TRUTH IN LENDING ACT

Read also: Creditor’s guide in ensuring truth in lending

• A creditor is required to supply to the borrower prior to each credit transaction a clear statement in writing of the true cost of credit.

• If the borrower is not duly informed of the data required by the law prior to the consummation of the availment or drawdown, the lender will have no right to collect such charge or increases thereof, even if stipulated in the promissory note. 

• Failure to furnish the borrower the required information incident to the credit transaction shall not however affect the validity or enforceability of any contract or transaction.

To protect the public from lack of awareness of the true cost of credit, RA 3765 or “Truth in Lending Act” was passed by Congress.  This requires the creditor to fully disclose the information incident to the credit transaction.

RA 3765 provides that:

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 the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2);

(4) 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;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos; and

(7) 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.

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

In the case of Development Bank Of The Philippines vs. Felipe P. Arcilla, Jr (G.R. No. 161397, June 30, 2005), the Court explained that if the borrower is not duly informed of the data required by the law prior to the consummation of the availment or drawdown, the lender will have no right to collect such charge or increases thereof, even if stipulated in the promissory note. However, such failure shall not affect the validity or enforceability of any contract or transaction.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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