Truth in Lending Act

• Truth in Lending Act

  An act to require the disclosure of finance charges in connection with extensions of credit
• Purpose of the Truth in Lending Act

  • To protect the debtor from the effects of misrepresentation or concealment
  • To allow the debtor to fully appreciate and evaluate the real cost of his borrowing
  • To avoid circumvention of the usury law
• Policy behind the Truth Lending Act

  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
• Information to be furnished to the debtor or borrower

  • The cash price or delivered price of the property or service to be acquired
  • The amounts, if any, to be credited as down payment and/or trade-in
  • The difference between the amounts set forth under clauses (1) and (2)
  • 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
• When and How should this Information be Furnished to the Debtor or Borrower

  1. The information must be disclosed to the debtor or borrower prior to the consummation of the transaction

  2. The information must be clearly stated in writing
• Lenders Required to Disclose

  • Banks and other financial institutions
  • Any person in the business of extending loans, or selling or renting property or services on a time, credit, or installment basis, either as principal or as agent
• Covered Transactions


  • Any loan, mortgage, deed of trust, advance and 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 delivery of, property or money
  • Any purchase, or other acquisition of, or any credit upon security of any obligation or claim arising out of any of the foregoing
  • Any transaction or series of transactions having a similar purpose or effect
• The contract or transaction remains valid or enforceable, subject to the penalties discussed below
• Penalties in Case of Violations

  • Any creditor who violates the law is liable 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
  • The creditor is also liable for reasonable attorney's fees and court costs as determined by the court
  • Any person who willfully violates any provision of this law or any regulation issued thereunder shall be fined not less than P1,00 or more than P5,000 or imprisonment of not less than 6 months, nor more than one year or both
• Additional Sanctions


  • First offense: Reprimand on the erring officer/s
  • Second offense: Reprimand on the entire board of directors
  • Subsequent offense/s: Suspension of the erring officer/s and/ or entire board of directors, and Restriction on lending activities
• Creditor


  Any person engaged in the business of extending credit (including any person who as a regular business practice makes 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 (interest, fees, service charges, discounts, and such other charges incident to the extension of credit)
• 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; and any transaction or series of transactions having a similar purpose or effect
• Debtor


  The obligor, the passive subject who is bound to perform the prestation
• Credit Transactions


  Contracts or agreements based on said trust or Credit which Includes all transactions involving the purchase or loan of goods, services, or money in the present with a promise to pay or deliver in the future
• Interest


  The compensation allowed by law or fixed by the parties for the loan or forbearance of money, goods, or credits
• Kinds of Interest


  • Interest by Compensatory
  • Interest by Way of Damages
• Interest due shall earn interest from the time it is judicially demanded, although the obligation may be silent upon this point