ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

38
TITLE: CREDIT RELATED LAWS AND REGULATIONS

WHAT IS THE MODULE ALL ABOUT?

This module discuss the different Credit related Laws and regulations.
LIST OF TOPICS TO BE STUDIED IN THE MODULE
 Credit Related Laws and Regulations
 Republic Act No. 9510 Credit Information System Act October 31,
2008
 BSP Circular No. 855 Series of 2014 Guidelines on Sound Credit
Risk Management Practices

INTENDED LEARNING OUTCOMES (ILO)

o At the end of this module, the students would be able to:
1. To understand the laws that affect and guide credit function.
2. To identify potential fraud situations.
3. To make intelligent decisions about credit issues.

LEARNING CONTENT

CREDIT- RELATED LAWS AND REGULATIONS

A. FAIR LENDING PRACTICES

R.A. No. 3765 (Truth in Lending Act) dated 22 June 1963 – requires the
creditor to 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 Monetary Board, the following information:

 the cash price or delivered price of the property or service to be

acquired;
 the amounts, if any, to be credited as down payment and/or trade-in;
 the difference between the amounts set forth under clauses (1) and (2);
 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;
 the total amount to be financed;
 the finance charge expressed in terms of pesos and centavos; and
 the percentage that the finance charge bears to the total amount to be
financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

Title IV, R.A No. 7394 (Consumer Act of the Philippines) dated
13 April 1992 – lays down the following provisions governing credit
transactions to encourage the development of fair and
economically sound consumer credit practices:
 determination of the amount of the finance charges in connection with
any consumer credit transaction;
 determination of simple annual rate applicable to any extension of
consumer credit;
 agreement of parties involved in a consumer credit transaction to:
 a delinquency charge on any installment not paid in full on or before
the tenth day after its scheduled or deferred due date;
 a deferral of all or part of one or more unpaid instalments and the
charge that the creditor may make and collect, which shall not exceed
the rate previously disclosed pursuant to the provisions on disclosure;
 a finance charge in an open-end credit plan that is based on the amount
financed resulting from the refinancing or consolidation at a rate not
exceeding that permitted by the rules promulgated by BSP (see Note 1);
 prepayment of the unpaid balance of any consumer credit transaction,
in full or in part at any time without penalty;
 rebate to the person to whom credit is extended, of an amount not less
than the unearned portion of the finance charge calculated according
to this law, upon prepayment in full of the unpaid balance of a
precomputed consumer credit transaction, refinancing or
consolidation;
 information disclosures required under this Act (shall be made clearly
and conspicuously in writing before the transaction is consummated):

 in the periodic statement transmitted by the creditor:

a) the simple annual rate;

b) the effective interest rate;

c) the date by which, or the period (if any) within which payment
must be made in order to avoid additional finance charges; and

d) method of determining the balance upon which the finance

charge may be imposed

 under a consumer credit sale other than one pursuant to an open-end

credit plan;
a) the cash price or delivered price of the property or service to be
acquired;

b) the amounts, if any, to be credited as down payment and/or

trade in;

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

c) the total amount to be financed or the difference between the

amounts set forth under paragraphs (1) and (2);
d) 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;
e) the finance charge expressed in terms of pesos and centavos;
f) the percentage that the finance charge bears to the total
amount to be financed expressed as a simple annual rate on the
outstanding balance of the obligation;
g) the effective interest rate;
h) the number, amount and due dates or periods of payments
scheduled to repay the indebtedness; and
i) the default, delinquency or similar charges payable in the event
of late payments
 under an open-end consumer credit plan,
a) the conditions under which a finance charge may be imposed,
including the time period, if any, within which any credit
extended may be repaid without incurring a finance charge;

b) the method of determining the balance upon which a finance

charge may be imposed;

c) the method of determining the amount of the finance charges,

including any minimum or fixed amount imposed as a finance
charge;

d) where one or more periodic rates may be used to compute a

finance charge, each such rate, the range of balances to which it
is applicable, and the corresponding simple annual rate; and

e) the conditions under which the creditor may impose a security

lien and a description of the goods to which such lien may attach

 under a consumer loan or in a transaction which is neither a consumer

credit sale nor under an open-end consumer credit plan:
a) the amount of credit of which the debtor will have the actual
use, or which is or will be paid to him or for his account or to
another person on his behalf;

b) all charges, individually itemized, which are included in the

amount of credit extended but which are not part of the finance
charge;

c) the total amount to be financed or the sum of the amounts

referred to in paragraphs (a) and (b);

d) the finance charge expressed in terms or pesos and centavos;

