1.

The Consumer Act of the Philippines was enacted for the protection of
consumers and to establish standards in the conduct of business and industry in
the country.

- By protection of consumers it means through the promotion of public health

and safety measures and the prevention of deceptive and unfair acts of
unscrupulous businessmen.

2. Consumer credit transaction is a personal debt taken on to purchase goods and

services often used to describe unsecured debt extended by banks, retailers, and
others to enable consumers to purchase goods immediately and pay off the cost
over time with interest. It is divided into 2 classifications: installment credit (used
for a specific purpose and is issued at a defined amount for a set period of time.
Payments are usually made monthly in equal installments) and revolving credit
(includes credit cards, may be used for any purchase. The credit is "revolving" in
the sense that the line of credit remains open and can be used up to the
maximum limit repeatedly, as long as the borrower keeps paying a minimum
monthly payment on time).

Any type of personal loan could be labeled consumer credit. Credit card,
mortgage and car loans are forms of consumer credit

3. A finance charge refers to any cost related to borrowing money, obtaining credit,
or paying off loan obligations. It includes interest, fees, service charges,
discounts, and such other charges incident to the extension of credit as may be
prescribed by the Monetary Board of the Bangko Sentral ng Pilipinas through
regulations.

4. Simple annual rate is interest calculated on the principal portion of a loan or the
original contribution to a savings account. Simple interest does not compound,
meaning that an account holder will only gain interest on the principal, and a
borrower will never have to pay interest on interest already accrued.

Deferral of charges is an agreement between the lender and borrower allowing

the borrower to take possession of goods immediately and start making
payments in the future. The “buy now, pay later” transactions is typical example
of payment deferral. From the seller’s perspective, a deferred payment is an
accrued revenue, i.e. money not received for goods or services that are already
delivered to the customer.

For example, a 0% credit card is deferred revenue for the bank that collects the
monthly payment without an additional fee interest rate. From the buyer’s
perspective, deferred payments are accrued expenses, i.e. money that the buyer
has not paid for the goods he has received.
The interests paid on a bank loan are accrued expenses because the customer
gets the loan before paying the interests on the loan.

Finance charge is simply the interest you would pay on the loan if you made the
required minimum payments on the loan for the entire term of the loan. The
finance charge does not take into account any pre-payments you make during
the time you have the loan.

Sample computation: Average Daily Balance x Annual Percentage Rate

(APR) x Number of Days in Billing Cycle ÷ 365
 1
Right to prepay is a privilege that a consumer has to pay part or all of a debt
prior to its maturity or ahead of schedule, usually without the risk of incurring any
penalties. Prepayment privileges are often associated with mortgages or
automobile loans.

When you pay all or part of your mortgage loan term off early some lenders
charge a penalty. The penalty imposed is an incentive for borrowers to pay back
their principal slowly over a full term, allowing mortgage lenders to collect
interest.

Penalties for prepaying a loan are prohibited under the Consumer Act of the
Philippines. However, lenders found a way to charge the same as they call them
processing fees entailed with the loan termination.

Rebate on prepayment means any payment made to or credit allowed to a

customer or prospective customer of the company or any of its subsidiary, or to
any affiliate of such customer or prospective customer, in each case in the
ordinary course of the company’s or such subsidiary’s business and pursuant to
a written agreement or purchase order, which represents the prepayment of a
rebate, price discount or price reduction on products sold or to be sold by the
company or such subsidiary to one or more customers or prospective customers.
5. The law requires that the creditors disclose the total cost of a loan or credit
product, including how interest is calculated and any fees involved.

6. 2The creditor or lender is required to inform the debtor or borrower of the

following facts:

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.

