Implementing Guidelines of R.A. No. 3765 to Entities with Credit-Granting Facilities Not Covered by Existing Issuances

April 20, 2012

BSP CIRCULAR NO. 755-12

 

SECTION 1. Statement of Policy. — In line with upholding a sound and stable financial system as well as maintaining public trust, the BSP takes a proactive stance in embarking on various initiatives to enhance consumer protection, fair practices, and in establishing mechanisms to provide for redress and recourse. Foremost of these initiatives are (i) updating the rules implementing Republic Act No. 3765, the Truth in Lending Act (hereinafter referred to as "the Act"), to enhance loan transaction transparency and consumer protection, and (ii) launching a nationwide financial education and information campaign.

Section 5 of the Act grants the Monetary Board (MB) the power to prescribe such rules and regulations which are necessary or proper in carrying out the provisions of the Act. Any rule or regulation prescribed may contain such classifications and differentiations as in the judgment of the MB are necessary or proper to effectuate the purposes of the Act or to prevent circumvention or evasion, or to facilitate the enforcement of the Act, or any rule or regulation issued pursuant thereto.

Section 2 of the Act stipulates that it is the declared policy of the State 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.

The transparency initiative led to the issuance of BSP Circular No. 730 dated 17 July 2011 updating the rules implementing the Act to enhance loan transaction transparency directed to all Banks. A parallel regulation for Non-Bank Financial Institutions (NBFIs) under the BSP supervision is also underway.

Relative to this, the following regulatory agencies issued implementing guidelines on the Act to cover certain institutions under their respective jurisdictions, to wit: IcEACH

Regulatory Agency	Issuance	Covered Entity
Securities and Exchange	SEC Memorandum Circular	All Lending and Financing
Commission ("SEC")	No. 7 Series of 2011	Companies
	(September 15, 2011)
Insurance Commission	Circular Letter No.: 31-2011	All Insurance/Reinsurance
("IC)	(October 5, 2011)	Companies and Mutual
		Benefit Associations
Cooperative Development	Memorandum Circular No.	Credit and Multi-Purpose
Authority ("CDA")	2012-05 Series of 2012	Cooperatives with savings
	(March 14, 2012)	and loan services

 

The objective of transparent pricing is not to set limits on rates, but rather to make such rates more understandable, comparable and known to the client. Transparent pricing will facilitate healthy competition among credit providers as clients are better able to compare products and services.

In view of the limited coverage of the issuances, the BSP provides opportunity to every entity with a credit-granting facility to enhance loan transparency pricing and exercise its social responsibility towards protecting its clients thereby creating a more transparent and competitive financial services industry.

For this purpose and pursuant to Monetary Board Resolution No. 587 dated 12 April 2012, the following implementing guidelines of the Act are issued to enhance loan transaction transparency for all other entities with credit-granting facilities not presently covered by the afore-mentioned issuances.

SECTION 2. Coverage. — All entities with credit-granting facilities not presently covered by issuances of the BSP, SEC, IC and CDA implementing the Act are enjoined to comply with and avail of the incentives of this Circular.

For this purpose:

a. An "entity with credit-granting facilities" (hereinafter referred to as "CGEs") shall include, corporations, organizations, partnerships and single proprietorships registered with the SEC and the Department of Trade and Industry (DTI).

 It includes those who, in the course of their business, extend credit through installment or deferred payment sale, such as but not limited to real estate dealers or property developers, car and other vehicle dealers, or appliance stores shall be deemed as CGEs for purposes of this Circular. cHCSDa

b. "Credit" shall mean 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; any contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien or pledge, or other claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of, any obligation or claim arising out of the foregoing; and any transaction or series of transactions having a similar purpose or effect.

SECTION 3. Registration. — A CGE may register its lending or financing activity with the BSP for the purpose of ensuring compliance with the requirements of the Act. Through BSP-registration, a CGE demonstrates its commitment to corporate social responsibilities and adherence to the law. Registration will allow a CGE to gain a greater advantage in promoting and declaring its competitive edge. Further, registration will build long-term brand value, accountability and transparency, making the registered CGE more valued by its clients and other stakeholders.