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

e) the effective interest rate;

f) the percentage that the finance charge bears to the total

amount to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation;

g) the default, delinquency or similar charges payable in the event

of late payments; and

h) a description of any security interest held or to be held or to be

retained or acquired by the creditor in connection with the
extension of credit and a clear identification of the property to
which the security interest relates

o liability of any creditor in connection with any credit transaction who fails
to disclose to any person any information required by this law - one thousand
pesos (P1,000.00) or in amount equal to twice the finance charge required by
such creditor in connection with such transaction, whichever is greater,
except that such liability shall not exceed three thousand pesos (P3,000.00)
for any credit transaction and actual damages with the non-disclosure of the
required information

Subsection X307.2, MORB; Subsection 4309Q.2 & Subsection 4307S.2,

Manual of Regulations for Non-Banks and Financial Institutions (MORNBFI)
– require the disclosure of information to the borrower pertinent to the loan
between the borrower and the financial institution

Subsection 4307Q.4, MORBNFI – prohibits requiring the consent of an

NBQB for customer to prepay his loan; it also requires a stipulation agreed
upon by both parties for the payment of penalty on prepayments

Subsection X305.1, MORB & Subsection 4307Q.6, MORNBFI – provide that

the rate of interest on borrowed money from financial institutions in the
absence of stipulation shall be 12% per annum

Subsection X305.2, MORB and Subsection 4307Q.5, MORNBFI – stipulate

that the rate of interest on borrowed money agreed upon between a borrower
and a financial institution may be increased provided, that there is also a
stipulation that the same shall be reduced in the event the maximum rate of
interest is reduced by law or by the Monetary Board

B. CREDIT CARD OPERATIONS

R.A. No. 8484 (Access Devices Regulation Act) dated 11 February 1998 –
requires that, any application to open a credit card account for any person
under an open-end credit plan or a solicitation to open such an account,
either by mail, telephone or other means, shall disclose the following
information in writing or orally, as the case may be:

 the annual percentage rate (APR);

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

 the amount of any annual fees and other fees;

 a detailed explanation of method used in determining the balance upon
which the finance charge is computed;
 any fee imposed for an extension of credit in the form of cash;
 any fee imposed in connection with an extension of credit in excess of
the amount of credit authorized to be extended with respect to such
amount;
 a detailed explanation and a clear illustration of the manner by which
all charges and fees are computed; and
 in the open-end consumer credit plan made through catalogs,
magazines, or other publications, disclosure in a conspicuous and
prominent location on the application or solicitation, of a toll free
telephone number or mailing address which the applicant may contact
to obtain any change in the information provided in the application or
solicitation since it was printed
BSP Circular No. 454 dated 24 September 2004 – lays down the rules and
regulations governing credit card operations of banks and subsidiary credit
card companies including affiliates; section 7 of the circular refers to unfair
collection practices

BSP Circular No. 398 dated 21 August 2003 – requires that the development
of consumer credit through innovative products such as credit cards shall be
under conditions of fair and sound consumer credit practices

Subsection X320.4, MORB; Subsection 4301N.4 and Subsection 4337Q.4,

MORNBFI – require disclosure of the following items

 non-finance charges, individually itemized, which are paid or to be paid

by the cardholder in connection with the transaction but which are not
incident to the extension of credit;
 the percentage that the interest bears to the total amount to be financed
expressed as a simple monthly or annual rate, as the case may be, on
the outstanding balance of the obligation;
 the effective interest rate per annum;
 for installment loans, the number of installments, amount and due
dates or periods of payment schedules to repay the indebtedness;
 the default, late payment/penalty fees or similar delinquency- related
charges payable in the event of late payments;
 the conditions under which interest may be imposed, including the time
period, within which any credit extended may be repaid without interest
 the method of determining the balance upon which interest and/or
delinquency charges may be imposed;
 the method of determining the amount of interest and/or delinquency
charges, including any minimum or fixed amount imposed as interest
and/or delinquency charge;

