Consumer Protection in Ficial Services

Key definitions and covered terms

Section 3(a) defines a financial consumer as a person or entity (or duly appointed representative) who is a purchaser, lessee, recipient, or prospective purchaser/lessee/recipient of financial products or services, and also includes any person who had or has current or prospective financial transaction with a financial service provider relating to financial products or services.
Section 3(b) defines a financial consumer complaint as an expression of dissatisfaction submitted by a financial consumer against a financial service provider regarding a financial product or service, where a response or resolution is expected.
Section 3(c) defines financial product or service to include savings, deposits, credit, insurance, pre-need and HMO products, securities, investments, payments, remittances, and other similar products and services, including digital financial products and services delivered through digital channels.
Section 3(d) defines financial regulators as the Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), Insurance Commission (IC), and Cooperative Development Authority (CDA).
Section 3(e) defines financial service provider as a person or juridical entity providing financial products or services under the jurisdiction of financial regulators, and includes Investment Advisers as defined in Section 7.
Section 3(f) defines investment fraud to include deceptive solicitation of investments from the public, including Ponzi schemes and other schemes promising or offering profits/returns sourced from investors’ own investments/contributions, boiling room operations, and offering or selling investment schemes to the public without an SEC license or permit, except for offerings/sales involving exempt securities or exempt transactions under existing laws.
Section 3(g) defines market conduct as the manner a financial service provider designs and delivers financial products/services and manages relationships with clients and the public.
Section 3(h) defines marketing as communicating, offering, promoting, advertising, or delivering financial products/services.
Section 3(i) defines responsible pricing as pricing/terms/conditions set to be affordable to clients and sustainable for providers, taking into account client needs and competitor pricing schemes.

Issuing authority, title, effectivity, repeal

This Act is Republic Act No. 11765, titled “Financial Products and Services Consumer Protection Act”, approved on May 06, 2022.
Section 21 provides that the Act takes effect fifteen (15) days after its publication in the Official Gazette or in at least two (2) newspapers of general circulation.
Section 20 repeals Articles 131 to 147 of Title IV of Republic Act No. 7394.
Section 20 provides that all other laws, executive orders, rules and regulations, or parts inconsistent with the Act are repealed or amended accordingly.
Section 19 establishes a separability rule: if any provision is unconstitutional or invalid, remaining provisions not affected stay valid.
The Act directs that implementing rules must be issued within one (1) year from effectivity under Section 18.

Regulatory coverage and regulator roles

Section 4 applies the Act to all financial products or services offered or marketed by any financial service provider.
Section 5 provides enforcement roles:
- BSP, SEC, and IC enforce provisions on financial service providers under their respective jurisdictions.
- CDA is an implementing government agency only regarding cooperative offering financial products/services such as savings and credit, except that insurance cooperatives are under IC, and cooperative banks and other BSP-supervised cooperative financial institutions are under BSP.
Section 6(a) authorizes financial regulators to apply and implement the Act through rules guided by internationally accepted standards and practices.
Section 6(f) assigns adjudicatory authority to financial regulators as provided under existing laws, including specified limits and judicial review rules for BSP and SEC.

