Truth in Lending Act Flashcards
(17 cards)
What is the purpose of Truth in Lending Act?
growling financial watchdog of hapless borrowers
What is Truth in Lending Act?
An act to require the disclosure of finance charges in connection with extensions of credit
> It is hereby declared to be the 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.
Covered transactions
(1) Credit means
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, 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 of claim arising out of any of the foregoing; and
any transaction or series of transactions having a similar purpose or effect.
What are the excluded transactions?
Credit Line
a. Credit transactions which do not involve the payment of any finance charge by the debtor;
b. Credit transactions in which the debtor is the one specifying a definite and fixed set of credit terms
What is the obligation of creditors to persons to whom credit is extended?
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, to the extent applicable and in accordance with rules and regulations prescribed by the Board, 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.
What is Finance Charge?
> includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit as the Board may be regulation prescribe.
CONSEQUENCES/PENALTIES OF NON-COMPLIANCE OF TILA
a. Any creditor who violates the law:
> liable in the amount of 100 or in an amount equal to twice the finance charged required by such creditor, whichever is GREATER
EXCEPT: liability shall not exceed P2,000 on any credit transaction
> action must be brought within 1 year from the date of occurence of the violation
b. Except as specified in subsection (a), NOTHING contained in this Act shall affect the validity and enforceability of any contract.
c. Any person who willfully violates any provision of this Act shall be fined not less than P1,000 or more than P5,000 or imprisonment of not less than 6 months, nor more than 1 year, or both.
d. NO PUNISHMENT provided by this Act shall apply to PH government or any political subdivision
e. A final judgement hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgement would be an estoppel as between the parties thereto.
Case 1:
UNITED COCONUT PLANTERS BANK, Petitioner, vs.SPOUSES SAMUEL and ODETTE BELUSO
Facts: UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos. The Credit Agreement was subsequently amended to increase the amount of the Promissory Notes Line to a maximum of 12.35 Million pesos and to extend the term thereof to 28 February 1998.
Promissory Note:
FOR VALUE RECEIVED, I, and/or We, on or before the due date, SPS. SAMUEL AND ODETTE BELUSO (BORROWER), jointly and severally promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum of ____ PESOS, (P____), Philippine Currency, with interest thereon at the rate indicative of DBD retail rate or as determined by the Branch Head.
> The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed later, because they violate the Truth in Lending Act. Not disclosing the true finance charges in connection with the extensions of credit is, furthermore, a form of deception which we cannot countenance. It is against the policy of the State as stated in the Truth in Lending Act.
> Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending provisions are found in the promissory notes themselves, not in the credit line. In fixing the interest rates in the promissory notes to cover the renewed credit line, UCPB still reserved to itself the same two options (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head.
NOTE: violative on the Truth of Lending Act
Case 2:
BANK OF THE PHILIPPINE ISLANDS, INC., vs. SPS. NORMAN AND ANGELINA YU and TUANSON BUILDERS CORPORATION
The question is whether or not the reference to the penalty charges in the promissory note constitutes substantial compliance with the disclosure requirement of the Truth in Lending Act.
> In this case, although BPI failed to state the penalty charges in the disclosure statement, the promissory note that the Yus signed, on the same date as the disclosure statement, contained a penalty clause that said: “I/We jointly and severally, promise to further pay a late payment charge on any overdue amount herein at the rate of 3% per month.” The promissory note is an acknowledgment of a debt and commitment to repay it on the date and under the conditions that the parties agreed on.
> Therefore constitutes substantial compliance on Truth in Lending Act
Case 3:
New Sampaguita Builders Construction, Inc. (NSBCI) vs. Philippine National Bank
> Where the disclosure statements, as well as the credit agreements, do not provide for any increase in the specified interest rates, none would be permitted.
> No penalty charges or increases thereof appear either in the Disclosure Statements or in any of the clauses in the second and the third Credit Agreements. While a standard penalty charge of 6 percent per annum has been imposed on the amounts stated in all three Promissory Notes still remaining unpaid or unrenewed when they fell due, there is no stipulation therein that would justify any increase in that charges. The effect, therefore, when the borrower is not clearly informed of the Disclosure Statements-prior to the consummation of the availment or drawdown-is that the lender will have no right to collect upon such charge or increases thereof, even if stipulated in the Notes.
Note: When the borrower is not clearly informed of the disclosure statement, the lender will have no right to collect such charge
With the suspension of the Usury Law and the removal of interest ceilings, the parties are generally free to stipulate the interest rates to be imposed on monetary obligations. As a rule, the interest rate agreed by the creditor and the debtor is binding upon them. However, this rule is NOT ABSOLUTE.
The Law sets the maximum legal rate for loans WRITTEN AGREEMENT at?
at 12% per annum
If there’s NO WRITTEN AGREEMENT SPECIFYING THE INTEREST RATE, the Law sets the default rate at 6% per annum.
Hereby authorized to prescribe the maximum rate of rates of interest for the loan or renewal thereof.
Monetary Board
The Monetary Board may prescribe HIGHER maximum rates for loans of low priority.
Authorized to prescribe different maximum rates or rates for different types of borrowings.
The Monetary Board shall be guided by the following:
- The existing economic conditions in the country and the general requirements of the national economy.
- The supply of and demand for credit
- The rate of increase in the price levels
- Such other relevant criteria as the Monetary Board may adopt.