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

 where one or more periodic rates may be used to compute interest, each
such rate, the range of balances to which it is applicable, and the
corresponding simple annual rate;
 other fees, such as membership/renewal fees, processing fees,
collection fees, credit investigation fees and attorney’s fees; and
 for transactions made in foreign currencies and/or outside the
Philippines, for dual currency accounts (peso and dollar billings), as
well as payments made by credit cardholders in any currency other
than the billing currency: the application of payments; the manner of
conversion from the transaction currency and payment currency to
Philippine pesos or billing currency; definition or general description of
verifiable blended exchange/conversion rates (e.g., MASTERCARD
and/or VISA International rates on the day the item was
processed/posted to the billing statement, plus mark-up, if any)
including conversion commission; and/or other currency conversion
charges and costs arising from the purchase by the card company of
foreign currency to settle the customer’s transactions shall also be
disclosed.
 Subsection X320.7, MORB; Subsection 4301N.7 and Subsection
4337Q.7, MORNBFI – the card issuer and the

 Subsection X320.8, MORB; Subsection 4301N.8 and Subsection

4337Q.8, MORBNFI – require that:
 no late payment or penalty fee shall be collected from cardholders
unless the collection thereof is fully disclosed in the contract
between the issuer and the cardholder;
 late payment or penalty fees shall be based on the unpaid
minimum amount due or a prescribed minimum fixed amount;
and
 said late payment or penalty fees may be based on the total
outstanding balance of the credit card obligation, including
amounts payable under installment terms or deferred payment
schemes, if the contract between the issuer and the cardholder
contains “acceleration clause”.

 Subsection X320.9, MORB; Subsection 4301N.9 and Subsection

4337Q.9, MORNBFI – require credit card companies to retain
confidentiality of information of cardholder except under the following
circumstances:
 disclosure of information is with the consent of the cardholder or
consumer;
 release, submission or exchange of customer information with
other financial institutions, credit information bureaus, credit
card issuers, their subsidiaries and affiliates;

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

 upon orders of court of competent jurisdiction or any government

office or agency authorized by law, or under such conditions as
may be prescribed by the Monetary Board;
 disclosure to collection agencies, counsels and other agents of the
bank or card company to enforce its rights against the
cardholder;
 disclosure to third party service providers solely for the purpose
of assisting or rendering services to the bank or card company in
the administration of its credit card business; and
 disclosure to third parties such as insurance companies, solely
for the purpose of insuring the bank from cardholder default or
other credit loss, and the cardholder from fraud or unauthorized
charges
 Subsection X320.10, MORB; Subsection 4301N.10 and Subsection
4337Q.10, MORNBFI – require card issuers to include in their contract
with cardholders a provision authorizing the issuer to suspend or
terminate the effectivity of the right to use the card, if circumstances
warrant

 Subsection X320.12, MORB; Subsection 4301N.12 and Subsection

4337Q.12, MORNBFI – require the credit card issuer to inform/notify
the credit cardholder in the agreement, contract or any equivalent
document governing the issuance or use of the credit card that,
pursuant to the provisions of Articles 1278 to 1290 of the New Civil
Code of the Philippines, as amended, the use of his credit card will
subject his deposit/s with the bank to offset against any amount/s due
and payable on his credit card which have not been paid in accordance
with the terms of the agreement/contract
 Subsection X320.13, MORB; Subsection 4301N.13 and Subsection
4337Q.13, MORNBFI – require credit card issuers to:
 give cardholders at least twenty (20) calendar days from
statement date to examine charges posted in his/her statement
of account and inform the credit card companies in writing of any
billing error or discrepancy;
 within ten (10) calendar days from receipt of such written notice,
the credit card issuer shall send a written acknowledgement to
the cardholder unless the action required is taken within such
ten-day period; and
 not later than two (2) billing cycles or two months, which in no
case shall exceed ninety (90) days after receipt of the notice and
prior to taking any action to collect the contested amount, or any
part thereof, credit card issuers shall make appropriate
corrections in their records and/or send a written explanation or
clarification to the cardholder after conducting an investigation

 Subsection X320.14, MORB; Subsection 4301N.14 and Subsection
4337Q.14, MORNBFI – require credit card issuers to observe good faith

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

and reasonable conduct and refrain from engaging in unscrupulous or

untoward acts to collect amounts due them under the credit card
agreement
 Subsection X306.1, MORB – provides that the bank shall have the right
to demand the obligation (for credit card receivable) in full in case of
default in any installment thereon if the contract between the bank and
the cardholder contains an “acceleration clause”.