7. In open-end credit lenders must provide a Truth in Lending (TIL) disclosure

statement that includes information about the amount of your loan, the annual
percentage rate (APR), finance charges (including application fees, late charges,

1
The practice is legal because of a loophole in the law. And believe it or not, the loophole is that
lenders do not describe the charges for prepaying loans as penalties. They simply call them
loan processing fees. Next time you apply for a consumer loan ask the lender if they charge
loan processing fees for prepaying outstanding loan balances. If they do, make it known to them
that you are one of the growing number of consumers who know your rights better and that you
will just move to another lender who does not charge loan prepayment processing fees.
Consumers must assert their rights so lenders will finally cave in and do away with loan
prepayment processing fees.

2
See RA No. 3765 or the Truth in Lending Act of the Philippines.
 prepayment penalties), a payment schedule and the total repayment amount
over the lifetime of the loan.

8. 3A credit card issuer shall disclose to all credit cardholders and potential credit
cardholders the following information:

(a) Finance charges for unpaid amounts after payment due date;

(b) The percentage that the interest bears to the total amount to be financed
expressed as a simple monthly or annual rate, as the case may be, on the
outstanding balance of the obligation;

(c) The default, late payment/penalty fees or similar delinquency-related charges

payable in the event of late payments: Provided, That late payment fee or penalty
for late payment shall be based on the unpaid minimum amount due or a
prescribed minimum fixed amount whichever is lower; Provided, further, That the
late payment fees may be based on the total outstanding balance of the credit
card obligation, including amounts payable under installment terms or deferred
payment schemes, if the contract between the issuer and the cardholder contains
an acceleration clause and the total outstanding balance of the credit card is
classified and reported as past due;

(d) The method of determining the balance upon which interest and/or
delinquency charges may be imposed;

(e) The method of determining the amount of interest and/or delinquency

charges, including any minimum or fixed amount imposed as interest and/or
delinquency charge;

(f) Other fees, such as membership/renewal fees, processing fees, over-the-limit

fees, collection fees, credit investigation fees and attorney’s fees;

(g) For transactions made in foreign currencies, for dual currency accounts (peso
and dollar billings), as well as payments made by credit cardholders in any
currency other than the billing currency, the manner of conversion from the
transaction currency and payment currency to Philippine pesos or billing
currency, which may be a definition or general description of conversion rates;

(h) A reminder to the cardholder in the billing statement, or its equivalent

document, that payment of only the minimum amount due or any amount less
than the total amount due for the billing cycle/billing period, would mean the
imposition of interest and/or other charges. A written statement in the following
form must be printed in the billing statement— "Important Reminder: Paying less
than the total amount due will increase the amount of interest you pay and the
time it takes to repay your balance"; and (i) Any other information that may be
required by the BSP.

9. 4Banks and other lending institutions are required to furnish each borrower with
the disclosure statement prior to the consummation of the transaction.

10. Periodic Statement of Charges such as billing statements issued on a monthly

basis by credit card companies to credit card holders show their recent
transactions, monthly minimum payment due, finance charge, due date, and late
payment charges.

3
Republic Act No. 10870 otherwise known as the Act Regulating the Philippine Credit Card
Industry
4
BSP Circular No. 730 Series of 2011.
 11. Exempted transactions

12. For consumers who choose to pay on installment, the guidelines state that “no
interest shall be due unless expressly stipulated in writing in accordance with
Article 1956 of the Civil Code” and that the seller shall not impose an interest rate
more than the market-oriented interest rate. The seller also must not collect an
advance interest of more than a year. Additionally for bigger items, the seller is
required to release documents that will show ownership of the buyer and must
comply with the requirements in case of repossession of products purchased on
installment.5

13. The penalties provided for under the Consumer Act of the Philippines for any
credit transaction and actual damages with non-disclosure of the required
information is the payment of One thousand pesos (P1,000.00) or in amount
equal to twice the finance charge required by such creditor in connection with
such transaction, whichever is greater, except that such liability shall not exceed
Three thousand pesos (P3,000.00). Action to recover such penalty may be
brought by such person within one (1) year from the date of the occurrence of the
violation in any court of competent jurisdiction.

5
Department Administrative Order (DAO) No. 21-03 or the “Guidelines for Payments Options on
the Purchase of Consumer Products and Services” which took effect on April 23, 2021.