Powers: rulemaking, surveillance, monitoring, enforcement

Section 6(a) authorizes rulemaking for specific financial products/services within regulators’ jurisdiction, and allows regulators to determine the reasonableness of interest charges or fees financial service providers may demand, collect, or receive.
Section 6(a) authorizes each regulator to issue rules of procedure for administrative actions arising from implementing the Act.
Section 6(b) authorizes surveillance and examination on-site or off-site on supervised financial service providers consistent with each regulator’s risk-based supervision policies to ascertain compliance with the Act.
Section 6(b) allows consumer-protection compliance examinations to be conducted separately from prudential regulation compliance examinations.
Section 6(b) allows regulators’ authorized department heads and examiners to administer oaths to directors/officers/employees and compel presentation of books, documents, papers, or records in any form necessary to ascertain compliance.
Section 6(b) requires supervised financial service providers to afford regulators full opportunity to examine records and review systems/procedures at any time during business hours when requested.
Section 6(c) grants market monitoring authority to require supervised providers and their third-party agents/service providers to submit reports or documents as needed.
Section 6(c) makes other government agencies duty-bound to furnish regulators relevant data for market monitoring.
Section 6(d) authorizes enforcement actions for noncompliance, including:
- Restriction on the ability to continue collecting excessive or unreasonable interests, fees or charges including those covered under Republic Act No. 10870, the “Philippine Credit Card Industry Regulation Law.”
- Disqualification and/or suspension of responsible directors/trustees/officers/employees.
- Fines, suspension, or penalties for noncompliance/breach of the Act, its IRR, or orders.
- Cease and desist order without prior hearing when the regulator judges the act/practice amounts to fraud or violates the Act/IRR, or may unjustly cause grave or irreparable injury or prejudice; the provider may request a summary hearing within five (5) calendar days from receipt, or otherwise the order becomes final.
- Suspension of operation of a supervised financial service provider in relation to a particular financial product or service where the regulator finds operation in violation of the Act and IRR.
- Accounting and disgorgement of profits obtained or losses avoided (including reasonable interest), with authority to adopt rules on disgorgement fund creation and operation, payment to consumers, interest rate, period of accrual, and related matters.

Consumer redress, complaints handling, adjudication

Section 6(e) requires financial regulators to provide efficient and effective consumer redress/complaints handling mechanisms such as mediation, conciliation, or other alternative dispute resolution, and allows the financial consumer to avail of the mechanism prior to adjudication.
Section 6(f) provides that regulators adjudicate all actions as provided under existing laws.
Section 6(f) grants BSP and SEC authority to adjudicate actions arising from or in connection with financial transactions purely civil in nature, where the claim/relief is solely for payment/reimbursement of sum of money not exceeding Ten million pesos (P10,000,000.00).
Section 6(f) states regulators’ decisions in adjudication are final and executory and cannot be restrained or set aside by the court except through a petition for certiorari for grave abuse of discretion or lack or excess of jurisdiction.
Section 6(f) requires that the petition for certiorari be filed within ten (10) days from receipt of the decision, and provides that in BSP and SEC cases, filing is with the Court of Appeals.
Section 6(f) provides that adjudicatory power is exercised by the Head of the concerned regulator or a duly authorized officer/body; for BSP and SEC, the decision of the authorized officer/body is not appealable to the Monetary Board or Commission en banc, respectively.
Section 6(f) authorizes BSP and SEC to order payment/reimbursement of money subject to the action.
Section 6(f) empowers BSP and SEC in adjudication to issue subpoena duces tecum, summon witnesses, and where appropriate order examination, search and seizure of documents and books of accounts needed for proper disposition.
Section 6(f) empowers BSP and SEC to punish for contempt consistent with the Rules of Court.
Section 17 authorizes a financial regulator, consistent with public interest and protection of financial consumers, to institute an independent civil action on behalf of aggrieved financial consumers for violations of the Act and its IRR.
Section 17 provides that when a regulator obtains a civil penalty or a person/entity settles, the civil penalty amount (upon motion) is added to and becomes part of a disgorgement fund or other fund established for the benefit of aggrieved financial consumers.

Investment advisers: definition and coverage

Section 7 subjects investment advisers to Chapters VII, VIII, X and XIII of Republic Act No. 8799 and SEC rules/regulations.
Section 7 defines “investment adviser” as any person who for compensation engages in advising others (directly, through publications or writings) as to the value of investment products or the advisability of investing/purchasing/selling investment products, or who for compensation and as part of a regular business issues or promulgates analyses/reports concerning investment products.
Section 7 excludes from the term “investment adviser”:
- Trust Department/Unit of Banks;
- Stand-alone Trust Entities;
- Lawyer, accountant, engineer, or teacher whose services are solely incidental to the practice of their profession;
- Insurance agent whose services are solely incidental to the practice of their profession;
- Any investment banker or broker dealer whose services are solely incidental to its business as such and receives no special compensation therefor;
- The publisher of any bona fide newspaper, news magazine, or business/financial publication of general and regular circulation;
- Such other persons designated by the SEC by rules and regulations, or appropriate order.

