Truth in Lending

Consolidated Bank v. CA
Facts:
George King Tim Pua obtained several loans from
Consolidated Bank for which he executed several
promissory notes. In order to secure Puas payment
of the promissory notes, he assigned the proceeds of
his fire insurance policy. The proceeds of the fire
insurance policy was then applied to Puas
obligations with Consolidated Bank. Pua sued the
bank for recovery of the unpaid balances on the
promissory notes.
Issue:
Whether or not Pua is obliged to pay handling
charges .
Ruling:
Banks and non-bank financial intermediaries
authorized to engage in quest-banking functions are
required to strictly adhere to the provisions of the
Truth in Lending Act. Where the promissory note
signed by the borrowers do not contain any
stipulation on the payment of handling charges, the
bank cannot collect the same even though a CB
circular authorized banks to collect handling charges
on loans over P500,000.

DBP v. Arcilla Jr.
Facts:
Atty. Felipe Arcilla Jr. was employed by the DBP.
After he was assigned to the legal department, he
decided to avail of a loan under the Individual
Housing Project (IHP) of the bank for the payment of
the parcel of land purchased by him and for its
construction. When Arcilla resigned grom DBP, the
bank notified him that his loan has been converted
to a regular housing loan. Arcilla agreed to the
reservation by the DBP of its right to increase the
rate of interest on the loan, as well as all other fees
and charges on loans and advances pursuant to such
policy as it may adopt from time to time during the
period of the loan.
Issue:
Whether or not DBP violated RA 3765 otherwise
known as The Truth in Lending Act.
Ruling:
Section 1 of R.A. No. 3765 provides that prior to the
consummation of a loan transaction, the bank, as
creditor, is obliged to furnish a client with a clear
statement, in writing, setting forth, to the extent
applicable and in accordance with the rules and
regulations prescribed by the Monetary Board of the
Central Bank of the Philippines, 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 charges expressed in
terms of pesos and centavos; and
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.

If the borrower is not duly informed of the data
required by the law prior to the consummation of
the availment or drawdown, the lender will have no
right to collect such charge or increases thereof,
even if stipulated in the promissory note. However,
such failure shall not affect the validity or
enforceability of any contract or transaction.


Truth in Lending

UCPB v. Spouses Beluso
Facts:
The UCPB granted the spouses Beluso a Promissory
Note Line under a Credit Agreement. The spouses
Beluso constituted other than their promissory
notes, a real estate mortgage over parcels of land as
additional security for the obligation. In any case,
UCPB applied interest rates on the differenct
promissory notes ranging from 18% to 34%. The
spouses, however, failed to make any payment of
their obligations with the bank. Spouses Beluso filed
a petition for the annulment , accounting and
damages against UCPB.
Issue:
Whether or not UCPB is authorized to unilaterally fix
the interest rates.
Ruling:
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
provisions of the Civil Code on mutuality of contracts
but also because it violates the Truth in Lending Law.
The penalty for the violation of the law is P100.00 or
an amount equal to twice of the finance charge
required by such creditor in connection with such
transaction, whichever is greater, except that such
liability shall not exceed P2,000 on any credit
transaction. The action to recover the penalty should
be brought within one year from the date of the
occurrence of the violation. As the penalty depends
on the finance charge required of the borrower, the
borrowers cause of action would only accrue when
such finance charge is required. The action to
recover the penalty may be instituted by the
aggrieved private person separately and
independently from the criminal case for the same
offense.