Regulatory Framework for Business Transactions
ONG, CPA, MBA
RFBT Truth and Lending Act
STUDENT HANDOUTS
Truth in Lending Act
R.A. 3765
Approved: June 22, 1963
AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE
CHARGES IN CONNECTION WITH EXTENSIONS OF CREDIT
Declaration of 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.
Requirement under R.A. 3765
1. Any creditor shall furnish to each person to whom credit is
extended.
• "Creditor" means 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. (Sec 3 (4))
• “Credit" 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. (Sec 3(2))
• Person" means any individual, corporation,
partnership, 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 of any
of its political subdivisions, or any agency of the
foregoing. (Sec 3(5))
2. It must be made prior to the consummation of the
transaction
3. There must be a clear statement in writing the following
information:
(1) the cash price or delivered price of the property or
service to be acquired;
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). (306, MORB 2018)
(2) the amounts, if any, to be credited as down payment
and/or trade-in;
Down Payment represents the amount paid by the
debtor at the time of the transaction in partial payment
for the property or service purchased. Trade-in
represents the value of an asset agreed upon by the
0998-539-40-22; Jong@feu.edu.ph
ATTY. JOHNSON A.H.
SUMMER 2021
bank and debtor, given at the time of the transaction in
partial payment for the property or service purchased.
(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;
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.
• 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
(6) the finance charge expressed in terms of pesos and
centavos; and
• "Finance charge" includes interest, fees, service
charges, discounts, and such other charges incident to
the extension of credit.(Sec 3)
(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. (Sec 4)
• 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.
For loans with terms different from the above
assumptions, the EIR shall be calculated and disclosed
to the borrower as the relevant true cost of the loan
comparable to the concept of simple annual rate. For
loans with contractual interest rates stated on monthly
basis, the effective interest rate may be expressed as a
monthly rate. In accordance with the Philippine
Accounting Standards (PAS) definition, EIR is the rate
that exactly discounts estimated future cash flows
through the life of the loan to the net amount of the loan
proceeds. For consistency, methodology and standards
for discounted cash flow models shall be prescribed to
be used for the purpose.
Information to be disclosed
As a general rule, loan terms shall be disclosed to all types of
borrower.
For small business/retail/consumer credit, the following are
the minimum information to be disclosed
a. The total amount to be financed;
b. The finance charges expressed in terms of pesos and
centavos;
c. The net proceeds of the loan; and
d. The percentage that the finance charge bears to the total
amount to be financed expressed as a simple annual rate or
an EIR. EIR may also be quoted as a monthly rate in parallel
with the quotation of the contractual rate. Banks are
required to furnish each borrower a copy of the disclosure
statement, prior to the consummation of the transaction.
(306, MORB 2018)
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 ATTY. JOHNSON A.H. ONG, CPA, MBA

Scope of MORB 2018 • No punishment or penalty provided by this Act shall

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.
Inspection of contracts covering credit transactions
Banks shall keep in their offices or places of business copies of
contracts which involve the extension of credit by the bank and
the payment of finance charges therefor. Such copies shall be
available for inspection or examination by the appropriate
supervising department of the Bangko Sentral. (306, MORB
2018)
apply to the Philippine Government or any agency or
any political subdivision thereof.
• 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.
In addition to the sanction under R.A 3765
1. Bank may also subject to appropriate monetary penalties
under Sec. 1102, depending on the severity of non-
disclosure, number of loans and amount involved in the
violation.
2. The following sanctions may be imposed under MORB:
a. First offense. Reprimand on the erring officer/s;
b. Second offense. Reprimand on the entire board of
directors; and
c. Subsequent offense/s:
(1) Suspension of the erring officer/s and/ or entire
board of directors; and
(2) Restriction on lending activities.
3. This is also without prejudice to other penalties and
sanctions provided under Sections 36 and 37 of R.A. No.
7653. (New Central Bank Act)

Posters
Banks shall post in conspicuous places in their principal place
of business and branches, the information as contained in the
revised format of disclosure statement in Appendix 16. The
posters shall include an explicit notification that the disclosure
statement is a required attachment to the loan contract and the
customer has a right to demand a copy of such disclosure. (306,
MORB 2018)

Penalty under the Truth and Lending Act

1. Any creditor who in connection with any credit transaction
fails to disclose to any person any information required
under the Truth and Lending Act.
• Liable to such person P100 or in an amount equal to
twice the finance charged required by such creditor in
connection with such transaction, whichever is higher,
except that such liability shall not exceed P2,000 on any
credit transaction.
• Prescriptive period
o 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.
• This shall not affect the validity or enforceability of any
contract or transactions.

2. Criminal penalty
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.

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