C. MICROFINANCE OPERATIONS
 BSP Circular No. 272 dated 30 January 2001 – recognizes cash flow -
based lending and provides for the exemption of microfinance loans
from rules and regulations issued with regard to unsecured loans
 BSP Circular No. 409 dated 14 October 2003 – prescribes the rules,
regulations and standards that shall govern microfinance operations of
banks, which amend the Manual of Regulations for Banks, the Manual
of Accounts for Universal Banks and Commercial Banks, the Manual of
Accounts for Thrift Banks and the Manual of Accounts for Rural Banks

D. HOME MORTGAGE
 Section X314, MORB/BSP Circular No. 343 dated 08 August 2002
 increased values and terms of loans for home
building
 Section 18, PD No. 957 (The Subdivision and Condominium Buyers'
Protective Decree) – requires the financial institution to notify the buyer
of each lot or unit before the release of loan to the developer/owner; it
further gives the right to the buyer to directly pay the installments due
to the lending financial institution
 R.A. No. 7279 (Urban Development and Housing Act) dated 24 March
1992 – grants very low interest financing to beneficiaries under this
program to purchase the land as a whole and to improve the sites
 E. CREDIT FOR AGRARIAN REFORM BENEFICIARIES
 PD No. 717 (Agrarian Reform Credit) dated 29 May 1975 - provides an
agrarian reform credit and financing system for agrarian reform
beneficiaries through banks
 Subsection X341.3, MORB – requires banks to set aside at least 25% of
their loanable funds for agricultural credit in general, of which at least
10% of the loanable funds shall be made for agrarian reform credit
 F. BSP Circular No. 190 dated 16 February 1999 – provides guidelines
on mandatory allocation of funds for Agri-Agra credit Credit for Small
and Medium Enterprises (SMEs)
 R.A. No. 6977 dated 24 January 1991, as amended by R.A. No. 8289
dated 06 May 1997 (Magna Carta for Small and Medium Enterprises) –
requires the promotion, development and assistance to small and
medium scale enterprises
 Section X342.2, MORB – requires mandatory allocation of credit for
small and medium enterprises wherein at least 6% and 2% of total loan

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

portfolio of banks will be made available for small and medium

enterprises, respectively
 Appendix 55, MORB (SME Unified Lending Opportunities for National
Growth [SULONG] Program) – requires conduit banks to lend short-
term loans at 9%; for long-term loans - 3yr T-bond rate for 3yr loans &
5yr T-bond rate for 5yr loans, plus 2% to the bond rate.

G. CREDIT FOR BARANGAY MICRO BUSINESS ENTERPRISES (BMBES)

 R.A. No. 9178 (Barangay Micro Business Enterprises Act) dated 13
November 2002 – requires that the Land Bank of the Philippines (LBP),
the Development Bank of the Philippines (DBP), the Small Business
Guarantee and Finance Corporation (SBGFC), and the People's Credit
and Finance Corporation (PCFC) set up a special credit window that will
service the financing needs of BMBEs
 BSP Circular No. 549 dated 9 October 2006 – exempts loans to
registered BMBEs from the submission of the following additional
documents:
 a copy of the latest ITR of the borrower and his co-maker, if
applicable; and
 a copy of the borrower’s latest financial statement if engaged
in business
 Section X365, MORB – requires bank to waive documentary
requirements for BMBE borrowers

H. CREDIT FOR AGRICULTURE AND FISHERIES PROJECTS

 R.A. No. 8435 (Agriculture and Fisheries Modernization Act) dated 29
December 1997 – protects small farmers and fisher folk from unfair
competition such as monopolistic practices by promoting a policy
environment that provides them priority access to credit and
strengthened cooperative-based marketing system
 BSP Circular No. 217 dated 11 November 1999 – lays down
implementing guidelines for the setting of variable grace period for long-
gestating agriculture and fisheries projects
 Section X349, MORB – provides possible deferment of initial
amortization payments for a longer period based on the economic life of
agricultural and fisheries projects

I. PAWNSHOP TRANSACTIONS
 Section 4303P, MORNBFI – gives the right of the pawner to renew his
loan for such amount and period as may be agreed upon between the
pawnshop and the pawner, subject to conditions provided by the
MORNBFI; it further gives the right of the pawner who fails to pay or
renew his obligation to redeem his pawn ninety (90) days from the date
of maturity by paying the principal amount of the loan plus the amount
of interest that shall have accrued thereon
 Section 4322P, MORNBFI – requires the following information to be
disclosed in the pawn ticket:

