Bangko Sentral tightens rules governing Truth in Lending Act

The Bangko Sentral ng Pilipinas has issued updated rules governing the Truth in Lending Act, saying the changes were meant to better protect consumers against unreasonable fees and charges imposed by creditors.

BSP Circular 754 provides the proper way for banks and non-bank financial institutions to compute interest on loans extended to clients.

According to the BSP, interest must be charged on the outstanding loan only at the beginning of an interest period. For a loan payable in installment, interest must be charged on the outstanding amount at the beginning of each installment period.

The regulator said banks and other institutions extending credit should fully disclose how interest rates are charged in the loan documents and marketing materials given to clients.

“Toward this end, all loan-related documents should show repayment schedules in a manner consistent with this provision. Marketing materials and presentations should likewise be consistent with this provision,” the BSP said in the circular.

For banks and affiliates that issue credit cards, the BSP listed the minimum information that they must disclose to credit-card holders.

These include the following: finance charges, non-finance charges, percentage of the finance charge to the total amount to be covered, number of installments, amount due per installment period, due dates, default rate and penalties imposed on default or late payment, and method of determining outstanding balance.

For pawnshops, the central bank said these entities must also observe stricter transparency rules to better serve their clients.

It said a pawnshop at all times must give a pawn ticket to a borrower by the time a loan is extended.

Such a ticket should include the following information: name and contact details of the pawner, amount of loan granted, effective interest rate, date the loan was granted, service charge, penalty fees, description of the pawn, appraised value of pawn, and maturity and expiry dates of the redemption period.