QuestionsQuestions (BSP CIRCULAR NO. 730, S. 2011)
It is issued pursuant to Monetary Board Resolution No. 1018 dated 07 July 2011, and it amends Sections X305 and X307 and Appendix 19 of the Manual of Regulations for Banks (MORB).
Banks may only charge interest based on the outstanding balance of a loan at the beginning of an interest period. For loans payable in installments, interest per installment period must be computed based on the outstanding balance at the beginning of each installment period.
All loan-related documents must show repayment schedules in a manner consistent with computing interest based on the outstanding balance at the beginning of each interest/installment period.
Marketing materials and presentations must likewise be consistent with the same provision.
It clarifies that finance charge includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit.
It is the uniform percentage representing the ratio between the finance charge and the amount to be financed, assuming the loan is payable in one year with single payment upon maturity and no up-front deductions to principal.
The effective annual interest rate (EIR) must be calculated and disclosed as the relevant true cost of the loan comparable to the concept of simple annual rate.
The effective interest rate may be expressed as a monthly rate.
It states that PAS defines effective interest rate as the rate that exactly discounts estimated future cash flows through the life of the loan to the net amount of loan proceeds, and that for consistency, approved methodology and standards for discounted cash flow models must be prescribed for this purpose.
As a general rule, loan terms shall be disclosed to all types of borrower.
Minimum information: (1) total amount to be financed; (2) finance charges in pesos and centavos; (3) net proceeds of the loan; and (4) the finance charge as a percentage of the total amount financed, expressed as a simple annual rate or an EIR (or EIR as a monthly rate in parallel with the contractual monthly quotation).
Banks are required to furnish each borrower a copy of the disclosure statement prior to the consummation of the transaction.
Banks must post, in conspicuous places in their principal place of business and branches, the information in the revised format of disclosure statement (Appendix 19), with further enhancement via a Memorandum to All Banks.
They must include an explicit notification that the disclosure statement is a required attachment to the loan contract and that the customer has a right to demand a copy of the disclosure statement.
It revised Appendix 19 to reflect present industry practices, targeted toward small business, retail, and consumer loans, while still consistent with R.A. No. 3765.
It took effect on 1 July 2012 (as stated in the circular).