LECTURE: TRUTH IN LENDING ACT (TILA)
REPUBLIC ACT No. 3765
AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH
EXTENSIONS OF CREDIT.
Section 1. This Act shall be known as the "Truth in Lending Act."
Section 2. 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.
Section 3. As used in this Act, the term
(1) "Board" means the Monetary Board of the Central Bank of the Philippines.
(2) "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.
(3) "Finance charge" includes interest, fees, service charges, discounts, and such other
charges incident to the extension of credit as the Board may be regulation prescribe.
(4) "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.
(5) "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.
Section 4. 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 Board, 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 charge expressed in terms of pesos and centavos; and
(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.
Section 5. The Board shall prescribe such rules and regulations as may be necessary or proper in
carrying out the provisions of this Act. Any rule or regulation prescribed hereunder may contain such
classifications and differentiations as in the judgment of the Board are necessary or proper to
effectuate the purposes of this Act or to prevent circumvention or evasion, or to facilitate the
enforcement of this Act, or any rule or regulation issued thereunder.
Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable to
such person 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. 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.
(b) Except as specified in subsection (a) of this section, nothing contained in this Act or any
regulation contained in this Act or any regulation thereunder shall affect the validity or
enforceability of any contract or transactions.
(c) Any person who willfully violates any provision of this Act or any regulation issued
thereunder shall be 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.
(d) No punishment or penalty provided by this Act shall apply to the Philippine
Government or any agency or any political subdivision thereof.
(e) 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.
Section 7. This Act shall become effective upon approval.
Approved: June 22, 1963
NOTES ON TILA:
PURPOSE of TILA
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A principal purpose of TILA is to promote the informed use of consumer credit
by requiring disclosures about its terms and cost.
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The State protects its citizen from a lack of awareness of the true cost of credit to
the customer by assuring a full disclosure of such cost and other terms and
conditions with a view of preventing the uninformed use of credit.
What is included in TILA?
The Truth in Lending Act (TILA) protects consumers in their dealings with lenders and
creditors. The TILA applies to most kinds of consumer credit, including both closed-end
credit such as car loans and home mortgages and open-end credit, such as credit card
or home equity line of credit.
The TILA regulates what information lenders must make known to consumers about
their products and services.
DEFINITION OF TERMS: (SECTION 3, TILA)
Section 3. As used in this Act, the term
(1) "Board" means the Monetary Board of the Central Bank of the Philippines.
(2) "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.
(3) "Finance charge" includes interest, fees, service charges, discounts, and
such other charges incident to the extension of credit as the Board may be
regulation prescribe.
(4) "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.
(5) "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.
DISCLOSURE REQUIREMENTS
A disclosure statement is a required attachment to the loan contract. It shall include, at a
minimum, the following information: (Section 4, TILA)
1. Total amount to be financed
2. Finance Charges and all other charges incident to the loan
3. Net proceeds of the loan
4. Schedule of Payments
5. The percentage that the finance charge bears to the total amount to be financed
expressed as an Effective Interest Rate (EIR)
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The borrower has a right to demand a copy of the disclosure statement.
The disclosure statement in writing is a required attachment to the credit
transaction contract.
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The imposition of finance charges is void if not disclosed in the disclosure
agreement. ( Heirs of Espiritu v. Landrito, G.R. No. 169618, April 4,2007.)
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Although penalty charges are not stated in the disclosure statement, reference to
the penalty charges in the promissory note constitutes substantial compliance with
the disclosure requirement in TILA.
(BPI v. Spouses YU, G.R. No. 184122, Jan. 20, 2010).
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Even if disclosed, exorbitant rate may be declared unconscionable.
Rationale for the disclosure:
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.
(UCPB v. Spouses Beluso, G.R. No. 159912, Aug. 17,2007).
Escalation clause:
TILA may also be violated if the agreement provides for an escalation clause on interest
which is dependent solely on the will of the bank. (UCPB vs. Spouses Beluso)
Example:
This provision is void: “The interest shall be at the rate indicative of the bank’s retail rate
or as determined by the branch head of the bank.”