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

 amount of the principal loan;

 interest rate in percent;
 period of maturity;
 description of the pawn;
 expiry date of redemption period; and
 such other terms and conditions as may be agreed upon between
the pawnshop and the pawner
 Section 4323P, MORNBFI – requires the pawnshop to notify the pawner
in writing on or before the expiration of the ninety (90)-day grace period:
 that the pawn shall be sold or otherwise disposed of in the event
that the pawner fails to redeem the pawn within the ninety (90)-
day grace period; and
 the date, hour and place where the sale shall take place
 It further provides that the pawnshop may sell or dispose of the
pawn only after it has published a notice of public auction of
unredeemed articles held as security for loans in at least two (2)
newspapers circulated in the city or municipality where the
pawnshop has its place of business, six (6) days prior to the date
set for the public auction. In remote areas where newspapers are
neither published nor circulated, the publication shall be
complied with by posting notices at the city hall or municipal
building of the city or municipality and in two (2) other
conspicuous public places where the pawnshop has its place of
business.
 Section 4324P, MORNBFI – requires public auctions to be held either
at the pawnshop's place of business or any public place within the
territorial limits of the municipality or city where the pawnshop
conducts its business
 Section 4182P, MORNBFI – No pawnshop shall close or transfer its
place of business within three (3) months following the maturity of any
loan or pledge, or before any pawn shall have been sold or disposed of
J. REMITTANCE OPERATIONS

 BSP Circular No. 471 dated 24 January 2005 – requires the registration
of foreign exchange dealer’s/money changers and remittance agents
 BSP Circular No. 534 dated 26 June 2006 – requires the disclosure of
remittance charges and other relevant information.
REPUBLIC OF THE PHILIPPINES CONGRESS OF THE PHILIPPINES

METRO MANILA

Fourteenth Congress Second Regular Session

Begun and held in Metro Manila, on Monday, the twenty-eight day of July,
two thousand eight.

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

REPUBLIC ACT NO. 9510 OCTOBER 31, 2008

AN ACT ESTABLISHING THE CREDIT INFORMATION SYSTEM AND FOR

OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines

in Congress assembled::

Section 1. Title. - This Act shall be known as the "Credit Information System
Act".

Section 2. Declaration of Policy. - The State recognizes the need to establish

a comprehensive and centralized credit information system for the collection
and dissemination of fair and accurate information relevant to, or arising
from, credit and credit-related activities of all entities participating in the
financial system. A credit information system will directly address the need
for reliable credit information concerning the credit standing and track record
of borrowers.

The operations and services of a credit information system can be expected

to: greatly improve the overall availability of credit especially to micro, small
and medium-scale enterprises; provide mechanisms to make credit more cost-
effective; and reduce the excessive dependence on collateral to secure credit
facilities.

The State shall endeavor to have credit information provided at the least cost
to all participants and shall ensure the protection of consumer rights and the
existence of fair competition in the industry at all times.
An efficient credit information system will also enable financial institutions to
reduce their over-all credit risk, contributing to a healthier and more stable
financial system.

Section 3. Definition of Terms. - For purposes of this Act:

(a) "Accessing Entity" refers to any submitting entity or any other entity
authorized by the Corporation to access basic credit data from the
Corporation.

(b) "Basic Credit Data" refers to positive and negative information provided by
a borrower to a submitting entity in connection with the application for and
availment of a credit facility and any information on the borrower’s
creditworthiness in the possession of the submitting entity and other factual
and objective information related or relevant thereto in the submitting entity’s
data files or that of other sources of information: Provided, that in the absence
of a written waiver duly accomplished by the borrower, basic credit data shall
exclude confidential information on bank deposits and/or clients funds under
Republic Act No. 1405 (Law on Secrecy of Bank Deposits), Republic Act No.

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

6426 (The Foreign Currency Deposit Act), Republic Act No. 8791 (The General
Banking Law of 2000), Republic Act No. 9160 (Anti-Money Laundering Law)
and their amendatory laws.

(c) "Borrower" refers to a natural or juridical person, including any local

government unit (LGU), its subsidiaries and affiliates, that applies for and/or
avails of a credit facility.

(d) "BSP" refers to the Bangko Sentral ng Pilipinas, created under Republic
Act No.7653.

(e) "Corporation" refers to the Credit Information Corporation established

under Section 5 of this Act.

