In line with its advocacy on consumer protection, the BSP now takes a closer look on covered institutions’ compliance with the updated rules implementing the “Truth in Lending Act” (RA No. 3765). Covered institutions refer to banks, non-banks financial institutions and BSP-registered credit-granting institutions that engaged in lending activities.
In 2011, the BSP updated the rules and regulations implementing the “Truth in Lending Act” (RA No. 3765) through the issuance of Circular Nos. 730, 754 and 755. The updates include the manner of interest computation, which should be based on the outstanding balance of a loan at the beginning of an interest period, and the computation and disclosure of effective interest rate, among others.
To ensure a level playing field among credit providers, other regulatory bodies such as the Securities and Exchange Commission (SEC), the Cooperative Development Authority (CDA) and the Insurance Commission (IC) issued parallel regulations mandating institutions under their respective jurisdictions to observe the updated implementing rules and regulations of the “Truth in Lending Act”.
Other credit-granting entities (CGEs), which are not presently covered by the issuances of BSP, SEC, CDA and IC, are enjoined to register with the BSP for the purpose of ensuring compliance with the requirements of RA No. 3765. By registering, a CGE demonstrates its commitment to corporate social responsibilities and adherence to the law. CGEs include those which, in the course of their business, extend credit through installment or deferred payment sale, such as but not limited to real estate dealers or property developers, car and other vehicle dealers, or appliance stores.
Assessment of individual covered institution’s compliance is conducted during on-site examination/inspection/spot-checking by BSP’s examination departments. Overall assessments are categorized in three types based on the degree of compliance: full compliance, substantial compliance and non-compliance. The degree of compliance of each covered institution is based on four criteria, namely: (i) manner of interest computation, (ii) manner of computation and disclosure of effective interest rate (EIR), (iii) degree of disclosure of required information, including the poster requirement, and (iv) provisions of adequate policies and procedures to ensure consistent compliance.
Of the eighty-five (85) covered institutions assessed for compliance as of 30 June 2013, 18.8 percent are verified to be in full compliance, 60.0 percent have substantially complied and 21.2 percent are found to be non-compliant. Those with noted deficiencies and lapses have already initiated corrective measures such as enhancing their respective MIS, redesigning disclosure statements, and formulating pertinent policies and procedures, among others. The status of these corrective measures will be verified in the succeeding on-site examinations/inspections/spot-checking.
The BSP will continuously monitor covered institutions’ compliance to ensure that updated rules on loan transparency are observed.