7- TRUTH IN LENDING ACT Flashcards
What is the primary purpose of the Truth in Lending Act (RA No. 3765)?
To protect debtors from a lack of awareness of the true cost of credit by ensuring full disclosure of such costs.
What is another purpose of the Truth in Lending Act?
To avoid circumvention of usury laws.
Who is the implementing authority for the Truth in Lending Act?
The Monetary Board of the Bangko Sentral ng Pilipinas (BSP).
To whom does the Truth in Lending Act apply?
It applies to creditors engaged in the business of extending credit that requires the payment of a finance charge.
What types of businesses are included under the definition of creditors in the Truth in Lending Act?
Any person who regularly makes loans or sells/rents property or services on a time, credit, or installment basis, either as principal or agent.
What transactions are considered covered transactions under the Truth in Lending Act?
The following are considered similar transactions or series of transactions:
a. Any loan, mortgage, deed of trust, advance, or discount
b. Conditional sales contracts
c. Contracts for the sale of property or services where payment is made afterward
d. Rental-purchase contracts
e. Arrangements for the hiring, bailment, or leasing of property
f. Options, demands, liens, pledges, or claims against property or money
g. Purchases or acquisitions on the security of obligations arising from the above
h. Any similar transaction or series of transactions
What transactions are excluded from the Truth in Lending Act?
Credit transactions that do not involve a finance charge;
Credit transactions where the debtor specifies definite and fixed credit terms.
What are the disclosure requirements for creditors under the Truth in Lending Act?
Creditors must provide a clear written statement to each person to whom credit is extended, before the transaction is finalized, including:
a. Cash price or delivered price of the property or service
b. Amounts credited as down payment and/or trade-in
c. The difference between the cash price and the credited amounts
d. Itemized charges paid or to be paid by the debtor that are not related to the credit extension
e. Total amount to be financed
f. Finance charge expressed in pesos and centavos
g. Percentage that the finance charge bears to the total amount financed, expressed as a simple annual rate
Why is it important for creditors to provide a disclosure statement?
It ensures that debtors are fully informed of the costs and terms associated with the credit, promoting transparency and informed decision-making.
What information must creditors provide regarding the cash price or delivered price?
Creditors must state the cash price or delivered price of the property or service being acquired.
What should be included in the amounts credited section of the disclosure?
The amounts credited as down payment and/or trade-in for the transaction.
What does the “total amount to be financed” refer to?
It refers to the total cost of the credit extended to the debtor, after accounting for any down payments or other credits.
How must the finance charge be communicated according to the Truth in Lending Act?
The finance charge must be expressed in terms of pesos and centavos.
How should the annual interest rate be represented in the disclosure statement?
It should be expressed as a percentage of the total amount financed, calculated as a simple annual rate on the outstanding unpaid balance.
Can creditors charge fees that are not disclosed in the statement?
No, all charges that will be paid by the debtor in connection with the transaction must be itemized and disclosed to ensure transparency.
Are there penalties for non-compliance with the Truth in Lending Act?
Yes, creditors who fail to comply with disclosure requirements may face legal consequences and penalties.
Does the Truth in Lending Act apply to transactions where no finance charge is involved?
No, it does not apply to credit transactions that do not involve any finance charge.
What is the significance of avoiding circumvention of usury laws under the Truth in Lending Act?
It prevents creditors from exploiting legal loopholes to impose excessively high-interest rates or unfair credit terms.
How can consumers benefit from the Truth in Lending Act?
Consumers benefit from clear, upfront information about the costs of credit, enabling them to make informed borrowing decisions and reduce the risk of predatory lending practices.
What is a conditional sales contract in the context of the Truth in Lending Act?
A conditional sales contract is an agreement where the buyer takes possession of the property but the seller retains title until certain conditions (usually payment) are fulfilled.
Are all loans subject to the Truth in Lending Act?
No, only those loans that involve the payment of a finance charge and that fall under the definition of covered transactions.
What is the role of the Monetary Board of the BSP in relation to the Truth in Lending Act?
The Monetary Board of the Bangko Sentral ng Pilipinas is responsible for implementing and overseeing compliance with the provisions of the Truth in Lending Act.
What should a debtor do if they believe a creditor has not complied with the Truth in Lending Act?
The debtor should report the issue to the appropriate regulatory authority, such as the Bangko Sentral ng Pilipinas or file a complaint with consumer protection agencies.
How does the Truth in Lending Act address advertising of credit terms?
The Act requires clear and accurate advertising of credit terms, ensuring that consumers are not misled by vague or deceptive marketing practices.
What is the difference between a loan and a rental-purchase contract under the Truth in Lending Act?
A loan involves borrowing money that must be repaid, while a rental-purchase contract allows a consumer to rent an item with the option to purchase it later.
Can a trader require that a debtor specify credit terms?
Yes, if the debtor is specifying definite and fixed credit terms, the transaction may be excluded from the Truth in Lending Act.
What is the significance of itemizing charges in the disclosure statement?
Itemizing charges enhances transparency, allowing debtors to see exactly what fees are associated with the transaction and assess their overall cost of credit.
What kind of contracts can be classified under “any contract for sale of property or services”?
It includes contracts where a part of the price is payable after the sale, such as installment contracts for the purchase of goods or services.
How does the Truth in Lending Act influence consumer protection?
It promotes consumer protection by mandating full disclosure of credit costs, thus enhancing informed decision-making in borrowing situations.
Can a creditor charge an upfront fee that is not included in the finance charge?
Yes, as long as it is disclosed as a separate charge that is itemized in the written statement provided to the debtor before the transaction is completed.
