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Policy of the Law

The Truth in
Lending Act (TILA) S To PROTECT the citizens from LACK OF
AWARENESS of the true cost of credit to the
R.A. 3765 (1963) user by assuring a FULL DISCLOSURE of
such COST with a view of PREVENTING the
UNINFORMED USE of credit to the
detrimental of the national economy
S

Monetary Board Purposes

BANGKO SENTRAL NG PILIPINAS

S To protect debtors from the effects of

S Entity in charge of implementing the Truth
in Lending Act misrepresentation and concealment
S To permit them to fully appreciate and evaluate
the true cost of their borrowing
S To avoid the circumvention of usury laws

When does TILA apply? When does TILA apply?

Sapplies to creditors who extend
loans, sales on installments and
other credit transactions
S application of the law is compulsory for (a) banks, and (b)
non-bank financial intermediaries authorized to engage in
quasi-banking
S 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)

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Creditor Finance Charges

S Amounts to be paid by the debtor incident to the extension of
S PERSON ENGAGED IN THE BUSINESS OF credit such as
EXTENDING CREDIT S Interests
S including any person who as a regular business practice S Fees
make loans or sells or rents property or services on a time,
S Service Charges
credit, or installment basis, either as principal or as agent
S Discounts
S who REQUIRES as an incident to the extension of credit,
S Other charges incident to the to extension of credit as the
THE PAYMENT OF A FINANCE CHARGE
Board may by regulation prescribe

Credit
Non-finance Charges WITHIN THE SCOPE OF THE ACT
COVERED TRANSACTIONS
S Amounts advanced by the a creditor for items normally S Any loan, mortgage, deed of trust, advance, or discount;
associated with the ownership of property or the availment S any conditional sales contract;
of the services purchased which are not incident to the S any contract to sell, or sale or contract of sale of property or
extension of credit services, either for present or future delivery, under which part
S Example: a debtor purchases a car on credit, the creditor or all of the price is payable subsequent to the making of such
may advance the insurance premium as well as the sale or contract;
registration fee for the account of the debtor S any rental-purchase contract;

Credit
WITHIN THE SCOPE OF THE ACT / Credit
COVERED TRANSACTIONS OUTSIDE THE SCOPE OF THE ACT /
EXCLUDED TRANSACTIONS
S any contract or arrangement for the hire, bailment, or leasing of
property; any option, demand, lien, pledge, or other claim against, S Those that do not involve the payment of any finance
or for the delivery of, property or money; charge by the debtor; and
S any purchase, or other acquisition of, or any credit upon the
S Those in which the debtor is the one specifying a definite
security of, any obligation of claim arising out of any of the
and fixed set of credit terms such as bank deposits,
foregoing;
insurance contracts, sale of bonds, etc.
S and any transaction or series of transactions having a similar
purpose or effect

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Obligations of Creditor Disclosure Statement

S The Act imposes upon creditors the obligation of
furnishing to each person to whom credit is extended
(a) the cash or delivered price of the property or
S PRIOR to the CONSUMMATION of the
TRANSACTION service to be acquired;
(b) the amounts, if any, to be credited as down
S A CLEAR STATEMENT IN WRITING, called the payment and/or trade in;
DISCLOSURE STATEMENT, setting forth, to the
(c) the difference between the amounts in items (a)
extent possible, the following:
and (b);

Disclosure Statement Disclosure Statement

f) The finance charge expressed in terms of pesos and

d) The charges, individually itemized, which are paid centavos;
or to be paid by such person in connection with
g) The percentage that the finance charge bears to the
the transaction but which are not incident to the total amount to be financed expressed as a simple
extension of credit; annual rate on the outstanding unpaid balance of the
e) The amount financed; obligation.

What are the items required to be disclosed in What are the items required to be disclosed in
Credit Sales? Consumer Loans?
1. Cash price or delivered price 1. Amount of credit
2. Credit for downpayment or trade-in
3. Total amount to be financed
2. Charges
4. Charges not incidental to the sale 3. Amount to be financed
5. Finance charges 4. Amount of finance charge
6. Percentage of the finance charges
7. Effective interest rate
5. Effective interest rate
8. Repayment program 6. Default or delinquency charges
9. Default or Delinquency Charges in case of late payment 7. Description of security

