The Truth in Lending Act or Republic Act No. 3765 has a very laudable objective: to protect the citizens from a lack of awareness of the true cost of credit by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit. It sought to end predatory lending characterized by hidden charges, escalating penalties and vague modes of interest computation. To attain this objective, three (3) components are deemed essential: effective implementation, financial literacy and financial discipline.

The Bangko Sentral is the principal implementor of the law and it has already issued regulations prescribing the method of computing interest on the loan and has extended the coverage of the law, not only to banks, but to all credit granting entities or CGEs. It has also engaged the Securities and Exchange Commission, the Insurance Commission, the Social Security System and other government agencies in order that they may align their practices with the law. Such implementation has also resulted in landmark jurisprudence holding that any increase in rates which was not sufficiently disclosed prior to the consummation of the transaction cannot be collected by the creditor (New Sampaguita Builders Construction vs. PNB, 435 SCRA 565) and declaring that the Truth in Lending Act transformed itself from a “snivelling paper tiger to a growling watchdog of hapless borrowers”.

For literacy, the Bangko Sentral has definitely included this law in its advocacy and has mandated that the law be posted in the premises of the lending institutions. Realistically, however, such postings may rarely be paid much attention to by the loan applicants. This is just like the warnings to invest in pyramiding schemes which are announced for countless times in print and mediabut which remain unheeded by numerous investors until they realize the impossibility of the promised returns when they have already been victimized. In the case of loan borrowers, they might have focused on getting the loan proceeds first and then realize later the magnitude of the financial burdens to which they committed themselves when they reach financial straits.

The best opportunity to instill such awareness or literacy on the borrowers is really at the point of sale or loan application and the best party to conduct it is the lender itself. It is at this stage that the disclosure should be given meat and substance. The lender should do it, not for the interest of the borrower but for its own interest and benefit. A well-informed borrower poses less risk to the lender because there would be less chances of complaint and default. A well-informed borrower should have more confidence to proceed with the loan notwithstanding the attendant financial obligations because he is prepared to meet them.

Lastly, financial discipline falls on the borrower himself. Classic maxims should be his guide: “live within your means” and “don’t keep up with the Joneses”. An analogy would be the rule in the use of credit cards: you use the credit card only for expedience and simplicity of the transaction, but you surely have the money to pay the credit. Without that money, you never use the credit card at all. The effective implementation of the Truth in Lending Act and the efficient advocacy thereof will not be helpful if there was imprudent or haphazard borrowing. Financial discipline on the part of the borrower should therefore be foremost.

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The above comments are the personal views of the writer. His email address is

Source: Manila Bulletin (