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Questions and Answers
What is the designation of the Truth in Lending Act?
What is the designation of the Truth in Lending Act?
Republic Act No. 3765
On what date was the Truth in Lending Act approved?
On what date was the Truth in Lending Act approved?
June 22, 1963
What formula is used to calculate the Annual Effective Interest Rate (EIR)?
What formula is used to calculate the Annual Effective Interest Rate (EIR)?
EIR = (1 + i)ⁿ - 1
What is the primary purpose of the Truth in Lending Act?
What is the primary purpose of the Truth in Lending Act?
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The acronym EIR stands for ______.
The acronym EIR stands for ______.
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Which of the following charges are included in the EIR computation? (Select all that apply)
Which of the following charges are included in the EIR computation? (Select all that apply)
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What can happen in case of non-compliance with the required disclosure statement?
What can happen in case of non-compliance with the required disclosure statement?
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Add-on interest is allowed under the Truth in Lending Act.
Add-on interest is allowed under the Truth in Lending Act.
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Study Notes
Truth in Lending Act
- Republic Act No. 3765 was approved on June 22, 1963
- The law aims to protect citizens from unawareness of the true cost of credit by assuring full disclosure of such cost.
Information Disclosure Requirements
- Loan amount
- Upfront charges/deductions
- Net proceeds of the loan
- Schedule of payments
- Effective Interest Rate (EIR)
- Conditional charges
Effective Interest Rate (EIR)
- The EIR accurately reflects the total cost of credit, taking all charges into account.
- The formula for EIR is: (1 + i)ⁿ - 1, where i is the periodic interest rate and n is the number of periods in a year.
- Upfront charges and grace periods significantly affect EIR calculation.
- The EIR computation considers interest, service charges, and other fees directly related to the extension of credit.
- Taxes should not be passed on to consumers but borne by the credit providing entity.
- Insurance premiums are not included in EIR as they offer independent benefits. However, their terms and conditions should be clearly explained to the borrower.
- Savings products are separate from loans and should be treated as such.
- Add-on interest and straight-line methods are prohibited. Interest and service charges are to be amortized using the effective interest method.
Sanctions for Non-Compliance
- Entities failing to comply with disclosure requirements face penalties under Section 6 of R.A. No. 3765 and other relevant provisions.
- Penalties include fines and imprisonment.
- The Bangko Sentral ng Pilipinas (BSP) regulates and imposes sanctions on financial institutions for non-compliance with the Truth in Lending Act and the New Central Bank Act.
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Description
Explore the Truth in Lending Act, enacted to ensure consumers are fully informed about the costs of credit. This quiz covers information disclosure requirements and the calculation of the Effective Interest Rate (EIR), highlighting key factors involved in credit transactions.
