RA No.

3765

Truth in Lending
Purpose of the Law
• 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 (Sec. 2, RA 3765).
• To protect users of credit from lack of awareness of the true cost
thereof, proceeding from the experience that banks are able to
conceal such true cost by hidden charges, uncertainty of interest
rates, deduction of interests from the loaned amount, and the like
(United Coconut Planters Bank (UCPB) v. Sps. Beluso, G.R. No.
159912, August 17, 2007).
Definition of Terms
• CREDIT – 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, RA No. 3765).
Definition of Terms
• FINANCE CHARGE – interest, fees, service charges, discounts, and
such other charges incident to the extension of credit as the Board
may, by regulation, prescribe.

• CREDITOR – 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 finance charge.
(Sec. 3(2), RA No. 3765)
Disclosure Requirement
Any creditor shall furnish to each person to whom credit is extended,
prior to the consummation of the transaction, a clear statement in
writing setting forth, to the extent applicable and in accordance with
rules and regulations prescribed by the MB, the following
information:

• Cash price or delivered price of the property or service to be

acquired;
• The amounts, if any, to be credited as down payment or trade – in;
• The difference between the amounts set forth under clauses 1 and
2;
Disclosure Requirement
• 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;
• The total amount to be financed;
• The finance charge expressed in terms of pesos and centavos;
• 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, RA No. 3765)
Escalation Clause
• ESCALATION CLAUSE – refers to a stipulation allowing an increase in
interest rate agreed upon by the parties.
• There is nothing inherently wrong with escalation clauses which are
valid stipulations in commercial contracts to maintain fiscal stability and
to retain the value of money in long term contracts. Hence, such
stipulations are not void per se.
• Nevertheless, an escalation clause which grants the creditor an
unbridled right to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent to an important
modification in the agreement is void. A stipulation of such nature
violates the principle of mutuality of contracts.
(Sps. Juico v. China Banking Corporation,
G.R. No. 187678, April 10, 2013)
Subsequent Compliance
• Subsequent compliance with the disclosure requirement cannot be
deemed in substantial compliance with the Truth in Lending Act.
(Sundiang, Sr. v. Aquino)
• When the Creditor only furnished to the Debtor a detailed list of
the charges against the latter, the former cannot be said to have
complied with the disclosure requirement.
• The disclosure agreement should be provided prior to the
consummation of the contract. The contract in this case is
consummated when the money or personal property is delivered
by the Creditor to the Debtor.
Liability
• Violation of the Truth in Lending Act gives rise to both criminal and
civil liabilities.
• The penalty therefor is an amount of ONE HUNDRED PESOS
(PHP100.00) or in any amount equal to twice the finance charge
required by the creditor in connection with such with such transaction,
whichever is greater, except that the liability shall not exceed TWO
THOUSAND PESOS (PHP2,000.00) on any credit transaction.
• The action to recover such penalty may be instituted by the aggrieved
person separately and independently from the criminal case for the
same offense.
(Sundiang, Sr. and Aquino)
Prescriptive Period
• Action to recover such penalty may be brought by such person
within ONE (1) YEAR from the date of occurrence of the violation,
in any court of competent jurisdiction.
(Sec. 6(a), RA No. 3765)
Legal Repercussions of RA No. 3675
• Nothing in RA No. 3675 or any regulation contained the said law, or
any regulation contained thereunder shall affect the validity or
enforceability of any contract or transaction (Sec. 6(b), RA No. 3675).
• Any person who willfully violates any provision of this Act or any
regulation issued thereunder shall be fined by not less than ONE
THOUSAND PESOS (PHP1,000.00) or more than FIVE THOUSAND
PESOS or imprisonment for not less than six (6) months, nor more
than one (1) year or both (Sec. 6©, RA No. 3675).
• No punishment or penalty provided by this act shall apply to the
Philippine Government or any agency or any political subdivision
thereof (Sec. 6(d), RA No. 3675).
Legal Repercussions of RA No. 3675
• 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.
RA No. 9474
• Also known as “an act governing the establishment, operation and
regulation of lending companies.
• The purpose of the law is to regulate the establishment of lending
companies and to place their operation on a sound, efficient and
