question: Are usurious Interests covered by this law?

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