The country’s banking sector has admitted the need for some banks to be more transparent in the way they charge interest and fees on loans.
The Bankers Association of the Philippines (BAP) thus said it supports the move of the Bangko Sentral ng Pilipinas to put more teeth to the Truth in Lending Act by requiring banks to be more transparent on interest rates, fees and other charges.
“What has been happening is that when some banks communicate [to their target market], they use add-ons to make it appear that it [amount that clients must pay] is a bit lower,” BAP president Aurelio Montinola III said.
He said the BAP would call on concerned members to revise their communication strategies.
Montinola made the statement when asked about the BAP’s reaction to a recently released notice from the BSP on the tightening of Truth in Lending Act.
Under Monetary Board Resolution 1018, banks are prohibited from imposing hidden charges on loans and misleading interest rates.
“Current practices of some credit providers, particularly the use of flat interest rates, show contractual rates for loans that substantially differ from the effective interest rate,” the BSP said in a statement issued last month following the issuance of the resolution.
“As a result, the public may be misinformed or misguided about the true cost of their borrowings,” the central bank added.
The resolution will take effect in July next year, giving banks a year to adjust some of their lending practices to make these comply with the new rules.
The BSP issued the resolution in response to complaints that some banks have been imposing hidden fees and charges, quoting low interest rates but imposing high upfront payments, effectively misleading the borrowers.
The new rules will likewise require banks to disclose to borrowers the clear definitions of the terms “interest,” “fees,” “service charges,” and “discounts,” among others.