stable condition to derive the optimum advantages from them as
an additional source of credit. It is also the purpose of the law to
prevent and mitigate, as far as practicable, practices prejudicial to
public interest and to lay down the minimum requirements and
standards under which they may establish and do business.
(Sec. 2, RA No. 9474)
Lending Company
• Lending Company shall refer to a corporation engaged in granting
loans from its own capital funds or from funds sourced from not
more than nineteen (19) persons.
• It shall not be deemed to include banking institutions, investment
houses, savings and loans associations, financing companies,
pawnshops, insurance companies, cooperatives and other credit
institutions already regulated by law.
(Sec. 3(a), RA No. 9474)
Quasi – Bank
• Quasi-Bank shall refer to a non-bank financial institution
authorized by the BSP to engage in quasi-banking functions and to
borrow funds from more than nineteen (19) lenders through the
issuance, endorsement or assignment with recourse or acceptance
of deposit substitutes as defined in Section 95 of Republic Act No.
7653 (New Central Bank Act) for purposes of relending or
purchasing of receivables and other obligations.
(Sec. 3(c), RA No. 9474)
Requirements for Lending Companies
• A lending company shall be established only as a corporation and
duly registered with SEC (Sec. 4, RA No. 9474).
• The minimum paid in capital of any lending company shall be ONE
MILLION PESOS (PHP 1,000,000.00) (Sec. 5, RA No. 9474).
• At least majority of the voting capital stock shall be owned by
citizens of the Philippines (Sec. 6, RA No. 9474). One – person
corporation in the Philippines is not allowed for banks, non – bank
financial institutions, quasi – banks, pre – need, trust, public and
publicly listed companies, non – chartered GOCCs, and
professionals for practice of such profession (Sec. 6, RA No. 9474).
Amount and Charges on Loans
• A lending company may grant loans in such amounts and
reasonable interest rates and charges as may be agreed upon
between the lending company and the debtor: Provided, That the
agreement shall be in compliance with the provisions of Republic
Act No. 3765, otherwise known as the "Truth in Lending Act" and
Republic Act 7394, otherwise known as the "Consumer Act of the
Philippines": Provided, further, That the Monetary Board, in
consultation with the SEC and the industry, may prescribe such
interest rate as may be warranted by prevailing economic and
social conditions (Sec. 7, RA No. 9474).
Maintenance of Books of Accounts and
Records
• Every lending company shall maintain books of accounts and
records as may be required by the SEC and prescribed by the
Bureau of Internal Revenue and other government agencies.
In case a lending company engages in other businesses, it
shall maintain separate books of accounts for these
businesses (Sec. 8, RA No. 9474).
Penalty
• A fine of not less than TEN THOUSAND PESOS (PHP10,000.00)
and not more than FIFTY THOUSAND PESOS(PHP50,000.00) or
imprisonment of not less than six (6) months but not more than ten
(10) years or both (Sec. 12, RA No. 9474)
 Persons Covered
• Any person who shall engage in the business of a lending company without
a validly subsisting authority to operate from SEC.
• The president, treasurer and other officers of the corporation, including the
managing officer thereof, who shall knowingly and willingly:
• Engage in the business of a lending company without a validly subsisting authority
to operate from SEC.
• Hold themselves out to be a lending company, either through advertisement in
whatever form, whether in its stationary, commercial paper, or other document, or
through other representations without authority;
• Make use of a trade or firm name containing the words “lending company” or
“lending investor” or other designation that would give the public the impression
that it is engaged in the business of a lending company as defined in this Act
without authority; and
• Violate the provisions of this act.
Persons Covered
• Any officer, employee, or agent of a lending company who shall:
• Knowingly and willingly make any statement in any application, report, or
document required to be filed under this act, which statement is false or
misleading with respect to any material fact; and
• Overvalue or aid in overvaluing any security for the purpose of influencing
in any way the action of the company in any loan, or discounting line.
• Any officer, employee or examiner of SEC directly charged with the
implementation of this Act or of other government agencies who
shall commit, connive, aid, or assist in the commission of acts
enumerated under Subsections 1 and 2 of this Section.
(Sec. 12, RA No. 9474)
End.