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The Truth in
Lending Act
R.A. 3765
Policy of the Law
S To PROTECT the citizens from 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
detrimental of the national economy.
Monetary Board
SEntity in charge of
implementing the Truth in
Lending Act.


S To protect debtors from the effects of
misrepresentation and concealment;
S To permit them to fully appreciate and
evaluate the true cost of their

S 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
S who REQUIRES as an incident to the extension of
Finance Charges
S Amounts to be paid by the debtor
incident to the extension of credit such
S Interests
S Fees
S Service Charges
S Discounts
S Other charges incident to the to extension of
credit as the Board may by regulation

Non-finance Charges
S Amounts advanced by the a creditor for items
normally associated with the ownership of
property or the availment of the services
purchased which are not incident to the
extension of credit.
S Example: a debtor purchases a car on credit, the
creditor may advance the insurance premium as
well as the registration fee for the account of the
S Any loan, mortgage, deed of trust, advance, or
S any conditional sales contract;
S 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;
S any rental-purchase contract;
S 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;
S any purchase, or other acquisition of, or any credit
upon the security of, any obligation of claim arising out
of any of the foregoing;
S and any transaction or series of transactions having a
similar purpose or effect.
S Those that do not involve the payment of any
finance charge by the creditor; and
S Those in which the debtor is the one
specifying a definite and fixed set of credit
terms such as bank deposits, insurance
contracts, sale of bonds, etc.
Obligations of Creditor
S The Act imposes upon creditors the obligation of
furnishing to each person to whom credit is


DISCLOSURE STATEMENT, setting forth, to the
extent possible, the following:
Disclosure Statement
(a) the cash or delivered price of the
property or service to be acquired;
(b) the amounts, if any, to be credited as
down payment and/or trade in;
(c) the difference between the amounts
in items (a) and (b);
Disclosure Statement
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 amount financed;
Disclosure Statement
f) The finance charge expressed in terms of
pesos and centavos;
g) 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
Non-compliance of Obligation
S Non-compliance with law does not affect the
validity or enforceability of the contract itself.
S Would authorize the debtor to recover any
interest payment made.
S Makes the creditor liable for double finance
charges plus attorneys fees.
S Debtor could refuse payment of finance charges
S If charges have already been paid, he could sue to
recover the penalty prescribed by law, i.e., P100 or an
amount equal to twice the finance charge required by
the creditor in connection with such transaction,
whichever is greater, except that such penalty shall not
exceed P2,000.00 on any credit transaction.
S Debtor may initiate criminal proceedings against the


S Civil action must be brought within one
(1) year from the date of the occurrence
of violation.

1) 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 action must be brought within one year
from the date of the occurrence of the violation.
2) The creditor is also liable for reasonable attorneys fees
and court costs as determined by the court.

3) Any person who willfully violates any provision of
this law or any regulation issued thereunder shall
be fined by 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.
S However, no punishment or penalty under this law
shall apply to the Philippine Government or any
agency or any political subdivision thereof.
Banking institutions

S 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 part of every
loan contract."
S However, this disclosure requirement is not
applicable to bank deposits and insurance contracts.
SC Ruling
S While banks are authorized by Central Bank Circular
No. 504 to collect handling charges on loans, the
same Circular requires banks to adhere strictly to the
provisions of the Truth in Lending Act such that if the
promissory note signed by the borrower does not
contain a stipulation on the payment of handling
charges, the bank cannot charge and collect such
handling charges from the borrower.
[Consolidated Bank vs. CA, 246 SCRA 193, (1995)]
Bar Question
Q: Dana Gianina purchased on a 36-month installment basis
the latest model of the Nissan Sentra sedan car from the
Jobel Cars, Inc.
In addition to the advertised selling price, the latter
imposed finance charges consisting of interests, fees and
service charges.
It did not, however, submit to Dana a written statement
setting forth therein the information required by the Truth in
Lending Act (RA No. 3765). Nevertheless, the conditional
deed of sale which the parties executed mentioned that the
total amount indicated therein included such finance
Bar Question
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
the contract?
C. In the event of violation of the Act, what
remedies may be availed of by Dana?
(Question 18, 1991 Mercantile Law exam)
A. There is no substantial compliance of the law
because the disclosure requirements must be
made in writing specifying the matters
mentioned in Sec. 4, RA No. 3765. The amount
reflected in the deed of sale is never considered
the statement required under that law.
B. Noncompliance of that written disclosure does
not however affect the validity of sale.
C. Because of that violation Dana may avail the following remedies:
(1) A civil action may be instituted by Dana against Jobel Cars Inc.
for its failure to make a disclosure and such car corporation is
liable in the amount of P100.00 or in an amount equal to twice
the finance - charge required by the creditor, whichever is
greater, but the liability should not be in excess of P2,000.00.
Dana may also collect attorney's fees and cost.
(2) A criminal action may be instituted. In case of conviction, the
creditor shall be fined not less than P1,000.00 nor more than
P5,000.00 or imprisoned for not less than six months nor more
than one year or both.
Bar Question
Q: 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 not all, of these packages are sold in installment
basis, 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
(Question XX, 2000 Mercantile Law exam)

Bar Question
You are a buyer of a home theater center at Embassy
The salesclerk who is 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 you for your signature, and without
more, proceeds to arrange the delivery and installation
of your new home theater system.
Bar Question
You know you will receive a statement on your
credit card purchases from the bank containing an
option to pay only a minimum amount, which is
usually 1/36 of the total price you were charged for
your purchases.
Did Embassy Appliances comply with the provisions
of the Truth in Lending Act (RA 3765)?
Embassy is not a creditor under the Truth in
Lending Act [which defines a creditor in Section
3 [4] as any person engaged in the business of
extending creditwho requires as an incident to
the extension of credit the payment of a finance
charge], and therefore need not comply with the
The transaction is not a sale on credit in which
the seller is the creditor, i.e., where the amount
of the purchase price is financed by the seller.
The creditor, if one must be identified, is the
bank that issued the credit card by the use of
which the buyer is able to pay for his purchase
on installment basis.
However, the problem did not ask whether or not
the bank should comply with RA 3765.