CASE ANALYSIS

LEGAL BASIS:
 TRUTH AND LENDING ACT (R. A. 3765)
 BSP CIRCULAR NO. 730

ANALYSIS

 Every transaction entered to by the borrower and the lender should be included
in the agreement signed by the parties.
 “Truth and Lending Act (R.A 3765)
Sec. 4 Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent
applicable and in accordance with rules and regulations prescribed by the Board, the following
information:

xxx…

(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;

xxxx…

(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.

xxx….”

As abovementioned, it was clearly stating what are the inclusion in making the
loan agreement, thus, it must state the itemized charges.

 As for, whether, the upfront deduction shall be clearly stipulated in details, as

well as condition that may arise in the later event, to the written agreement
signed by both parties in the present format of the company’s Promissory Note
and Acknowledgement Receipt.

 However, the loan should be categorized unto what kind of interest the borrower
enters with the company, if it is simple annual rate or monthly rate.

 As the BSP CIRCULAR NO. 730 provides that if its loan agreement with annual
interest, no upfront deduction to the principal loan. “ xxx … (Sec. 2 Definition of
Terms. xxx… h. Simple annual rate is the uniform percentage which represents
the ratio between the finance charge and the amount to be financed under the
assumption that the loan is payable in one year with single payment upon
maturity and there are no up-front deductions to principal. For loans with terms
different from the above assumptions, the effective annual interest (EIR) rate
shall be calculated and disclosed to the borrower as the relevant true cost of the
loan comparable to the concept of simple annual rate. For loans with
contractual interest rates stated on monthly basis, the effective interest rate
may be expressed as a monthly rate…. xxx”

 Hitherto, there is no existing law that upfront deduction for principal loan for
monthly interest is prohibited nor allow. Following the law principal, “What is not
include is not excluded.” So therefore, it is upon the discretionary of the
company provided the it is voluntarily agreed by the part and it make known to
both parties.