Subsequent compliance.
Subsequent compliance with the disclosure requirement cannot be deemed in substantial
compliance with TILA.
Example:
The bank gave the details only when demand for payment was made.
The law requires prior to the consummation of the contract. (Section 4, TILA)
LIABILITY:
Violation of TILA gives rise to both criminal and civil liabilities. (Section 6, TILA.)
Section 6. (a) Any creditor who in connection with any credit transaction fails to
disclose to any person any information in violation of this Act or any regulation issued
thereunder shall be liable to such person 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. 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.
Prescriptive period:
One (1) year from the date of demand and not from the date of execution of the
promissory note. (UCPB v. Spouses Beluso).
Related Law is The Consumer Act of the Philippines ( R.A. No. 7394) which
requires disclosure for consumer credits.
Definition of terms:
“Consumer” means a natural person who is a purchaser, lessee, recipient or prospective
purchaser, lessor or recipient of consumer products, services or credit.
Consumer credit” means any credit extended by a creditor to a consumer for the sale or
lease of any consumer product or service under which part or all of the price or payment
therefor is payable at some future time, whether in full or in installments.
“Consumer loan” means a loan made by the lender to a person which is payable in
installments for which a finance charge is or may be imposed. This term includes credit
transactions pursuant to an open-end-credit plan other than a seller credit card.
RELEVANT ARTICLES IN RA 7394 :
ARTICLE 142.
Required Disclosures on Consumer Loans Not Under Open-End
Credit Plan. — Any creditor extending a consumer loan or in a transaction which is
neither a consumer credit sale nor under an open-end consumer credit plan shall
disclose, to the extent applicable, the following information:
a)
the amount of credit of which the debtor will have the actual use, or which is
or will be paid to him or for his account or to another person on his behalf;
b)
all charges, individually itemized, which are included in the amount of credit
extended but which are not part of the finance charge;
c)
the total amount to be financed or the sum of the amounts referred to in
paragraphs (a) and (b);
d)
the finance charge expressed in terms or pesos and centavos;
e)
the effective interest rate;
f)
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;
g)
the default, delinquency or similar charges payable in the event of late
payments;
h)
a description of any security interest held or to be held or to be retained or
acquired by the creditor in connection with the extension of credit and a clear identification
of the property to which the security interest relates.
ARTICLE 143.
Form and Timing of Disclosure. — All disclosures required under this
Act shall be made clearly and conspicuously in writing before the transaction is
consummated.
ARTICLE 144.
Periodic Statement of Charges. — The periodic statement transmitted
by the creditor in connection with any extension of consumer credit other than under an
open-end consumer credit plan, shall set forth the following information:
a)
the simple annual rate;
b)
the effective interest rate;
c)
the date by which, or the period (if any) within which payment must be made
in order to avoid additional finance charges;
d)
method of determining the balance upon which the finance charge may be
imposed.
ARTICLE 145.
Exempted Transaction. — The foregoing requirements on consumer
credit transactions shall not apply to the following credit transactions:
a)
those involving extension of credits for business or commercial purposes, or
to the Government and governmental agencies and instrumentalities, juridical entities or
to organizations;
b)
those in which the debtor is the one specifying the definite set of credit terms
such as bank deposits, insurance contracts, sale of bonds or analogous transactions.
ARTICLE 147.
Penalties. — Any creditor who in connection with any credit
transaction fails to disclose to any person any information in violation of this Chapter or
the Implementing rules and regulations issued thereunder shall be liable to such person
in the amount of One thousand pesos (P1,000.00) or in amount equal to twice the
finance charge required by such creditor in connection with such transaction, whichever
is greater, except that such liability shall not exceed Three thousand pesos (P3,000.00)
for any credit transaction and actual damages with the non-disclosure of the required
information. Action to recover such penalty may be brought by such person within one
(1) year from the date of the occurrence of the violation in any court of competent
jurisdiction.