Consumer Finance Rules in the Philippines: Truth in Lending and Disclosure

Consumer finance rules in the Philippines rest on two main pillars: the Truth in Lending Act (Republic Act No. 3765), which requires creditors to disclose the true cost of credit before a transaction is consummated, and the Financial Products and Services Consumer Protection Act (Republic Act No. 11765), implemented for banks and other BSP-supervised institutions through BSP Circular No. 1160. Together, these rules require clear, timely, and accurate disclosure of finance charges, terms, and conditions so consumers can make informed borrowing decisions. Violations carry specific penalties under the Truth in Lending Act.

What the Truth in Lending Act requires

The Truth in Lending Act declares it State policy to protect citizens from a lack of awareness of the true cost of credit, by assuring full disclosure of that cost to prevent the uninformed use of credit.

Under Section 4 of the Act, any creditor must furnish each person to whom credit is extended, prior to the consummation of the transaction, a clear written statement setting forth, to the extent applicable:

• The cash price or delivered price of the property or service;
• The amounts credited as down payment and/or trade-in;
• The difference between those amounts;
• The charges, individually itemized, paid or to be paid in connection with the transaction but not incident to the extension of credit;
• The total amount to be financed;
• The finance charge expressed in pesos and centavos; and
• 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.

The term "finance charge" includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit as the Monetary Board may prescribe by regulation.

Who counts as a creditor and what counts as credit

The law applies broadly. "Credit" covers any loan, mortgage, deed of trust, advance, or discount; conditional sales contracts; contracts to sell property or services payable after the sale; rental-purchase contracts; leases and bailments of property; and transactions with a similar purpose or effect.

A "creditor" is any person engaged in the business of extending credit, including anyone who as a regular business practice makes loans or sells or rents property or services on a time, credit, or installment basis, and who requires payment of a finance charge as an incident to the extension of credit.

Penalties for failing to disclose

Under Section 6(a) of the Truth in Lending Act, a creditor who fails to disclose required information is liable to the affected person for P100 or twice the finance charge, whichever is greater, but not more than P2,000 per credit transaction. The action must be brought within one year from the date of the violation, in any court of competent jurisdiction. The creditor is also liable for reasonable attorney's fees and court costs.

A willful violation carries a fine of not less than P1,000 nor more than P5,000, or imprisonment of not less than 6 months nor more than one year, or both. Notably, the failure to disclose does not generally affect the validity or enforceability of the contract itself, except as the law provides.

Disclosure and transparency under BSP Circular No. 1160

For BSP-supervised institutions, BSP Circular No. 1160 implements R.A. No. 11765 and adopts a Financial Consumer Protection Framework built on five rights, including the right to disclosure and transparency of financial products and services.

Under the Disclosure and Transparency standard, disclosure must be clear, concise, accurate, understandable, and not misleading. Sufficient product disclosure must be provided before contracting so the client has enough basis and time to review. At the pre-contractual stage, information on the type and amount of fees, charges, and interests, as well as standard terms and conditions, must be made available.

Advertising materials must not be false, misleading, or deceptive, and must not omit key information that could materially affect a consumer's decision. For complex products, key features, costs, and risks must be highlighted in a Product Highlight Sheet. Clients must also be given adequate time to review and ask questions before signing, and must receive a copy of the documents they signed.

How to protect yourself as a borrower

• Ask for the written disclosure statement before signing. The Truth in Lending Act requires it prior to consummation of the transaction.
• Check that the finance charge is stated in pesos and centavos, and as a simple annual rate on the unpaid balance.
• Read the terms and conditions, including whether interest, fees, charges, and penalties can change over time.
• Keep copies of the contract and disclosure documents you signed.
• Act promptly — a claim for failure to disclose under the Truth in Lending Act must be brought within one year from the violation.

Frequently asked questions

What is the Truth in Lending Act in the Philippines? It is Republic Act No. 3765, a law requiring creditors to disclose finance charges and related credit information in writing before a credit transaction is completed.

What must a lender disclose before granting credit? Under Section 4 of the Truth in Lending Act, the lender must disclose the cash price, down payment or trade-in, the total amount to be financed, the finance charge in pesos and centavos, and the finance charge as a simple annual rate.

What happens if a lender does not disclose the finance charge? The creditor may be liable for P100 or twice the finance charge, whichever is greater, up to P2,000 per transaction, plus attorney's fees and costs, and may face criminal penalties for a willful violation.

Practical takeaways

• The Truth in Lending Act requires written disclosure of finance charges before the credit transaction is consummated.
• The finance charge must be shown in pesos and centavos and as a simple annual rate on the unpaid balance.
• Penalties for non-disclosure can reach P2,000 per transaction, plus attorney's fees and costs.
• BSP Circular No. 1160 requires BSP-supervised institutions to disclose fees, charges, and terms clearly and before contracting.
• Claims under the Truth in Lending Act must be filed within one year from the violation.

Primary sources

The rules discussed above are drawn from the following primary sources. Where the firm's library holds the document as a PDF it is embedded here in full; the rest are cited by title.

Regulations on Financial Consumer Protection to lmplement Republic Act No. 11765, otherwise known as the "Financial Products and Services Consumer Protection Act"Open in Law LibraryDownload PDF

• REPUBLIC ACT NO. 7394 - THE CONSUMER ACT OF THE PHILIPPINES

• REPUBLIC ACT NO. 3765 - AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH EXTENSIONS OF CREDIT.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.