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S The disclosure MUST BE made in a
separate document, and not one that is
merely incorporated in a document by the
statement that the transaction subjects the
debtor to a finance charge.
Consequences of non-compliance with
TILA
On Transaction
S Failure to disclose: Charges not itemized cannot be
collected. If already paid, can be recovered.
S Willful violation of the TILA: shall not affect the
validity or enforceability of any contract
transaction (except the above)
Remedies
S Debtor could refuse payment of finance charges
S If charges have already been paid, he could sue to recover the
penalty prescribed by law, i.e., P100 or an amount equal to
twice the finance charge required by the creditor in connection
with such transaction, whichever is greater, except that such
penalty shall not exceed P2,000.00 on any credit transaction.
S Debtor may initiate criminal proceedings against the creditor.
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Non-compliance of Obligation
S Non-compliance with law does not affect the validity or
enforceability of the contract itself.
S Would authorize the debtor to recover any interest
payment made.
S Makes the creditor liable for double finance charges (not
to exceed P2,000) plus attorney’s fees.
Consequences of non-compliance with
TILA
On Creditor
S Failure to disclose: Liable in the amount of Php 100 or in
an amount equal to twice the finance charged required by
such creditor, whichever is greater, however, such liability
shall not exceed Php 2000 on any credit transaction.
or S Willful violation of the TILA: shall be liable to a fine of not
less than P1,000 or more than P5,000 or imprisonment for
not less than 6 months, nor more than 1 year or both.
Prescription
S Civil action must be brought within one (1)
year from the date of the occurrence of violation.
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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.
Banking institutions
S 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."
S However, this disclosure requirement is not applicable
to bank deposits and insurance contracts.
Consolidated Trust Bank Company v CA
S Where promissory note signed by the borrowers
does not contain any stipulation on the payment
of handling charges, the bank cannot collect the
same even though the CB Circular authorized
banks to collect handling charges on loans over
P500,000.
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Penalties
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.
S However, no punishment or penalty under this law shall
apply to the Philippine Government or any agency or any
political subdivision thereof.
SC Ruling
S 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)]
DBP vs. Arcilla
S Lawyer employed by the DBP legal department who decided
to apply for a loan under the Individual Housing Project of
the bank. He alleged that the DBP failed to furnish him with
the disclosure statement as required by law.
S DBP failed to disclose the requisite information in the
disclosure statement form authorized by the Central Bank,
but did so in the loan transaction documents between it and
Arcilla. There is no evidence on record that DBP sought to
collect or collected any interest, penalty or other charges,
from Arcilla other than those disclosed in the said deeds /
documents.
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DBP vs. Arcilla
S There is no evidence on record that DBP sought to collect
or collected any interest, penalty or other charges, from
Arcilla other than those disclosed in the said deeds /
documents.
S The records disclose that the required information
were readily available in 3 promissory notes which
were precisely executed to apprise the appellees of
the remaining balance of the credit.
UCPB vs. Spouses Beluso
S 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 mutuality of contracts
but also it violates Truth in Lending Law.
Bar Question
A. Has there been substantial compliance of the aforesaid act?
B. If your answer in the foregoing question is in the negative,
what is the effect of the violation of the contract?
C. In the event of violation of the Act, what remedies may be
availed of by Dana?
(Question 18, 1991 Mercantile Law exam)
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UCPB vs. Spouses Beluso
S The promissory note which grants UCPB
the power to unilaterally fix the interest of
the loan does not contain “a clear
statement in writing” of the finance charge
expressed in terms of pesos and centavos.
Bar Question
Q: 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.
Answer
A. There is no substantial compliance of the law because the
disclosure requirements must be made in writing specifying
the 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. Noncompliance of that written disclosure does not however
affect the validity of sale.
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Answer
C. Because of that violation Dana may avail the ff remedies:
(1) A civil action may be instituted by Dana against Jobel 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 not be in excess of P2,000.00.
Dana may also collect attorney's fees and cost.
(2) 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.
Bar Question
• 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.
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.
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Bar Question
Q: 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.
(Question XX, 2000 Mercantile Law exam)
Bar Question
• 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
▪ 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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CASELIST
TAKEAWAY S 1. Consolidated Bank and Trust Company v. Court of
Appeals, 246 SCRA 193 (1995)
S 2. Development Bank of the Philippines v. Arcilla Jr.,
462 SCRA 599 (2005)
➢Purpose and Applicability
S 3. UCPB v. Spouses Beluso, 530 SCRA 567 (2007)
➢Disclosure Requirement
➢Effects of Non-disclosure S 4. Advocates for Truth in Lending, Inc. v BSP, GR
No. 192986 (2013)
S 5. New Sampaguita Builders Construction, Inc. v.
PNB (435 SCRA 565)

Live within your means.