To register, they shall submit the following minimum information to the BSP:

a. Business Name;

b. Directors, Key Officers 1 and Substantial Stockholders; 2

c. Principal Place of Business (street number, street name, barangay and city or municipality of the head office) and Contact Details (telephone and fax number/s and email address);

d. Notarized Deed of Undertaking (Annex A) to strictly and continuously comply with the requirements of all relevant laws, rules and regulations, signed either by the owner, partner, president or officer of equivalent rank; and

e. Such other information or documents that may be required by the BSP.

Registration fee shall be waived on existing CGEs that will avail of the BSP registration facility within six (6) months from the effectivity of this Circular. To cover the BSP's costs of administration, a nominal registration fee shall be collected starting 1 January 2013. HCEcaT

CGEs established after the effectivity of this Circular may register with the BSP 30 days from commencement of their business operations.

For purposes of this Circular, an entity is deemed to commence business operations upon the issuance of its business license by the concerned local government unit. Registration with the BSP may be through an on-line facility provided for the purpose.

After due registration and payment of registration fee, an electronically generated serially numbered Acknowledgement of Registration (AOR) shall be issued to the registrant. The AOR shall be valid for a period of three (3) years from the date of issuance and renewable thereafter on the anniversary month when it was originally registered.

The entity shall be allowed to post the BSP-issued AOR and certified true copies thereof in its place of business and branches, if any.

The list of registered CGEs shall be published in the BSP website in order to enable the public, its clients/consumers to determine if their counterparty is registered with the BSP, for purposes of determining compliance with the Act and its implementing rules and regulations.

SECTION 4. Manner of Computing Interest. — All registered CGEs shall charge interest based on the outstanding balance of a loan at the beginning of an interest period.

For a loan where principal is payable in installments, interest per installment period shall be calculated based on the outstanding balance of the loan at the beginning of each installment period.

SECTION 5. Information to be Disclosed. — The following minimum information shall be disclosed by registered CGEs in a written statement to their borrowers:

a. The total amount to be financed;

b. The finance charges 3 expressed in terms of pesos and centavos;

c. The net proceeds of the loan; and

d. The percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate 4 or an effective annual interest rate 5 (EIR). EIR may also be quoted as a monthly rate in parallel with the quotation of the contractual rate.

All registered CGEs shall furnish each borrower with a copy of the disclosure statement, prior to the consummation of the transaction. HDICSa

The disclosure statement shall be a required attachment to the loan contract and the customer has a right to demand a copy of such disclosure.

SECTION 6. Loan Documents and Marketing Materials. — All loan-related documents shall show repayment schedules in a manner consistent with the provisions of the circular. Marketing materials and presentations shall likewise be consistent with this circular.

SECTION 7. Format of Disclosure Statement. — Format of Disclosure Statement on Credit Transaction (sample form attached as Annex B) shall be consistent with the Act.

SECTION 8. Treatment of Violations. — Violation of the provisions under Sections 4 and 6 of this Circular, as determined by BSP through spot checking of registered CGEs or whenever a complaint brought to the attention of BSP is found to be with factual basis, shall be ground for the revocation of the BSP-issued AOR and a delisting from the BSP list of registrants. Said revocation and delisting shall be done after due notice and evaluation of the registrant's written explanation.  

Registered or non-registered CGEs that post or display unauthorized, falsified, fraudulent or fake AORs in their business premises may be subjected to criminal actions under Section 36 of the Republic Act No. 7653 (New Central Bank Act).

Moreover, registered CGEs are reminded that any violation of the disclosure requirements pursuant to this Circular may be criminally sanctioned under Section 6 of the Act which provides the following:

(a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of the 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 charge required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000 on any credit transaction.

(b) Any person who willfully violates any provision of the Act or any regulation issued thereunder shall be fined by not less than P1,000 nor more than P5,000 or imprisonment for not less than 6 months, nor more than one year or both. CTIEac

This Circular shall take effect on July 1, 2012.

