STMC LOAN DISCLOSURE POLICY (Truth in Lending Act )
LEGAL BASIS
CDA Board Resolution Number 074, series of 2012 dated March 14, 2012 and RA3765 (Truth in Lending Act of the
Republic of the Philippines).
SCOPE OF POLICY
All credit services of STMC with applicable finance charges patronized by its membership.
OBJECTIVE AND PURPOSE
To prepare a general rule and procedure on how STMC will disclose the loan terms to all member-borrowers
according to the minimum information as mandated by Republic Act No. 3765 also known as “The Truth in Lending
Act”
1.
2.
3.
4.
5.
To enhance loan protection transparency
To ensure that STMC is at a level playing field comparable to other existing financial/lending institutions.
To protect the member-borrower from the effect of misrepresentation and concealment
To permit the member-borrower to fully appreciate and evaluate the real cost of their loans
To avoid circumvention of usury laws mandated by the Bangko Sentral ng Philippines (BSP).
STMC LOAN DECLARATION POLICY
As recommended by Section 2 of RA 3765, it is hereby declared to be the policy of the STMC to protect its
membership 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 disadvantage of the member and the national economy
as a whole.
I. METHOD OF COMPUTING INTEREST ON LOAN RECEIVABLES
1. The amount of interest shall be charged only based on the outstanding balance of a loan at the beginning of
an interest period.
2. For a loan where principal is payable in installments, interest per installment period shall be calculated
based on the outstanding balance of the loan at the beginning of each installment period.
3. All loan related documents shall show repayment schedules in a manner consistent with this guideline and
provision.
II. CONTENTS OF INFORMATION DISCLOSURE
As recommended by Section 4 of RA 3765, 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 BSP and CDA., the following information.
a.
b.
c.
d.
e.
f.
g.
h.
Type of loan
The total amount of loan
The finance charges and equivalent interest rate
Terms of payment
The net proceeds of the loan
The percentage that the finance charge bears to the total amount of the loan
Loan amortization schedules
Field for confirmation and acceptance of member-borrower
III. UPDATED LOAN PROCESSING PROCEDURE:
1.
Coop member properly fills-up loan application form to be accompanied by the following:
• Summary of loans from webapps or latest pay slip
• Attachment or documentation in relation to loan purpose, except for Providential, digicam, cell
phone, tiangge and petty cash.
• Endorsement by immediate supervisor, except for petty cash loan and tiangge loan.
• For Productive, Providential, Cell phone, Digicam, Furniture and Appliance Loan, co-maker is
required if necessary.
2.
Loan assessment and screening by Coop Assistant/loan processor
• Residency requirement
• Paid-up capital requirement
• Co-maker requirement
• Credit limit
• The maximum monthly amortization for all types of company and COOP loans shall be 35% of the
employee’s monthly basic salary (MBS).
• Staff fills up the Loan Disclosure form and presents to the borrower
• Member-borrower reviews and confirm the loan disclosure through signature
3.
Approval of Coop Loan Application
• Recommending approval by Coop Administrator
• Credit Committee Approval (At least 2 signatories for all loan types except for Petty Cash and
Tiangge Loan up to 5K which require only 1 signatory)
• Approval by BOD if loan is applied by Credit Committee member.
4.
Preparation of Voucher/Check/Hast Total
• Voucher Preparation by Coop Assistant
• Checking/confirmation by Accountant & Coop Administrator
• Payment approval by BOD
5.
Loan Release
• Loans Assistant/Officer forwards voucher to the bank via auto debit scheme
• Bank acknowledges receipt and uploads the amount to member’s respective payroll/ATM account.
• Coop member receives fund through payroll ATM/account.
IV. EFFECT ON INTEREST RATE
Below are the amended interest rates per type of loan.
TYPE OF COOP LOAN
TERMS OF
LOAN
INTEREST RATE
(STRAIGHT-LINE
COMPUTATION)
INTEREST RATE
(DIMINISHING
BALANCE
COMPUTATION)
PETTY CASH LOAN
TIANGGE LOAN
PROVIDENTIAL
6 Months
5 Months
12 Months
24 Months
36 Months
12 Months
24 Months
36 Months
12 Months
12 Months
1.50% / month
1.50% / month
1.50% / month
1.50% / month
1.50% / month
1.25% / month
1.25% / month
1.25% / month
1.50% / month
1.50% / month
1.3513%/ payday
1.337%/ payday
1.3688% / payday
1.3322% / payday
1.2873% / payday
1.1497% / payday
1.1262% / payday
1.0936% / payday
1.3638% / payday
1.3688% / payday
HOUSING/PRODUCTIVE
APPLIANCE/CELLPHONE
DIGICAM LOAN
Sample computation Straight-line vs diminishing balance
Providential Loan payable @ 12 months
In adopting the Truth in Lending Act law there’s a need to transform the manner of computing interest on loans from
straight-line method to diminishing balance computation. There will be a change in the interest’s rate per coop type
of loan however the amount of total interest to be paid by members remains the same.