(f) "Credit facility" refers to any loan, credit line, guarantee or any other form
of financial accommodation from a submitting entity: Provided, That for
purposes of this Act, deposits in banks shall not be considered a credit facility
extended by the depositor in favor of the bank.

(g) "Credit Rating" refers to an opinion regarding the creditworthiness of a

borrower or of an issuer of debt security, using an established and defined
ranking system.

(h) "Credit Report" refers to a summary of consolidated and evaluated

information on creditworthiness, credit standing, credit capacity, character
and general reputation of a borrower.

(i) "Government Lending Institutions" refers to existing and future government

(GFIs), government-owned and controlled corporations (GOCCs) primarilly
engaged in lending activities.
(j) "Negative Credit Information" refers to information/data concerning the
poor credit performance of borrowers such as, but not limited to, defaults on
loans, adverse court judgments relating to debts and reports on bankruptcy,
insolvency, petitions or orders on suspension of payments and corporate
rehabilitation.

(k) "Non-Accessing Entity" refers to an entity other than a Submitting Entity,

Special Accessing Entity or Borrower that is authorized by the Corporation to
access credit information from a Special Accessing Entity.

(l) "Outsource entity" refers to any accredited third party provider to whom
the Corporation may outsource the processing and consolidation of basic
credit data pertaining to a borrower or issuer of debt or convertible securities
under such qualifications, criteria and strict confidentiality guidelines that
the Corporation shall prescribe and duly publish.

(m) "Positive credit information" refers to information/data concerning the

credit performance of a borrower such as, but not limited to, information on
timely repayments or non-delinquency.

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

(n) "Relevant Government Agencies" refers to the Department of Finance,

Department of Trade and Industry, Bangko Sentral ng Pilipinas, Insurance
Commission and the Cooperative Development Authority.

(o) "SEC" refers to the Securities and Exchange Commission.

(p) "Special Accessing Entity" refers to a duly accredited private corporation

engaged primarily in the business of providing credit reports, ratings and
other similar credit information products and services.

(q) "Submitting Entity" refers to any entity that provides credit facilities such
as, but not limited to, banks, quasi-banks, trust entities, investment houses,
financing companies, cooperatives, nongovernmental, micro-financing
organizations, credit card companies, insurance companies and government
lending institutions.
Section 4. Establishment of the Credit Information System. - In furtherance
of the policy set forth in Section 2 of this Act, a credit information system is
hereby established.

(a) Banks, quasi-banks, their subsidiaries and affiliates, life insurance

companies, credit card companies and other entities that provide credit
facilities are required to submit basic credit data and updates thereon on a
regular basis to the Corporation.

(b) The Corporation may include other credit providers to be subject to

compulsory participation: Provided, That all other entities qualified to be
submitting entities may participate subject to their acceptance by the
Corporation: Provided, further, That, in all cases, participation under the
system shall be in accordance with such standards and rules that the SEC in
coordination with the relevant government agencies my prescribe.

(c) Participating submitting entities are required to submit to the Corporation

any negative and positive credit information that tends to update and/or
correct the credit status of borrowers. The Corporation shall fix the time
interval for such submission: Provided, that such interval shall not be less
than fifteen (15) working days but not more than thirty (30) working days.

submission: Provided, That such interval shall not be less than fifteen (15)
working days but not more than thirty (30) working days.

(d) The Corporation should regularly collect basic credit data of borrowers at
least on a quarterly basis to correct/update the basic credit data of said
borrowers.
(e) The Corporation may also access credit and other relevant information
from government offices, judicial and administrative tribunals, prosecutorial
agencies and other related offices, as well as pension plans administered by
the government.

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Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

(f) Each submitting entity shall notify its borrowers of the former’s obligation
to submit basic credit data to the Corporation and the disclosure thereof to
the Corporation, subject to the provisions of this Act and the implementing
rules and regulations.

(g) The Corporation is in turn authorized to release consolidated basic credit

data on the borrower, subject to the provisions of Section 6 of this Act.

(h) The negative information on the borrower as contained in the credit history
files of borrowers should stay in the database of the Corporation unless
sooner corrected, for not more than three (3) years from and after the date
when the negative credit information was rectified through payment or
liquidation of the debt, or through settlement of debts through compromise
agreements or court decisions that exculpate the borrower from liability.
Negative information shall be corrected and updated within fifteen (15) days
from the time of payment, liquidation or settlement of debts.

(i) Special Accessing Entities shall be accredited by the Corporation in

accordance with such standards and rules as the SEC in coordination with
the relevant government agencies, may prescribe.