Substantive duties: product design, pricing, privacy

Section 8(a) requires boards of directors and senior management to ensure conformity with the Act and provide means to identify, measure, monitor, control, and manage consumer protection risk inherent in operations, in accordance with regulator rules.
Section 8(b) requires continuous evaluation of financial products/services to ensure they are appropriately targeted to markets and clients by considering affordability, suitability, and relevant client capacity/understanding.
Section 8(b)(1) requires procedures to determine whether a product/service is suitable and affordable, including whether amount/terms allow clients to meet obligations with a low probability of serious hardship and provide a reasonable prospect of value to the client; for extending credit, the assessment must include measures to prevent over-indebtedness.
Section 8(b)(2) provides for a cooling-off policy when prescribed by law or by regulator rules as necessary for particular regulated products/services:
- It must allow clients to consider costs/risks free from sales-team pressure.
- Its length must be individually determined based on reasonable expectation of time needed for clients to evaluate terms/risks and contact affected parties, unless a minimum/fixed period is prescribed by the regulator or stipulated in the product/service terms.
- Regulators may choose not to provide cooling-off periods for short-term transaction or contracts.
- During the cooling-off period, a financial consumer may cancel or return the contract without penalty, though providers may recover processing costs as approved by regulators.
- Providers are prohibited from employing practices that unreasonably burden the consumer in exercising the cancellation right.
- If the financial product/service is an insurance, pre-need, or HMO contract, the right of return cannot be exercised after the financial consumer has made a claim.
Section 8(b)(3) allows a borrower to prepay loans/credit accommodations in whole or in part at any time before agreed maturity, and requires disclosure of any costs/fees charged for prepayment, to ensure transparency and responsible pricing.
Section 8(c) requires disclosure principles in communications and contracts using clear and concise language to ensure understanding by target clients, including updated and accurate disclosure of pricing and any associated cost in a consistent manner to facilitate comparison across similar products/services.
Section 8(c) requires sufficient product disclosure before contracting so clients have enough basis and time for review, and requires providing changes in terms/conditions to the client.
Section 8(c) requires advertising materials to disclose the contact information of the consumer assistance unit and to disclose that the provider is regulated, identifying the relevant financial regulator.
Section 8(c) makes the financial service provider legally responsible for statements made in marketing and sales materials it produces.
Section 8(c) requires that product/service information be made available to the public through printed materials, mass media, websites, or digital platforms.
Section 8(c) requires internal pricing policies and procedures that take into account responsible pricing, among others.
Section 8(d) provides that financial service providers may select their clients but must not discriminate on the basis of race, age, financial capacity, ethnicity, origin, gender, disability, health condition, sexual orientation, religious affiliation, or political affiliation, while allowing distinction when necessary for risk assessment.
Section 8(d) prohibits abusive collection or debt recovery practices against financial consumers.
Section 8(e) requires each provider to respect privacy and protect client data, and requires financial regulators to issue regulations in coordination with the National Privacy Commission governing disclosure of client data to third parties consistent with Republic Act No. 10173.
Section 8(e) grants clients the right to review data to correct or amend inaccurate/deficient data, refuse sharing of information to a third party, and request removal of data from the provider’s system if they no longer wish to use the provider’s services.
Section 8(f) requires each provider to establish a single consumer assistance mechanism for free assistance on financial transaction concerns, including complaints, inquiries, and requests.
Section 8(f) requires the provider to provide clear information on actions taken or to be taken on complaints/inquiries/requests.
Section 8(f) requires that for alleged disputed amounts or unauthorized transactions, pending the result of the provider’s final investigation report, the provider must suspend imposition of interest/fees/charges or provide similar reasonable accommodations.
Section 8(f) allows financial consumers unsatisfied with the provider’s handling to elevate concerns to the financial regulator with jurisdiction.
Section 8(g) requires providers to adopt and implement information security standards ensuring confidentiality, integrity, availability, authenticity, and non-repudiation of client information and financial transactions, and ensuring data privacy; regulators prescribe minimum information security standards for compliance.