This is to sustain the
income of STMC, where-in most of it will be distributed to members in the form of interest on capital, patronage
refund and rebates.
The contractual interest rate will be amended from rate per month to interest rate per payday for greater
transparency in able for member/borrower determines the true cost of his credit.
V. EFFECTIVITY
Target implementation of this program will be on the last quarter of 2013.
VI. LOAN DISCLOSURE FORMAT
STMC DISCLOSURE STATEMENT ON LOAN TRANSACTION
(As required under R.A. 3765, Truth in Lending Act)
NAME OF BORROWER
:
_____________________________________
ADDRESS
:
________________________________________________________
ID#/CONTACT#
1.
TYPE OF LOAN
________________________________________________________
2.
LOAN AMOUNT
P______________________
3.
OTHER CHARGES/DEDUCTIONS COLLECTED
a.
Service Fee
P_________________
b.
Share Capital
_________________
c.
__________________
_________________
d.
__________________
_________________
P______________________
4.
NET PROCEEDS OF LOAN (Item 1 less item 2)
P______________________
5.
SHEDULE OF PAYMENTS, see attached amortization schedule.
6.
EFFECTIVE INTEREST RATE (Interest and Other Charges)
______%
Explanation: _________________________________________________________________________
7.
CONDITIONAL CHARGES THAT MAY BE IMPOSED
a.
Pre-termination Fee
___________________
b.
Late charges
___________________
c.
Others: ___________
___________________
PREPARED BY:
CERTIFIED CORRECT BY:
__________________________
COOP ASSISTANT
______________________
ADMINISTRATOR
I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF
THE CREDIT TRANSACTION.
___________________________________
Signature of Borrower over Printed Name
______________________
Date
NOTE: Loan application is subject for Credit Committee and/or BOD approval
AMORTIZATION SCHEDULE
Date of
Installment
Gross Amount
of Loan
(Principal)
Installment
Payment on
the Principal
Installment
Payment on
the Interest
Total
Payment
Outstanding
Principal
Balance
FREQUENTLY ASKED QUESTIONS
1. What is the policy behind the Truth in Lending Act?
The declared policy behind the law is to protect the people from lack of awareness of the true cost of credit by
assuring full disclosure of such cost, with a view of preventing the uninformed use of credit to the detriment of the
national economy.
2. What are the main enhancements of the new rule?
a) Emphasizes the importance of fair pricing by requiring interest computation based on the outstanding balance of
the loan at the beginning of an interest period or each installment period;
b) Provides a comparable basis for disclosing loan interest rate via the Effective Interest Rate (EIR). EIR may be
quoted annually if the term is for more than a year, or monthly if the loan is amortized on a monthly basis or more
frequently for a term of not more than a year;
c) Shows the full cost of credit by using EIR which includes all charges incident to the extension of credit;
d) Requires the consistent use of EIR in all loan documents including the marketing materials; and
e) Provides a simpler disclosure statement which includes the key information useful for the borrowers.
3. What are the minimum required information to be disclosed to the borrower?
The following are the required information to be included in the disclosure forms that are most relevant and useful to
the borrower for purposes of informed decision making:
a) Loan amount;
b) Upfront charges/deductions collected;
c) Net proceeds of the loan;
d) Schedule of payments;
e) EIR; and
f) Conditional charges, if any.
4. What is the importance of the EIR?
Effective Interest Rate (EIR) is the rate that exactly discounts estimated future cash flows through the life of the loan
to the net amount of loan proceeds. It is the rate that best measures the true cost of credit. The derived EIR formula
includes all charges incident to the extension of credit.
5. What is the difference between straight-line (add-on) method versus diminishing balance method?
The straight-line method - Interest is computed based on the entire principal. The interest to be paid is added to the
principal.
Diminishing balance method - The amount of interest shall be charged only based on the outstanding balance of a
loan at the beginning of an interest period.
6. Are entities allowed to charge add-on interest to the principal? Can this be amortized on a straight-line
method?
No. Add-on interest and straight-line methods are prohibited. Interest and service charge directly attributable to the
granting of credit shall be amortized using the effective interest method.
7. How will diminishing balance computation affect my existing loan?
This policy will not affect your existing loan because this is not retroactive.
8. When is the implementation of the diminishing balance method?
This policy will take effect on the last quarter of 2013.