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TRUTH IN LENDING ACT

(Republic Act 3765)

AND

CONSUMER ACT OF THE PHILIPPINES

(Republic Act 7394)

(2006 EDITION)

DECLARE POLICY OF THE STATE

The law declares that it is the policy of the state to protect itscitizens 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.

COVERAGE OF THE LAWS INVOLVED

The old law (R.A. 3765) covered only two groups of transactions,

loans of money and sale on installments of property and allied

transactions. The new law, called as the Consumer Act of thePhilippines, applies to the following transactions

(1) credit sale under Sec. 140,(2) open consumer credit plan under Sec. 141;

(3) consumer loans not open and consumer credit under Sec. 142;

(4) sale of consumer products on installment basis.

Bar Question: Embassy Appliances sells home theater components

that are designed and customized as entertainment centers for

consumers within the medium-to-high price bracket. Most, if notall, of these packages are sold on installment bases, usually by

means of credit cards allowing a maximum of 36 equal monthly

payments. Preferred credit cards of this type are those issued by

banks, which regularly hold mall-wide sales blitzes participated in

by appliance retailers like Embassy Appliances the salesclerk whois attending to you simply swipes your credit card on the electronic

approval machine (which momentarily prints out your charge slip

since you have unlimited credit), tears the slip from the machine,

hands the same over to you for your signature, and without more,

proceeds to arrange the delivery and installation of your new hometheater system. You know you will receive a statement on your

credit card purchases form the bank containing an option to pay

were charged for your purchase. Did Embassy Appliances comply

with the provision of the Truth in Lending Act (R.A. 3756)? (2000Bar)

Suggested Answer: (U.P. Law Center): There is no need for

embassy Appliances to comply with the Truth in Lending Act. The

transaction is not a sale on installment bases. It is the credit cardcompany which allows the buyer to enjoy the privilege of paying

the price on installment basis.

DISCLOSURE REQUIREMENTS

Before a loan or a sale is consummated, the following disclosure

requirements must be made in writing:

a. In credit sales

1. Cash price

2. Credit for downpayment or trade-in3. Total amount to be financed

4. charges not incident to the sale5. finance charge

6. percentage of the finance charge to the amount to be

financed7. effective interest rate

8. repayment program, and9. default or delinquency on late payments

b. In consumer loans

1. Amount of credit

2. Charges

3. Amount to be financed4. Amount of finance charges

5. Effective interest rates

6. Percentage of finance charge to the amount financed7. Default or delinquency charges, and

8. Description of security

The disclosure requirement is not applicable to bank deposits and

insurance contracts.

4blue 95 notes:Banks and non-bank financial intermediaries

authorized to engage in quasi-banking functions are required to

strictly adhere to the provisions of the Truth in Lending Act and

shall make the true and effective cost of borrowing an integral partof every loan contract (Consolidated vs. CA, 246 SCRA 195)

Bar Question: In general terms, what does the Truth in Lending

Act provide in order to accomplish the declared policy of the state

in enacting the same (1969 Bar)

Answer: To accomplish the declared policy of the state to protectcitizens from a lack of awareness of the true cost of credit to the

user by assuring a full disclosure of such cost, a creditor or lender

is obliged to provide the debtor or borrower with a statement,

before perfection of the contract containing the following:

a. Cash price or amount of money received by debtor,

b. Amount credited as down payment;c. Balance of cash price;

d. Non-finance charges advanced by the creditor or

lender;e. Total amount to be financed

f. Finance charges in pesos; and

g. Percentage of finance charge to total amount to be

financed.

(2006 Note: Answered under the provisions of the Truth inLending Law)

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PENALTIES FOR NON-DISCLOSURE

Under Sec. 147 of the Consumer Act of 1992, the failure by the

covered seller or lender to comply with the disclosure statementwill subject him to the following penalties: P 1,000 or double the

finance charge collected, but not exceeding P3,000. the action

should however be filed within one year from the date of violation.

Bar Question: Dana Gianina purchased on a 36-month installmentbasis the latest model of the Nissan Sentra sedan car form the Jobel

Cars, Inc. In addition to the advertised selling price, the latter

imposed finance charges consisting of interests, fees, and servicecharges. It did not, however, submit to Dana a written statement

setting forth therein the information required by the Truth in

Lending Act ( R.A. 3755 or 3765). Nevertheless, the conditional

deed of sale which the parties executed mentioned that the total

amount indicated therein included such fianc charges.

a. Has there been substantial compliance of the aforesaid

Act?

b. If your answer in the foregoing question is in the

negative, what is the effect of the violation of thecontract?

c. In the event of violation of the act, what remedies may

me availed by Dana? (1991 Bar)

Answer:

(a) There is no substantial compliance of the Truth in Lending Act.

The law requires that before perfection of the contract, thelender/seller should execute a written disclosure statement

containing among others: the amount of finance charges, and the

percentage of finance charge to the total cost, and a copy of this

statement should be received by the borrower before the perfection

of the contract. This was not done in the problem above, themention in the deed of conditional sale that the consideration

therein includes the finance charge is not a compliance of the law.

(b) A violation of the Truth in Lending Act will not adversely

affect the validity of the contract itself.

(c) Because of the violation, Dana may avail of the following

remedies:

1) A civil action brought within one year to recover from theseller/lender an amount double the finance charge imposed, but not

less than P1000.00

2) A criminal action for willful violation of the law against the

seller/lender who if convicted may be imposed a fine ranging from

P1,000 to P5,000 or imprisoned for not less than 6 months of both.(4blue 95 Note: Answered under the provisions of the Truth in

Lending Law)