Truth in lending act

LAW EACH WEEK

What is the purpose of the law? The purpose of R.A. 3765, also known as “AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH EXTENSIONS OF CREDIT”, is 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.

What are the requirements under the said law?

Any person extending “credit” (loan, sale on installments, lease with option to buy) must give debtor, in writing, a recital of:

a) Cash price;
b) Amount credited if on installment price;
c) Difference between cash and installment price; and
d) 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;
e) the total amount to be financed;
f) the finance charge expressed in terms of pesos and centavos; and
g) 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.

What are finance charges?

“Finance charge” includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit.

What are the consequences in case of noncompliance?

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.

When can you file the action?

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.