BSP enhances transparency in loans

BSP enhances transparency in loans

By LEE C. CHIPONGIAN

July 23, 2011, 12:37am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has revised rules implementing provisions of Republic Act No. 3765 or the Truth in Lending Act by “enhancing” transparency in banks’ loan transactions.

The BSP’s Monetary Board approved Circular No. 730 last Wednesday, updating policies implementing RA 3765 to improve loan transactions between banks and borrowers through disclosure of information and other loan documents.

In the circular memo signed by BSP Governor Amando M. Tetangco Jr., the revised rules which the BSP said is still consistent with the law, will take effect next year, July 1.

One of the changes implemented to the Manual of Regulations for Banks (MORB) is in the method of computing interest charges to loans, especially to consumer loans. The circular added a new subsection to the MORB, which states that banks may only charge interest based on the outstanding balance of a loan at the beginning of an interest period.

The BSP said that if the loan will be paid in installments, the interests will be calculated at the beginning of the installment period. All loan documents will have to show all loan repayment schedules for transparency.

As part of the enhanced transparency provisions, the new circular also updated the disclosure of the loan and payment information.

For small business/retail/consumer credit, the minimum required information includes the total amount to be financed, finance charges, net proceeds of the loan and the percentage of the finance charges to the annual rate of the loan.

“Banks are required to furnish each borrower a copy of the disclosure statement, prior to the consummation of the transaction,” said the BSP.

A new format for disclosure of information has been released along with the circular. Banks are specifically instructed to notify clients of the disclosure statement as a required attachment to loan contracts, which clients/borrowers have the right to demand.

According to Tetangco, the revised disclosure statement reflects the present industry practices and the updated rules are specifically targeted to SME loans.

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