Bundling, training, and investment fraud crimes

Section 9 grants a financial consumer the option to choose the provider of any bundled product imposed as a pre-condition to avail a financial product/service, including insurance policies, subject to reasonable standards set by the financial service provider, and requires making this information available to the financial consumer.
Section 10 requires staff of financial service providers who deal directly with financial consumers— including those involved in the consumer protection assistance mechanism or cybersecurity—to receive adequate training suitable to the complexity of the products/services they offer, and requires providers to qualify staff appropriately.
Section 11 makes it unlawful for any person to commit investment fraud as defined in the Act.
Section 11 imposes penalties for investment fraud by subjecting violators to penalties under Section 73 of Republic Act No. 8799 and administrative sanctions under Section 16.

Contract rights, provider liability, prescription

Section 12 prohibits enforcement of any contract provision waiving or depriving a client of legal rights to sue, receive information, have complaints addressed and resolved, or have non-public client data protected.
Section 13 makes a financial service provider responsible for acts or omissions of its directors, trustees, officers, employees, or agents in marketing and transacting with financial consumers.
Section 13 imposes solidary liability on the financial service provider with accredited third-party service providers for their acts or omissions in marketing and transacting, including debt collection, with financial consumers for financial products/services.
Section 14 provides a prescriptive period for actions/claims under the Act and its IRR of five (5) years from consummation of the financial consumer transaction, or five (5) years from discovery of deceit or nondisclosure of material facts.
Section 14 adds that such actions prescribe in any event after ten (10) years from the commission of the violation.
Section 14 provides that for insurance contracts, the prescriptive period under the Insurance Code for commencing action applies.

Criminal penalties and administrative sanctions

Section 15 imposes criminal liability on any person who willfully violates the Act or the rules/regulations/orders/instructions issued by financial regulators to implement it.
Section 15 provides the penalty is imprisonment of not less than one (1) year but not more than five (5) years, or a fine of not less than Fifty thousand pesos (P50,000.00) but not more than Two million pesos (P2,000,000.00), or both, at the discretion of the court.
Section 15 provides that when the violation is committed by a corporation or juridical entity, the directors, officers, employees, or other officers directly responsible are held liable.
Section 16 makes administrative sanctions of the respective charters of financial regulators applicable to financial service providers and their directors/trustees/officers/employees/agents for violations of the Act or related rules/orders/instructions, and to persons found administratively liable for investment fraud.
Section 16 authorizes the SEC for persons found responsible for investment fraud to impose an administrative fine of no less than Fifty thousand pesos (P50,000.00) and no more than Ten million pesos (P10,000,000.00) for each instance of investment fraud, plus not more than Ten thousand pesos (P10,000.00) for each day of continuing violation, in addition to other administrative sanction under Section 54 of Republic Act No. 8799.
Section 16 authorizes an additional administrative fine not more than three (3) times the profit gained or loss avoided when profit is gained or loss is avoided as a result of the violation of the Act or investment fraud.
Section 16 provides that the financial regulator may suspend or cancel the financial service provider’s authority to operate in relation to a particular financial product or service in addition to other administrative sanctions.

Implementing rules and transitory mechanics

Section 18 requires financial regulators to prepare necessary implementing rules and regulations to implement the Act within one (1) year from effectivity.