FOR THE MONETARY BOARD:

 

(SGD.) AMANDO M. TETANGCO, JR.Governor

ANNEX A

 

________________________Name of Entity

 

________________________Address

 

________________________Telephone No./Fax No./TIN

 

DEED OF UNDERTAKING

 

I, ____________________ (name and designation), of legal age and under oath, declare the following:

1. That I have been duly authorized by __________ (name of entity) and its Board of Directors/Partners/Owners to bind __________ (name of entity) to comply with all the requirements, rules and regulations of the Bangko Sentral ng Pilipinas regarding the registration, loan transparency and disclosure of the true cost of credit to each borrower relative to the credit-granting operations as well as the provisions of the Truth in Lending Act (R.A. No. 3765) and its implementing rules and regulations;

2. That I certify that __________ (name of entity) undertakes to continuously comply with all the requirements, rules and regulations of the Bangko Sentral ng Pilipinas regarding the registration, loan transparency and disclosure of the true cost of credit to each borrower as well as with the provisions of the Truth in Lending Act (R.A. No. 3765) and its implementing rules and regulations;

3. That I certify that _______________ (name of entity), through and with full knowledge and agreement of its Board of Directors/Partners/Owners, understands and accepts that in case of violation/s of any of the aforementioned laws, rules and regulations, ___________________ (name of entity) and its Board of Directors/Partners/Owners/Stockholders/Officers/employees responsible for such violation/s may be subject to the administrative and/or monetary and/or criminal sanctions prescribed under Section 36 of the New Central Bank Act (R.A. No. 7653) and Section 6 of the Truth in Lending Act (R.A. No. 3765). ACETIa

 

________________________

 

________________________

 

SUBSCRIBED AND SWORN TO before me this _____ of _________, 2012, affiant exhibiting to me his/her Community Tax Certificate No. _____ issued at __________ on __________.

 

NOTARY PUBLIC

ANNEX B

 

SAMPLE FORMAT OF DISCLOSURE STATEMENT ON SMALL BUSINESS/RETAIL/CONSUMER CREDIT AND IN-HOUSE FINANCING

 

ANNEX B-1

AMORTIZATION SCHEDULE

 

					O/S
Installment	Loan	Principal	Interest	Total	Balance
(A)	(B)	(C)	(D)	(E)	(F)
	xxx				xxx
1		xxx	xxx	xxx	xxx
2		xxx	xxx	xxx	xxx
3		xxx	xxx	xxx	xxx
4		xxx	xxx	xxx	xxx
5		xxx	xxx	xxx	xxx
6		xxx	xxx	xxx	xxx
7		xxx	xxx	xxx	xxx
8		xxx	xxx	xxx	xxx
9		xxx	xxx	xxx	xxx
10		xxx	xxx	xxx	xxx
11		xxx	xxx	xxx	xxx
12		xxx	xxx	xxx	xxx
		––––	––––	––––	––––
	Total	xxx	xxx	xxx
		====	====	====

Legends:

 A - Number of installment periods based on loan term

 B - Gross amount of loan

 C - Installment payment on the principal

 D - Installment payment on the interest

 E - Total amortization payment for the installment period

 F - Outstanding principal balance of the loan

 

Footnotes

1. For purposes of this Circular, key officer is an officer (as defined in the entity's By-Laws) who has been elected or appointed to perform the duties and functions of an office, that is a duty or charge, a position of trust, or a right to exercise a public or private employment.

2. For purposes of this Circular, substantial shareholder is a shareholder whose stockholding enables him to elect at least one seat in the Board.

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

4. Simple annual rate is the uniform percentage which represents the ratio between the finance charge and the amount to be financed under the assumption that the loan is payable in one year with single payment upon maturity and there are no up-front deductions to principal.

 For loans with terms different from the above assumptions, the effective annual interest (EIR) rate shall be calculated and disclosed to the borrower as the relevant true cost of the loan comparable to the concept of simple annual rate.

 For loans with contractual interest rates stated on monthly basis, the effective interest rate may be expressed as a monthly rate.

5. In accordance with the Philippine Accounting Standards (PAS) definition, effective interest rate is the rate that exactly discounts estimated future cash flows through the life of the loan to the net amount of loan proceeds. For consistency, methodology and standards for discounted cash flow models shall be prescribed to be used for the purpose.