(j) Special accessing entities shall be entitled access to the Corporation’s pool
of consolidated basic credit data, subject to the provisions of Section s 6 and
7 of this Act and related implementing rules and regulations.

(k) Special accessing entities are prohibited from releasing basic credit data
received from the Corporation or credit reports and credit ratings derived from
the basic credit data received from the Corporation, to non-accessing entities
unless the written consent or

authorization has been obtained from the Borrower: Provided, however, That
in case the borrower is a local government unit (LGU) or its subsidiary or
affiliate, the special accessing entity may release credit information on the
LGU, its subsidiary or affiliate upon written request and payment of
reasonable fees by a constituent of the concerned LGU.

(l) Outsource Entities, which may process and consolidate basic credit data,
are absolutely prohibited from releasing such data received from the
Corporation other than to the Corporation itself.

(m) Accessing Entities shall hold strictly confidential any credit information
they receive from the Corporation.

(n) The borrower has the right to know the causes of refusal of the application
for credit facilities or services from a financial institution that uses basic
credit data as basis or ground for such a refusal.

(o) The borrower, for a reasonable fee, shall have, as a matter of right, ready
and immediate access to the credit information pertinent to the borrower. In
case of erroneous, incomplete or misleading credit information, the subject

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

borrower shall have the right to dispute the erroneous, incomplete, outdated
or misleading credit information before the Corporation. The Corporation
shall investigate and verify the disputed information within five (5) working
days from receipt of the complaint. If its accuracy cannot be verified and
cannot be proven, the disputed information shall be deleted. The borrower
and the accessing entities and special accessing entities who have received
such information shall be informed of the corresponding correction or removal
within five (5) working days. The Corporation should use a simplified dispute
resolution process to fast track the settlement/resolution of disputed credit
information. Denial of these borrowers’ rights, without justifiable reason, shall
entitle the borrower to indemnity.

Section 5. Establishment of the Central Credit Information Corporation. -

There is hereby created a Corporation which shall be known as the Credit
Information Corporation, whose primary purpose shall be to receive and
consolidate basic credit data, to act as a central registry or central repository
of credit information, and to provide access to reliable, standardized
information on credit history and financial condition of borrowers.

(a) The Corporation is hereby authorized to adopt, alter, and use a corporate
seal which shall be judicially noticed; to enter into contracts; to incur
liabilities; to lease or own real or personal property, and to sell or otherwise
dispose of the same; to sue and be sued; to compromise, condone or release
any liability and otherwise to do and perform any and all things that may be
necessary or proper to carry out the purposes of this Act.

(b) The authorized capital stock of the Corporation shall be Five hundred
million pesos (P500,000,000.00) which shall be divided into common and
preferred shares which shall be non-voting. The National Government shall
own and hold sixty percent (60%) of the common shares while the balance of
forty percent (40%) shall be owned by and held by qualified investors which
shall be limited to industry associations of banks, quasi-banks and other
credit related associations including associations of consumers. The amount
of Seventy-five million pesos (PhP75,000,000.00) shall be appropriated in the
General Appropriations Act for the subscription of common shares by the
National Government to represent its sixty percent (60%) equity share and the
amount of Fifty million pesos (PhP50,000,000.00) shall be subscribed and
paid up by such qualified investors in accordance with Section 5(d) hereof.

(c) The National Government may subscribe or purchase securities or

financial instrument that may be issued by the Corporation as a supplement
to capital.

(d) Equal equity participation in the Corporation shall be offered and held by
qualified private sector investors but in no case shall each of the qualified
investor represented by an association of banks, quasi-banks and other
credit-related associations including the associations of consumers have more
than ten percent (10%) each of the total common shares issued by the
Corporation.

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

(e) The SEC in coordination with relevant government agencies, shall

prescribe additional requirements for the establishment of the Corporation,
such as industry representation, capital structure, number of independent
directors, and the process for nominating directors, and such other
requirements to ensure consumer protection and free, fair and healthy
competition in the industry.

(f) The Chairman of the SEC shall be the Chairman of the Board of Directors
of the Corporation. Whenever the Chairman of the SEC is unable to attend a
meeting of the Board, he/she shall designate an Associate Commissioner of
the SEC to act as his/her alternate.

The powers and functions of the Corporation shall be exercised by a board of

directors composed of fifteen (15) members. The directors representing the
government shares shall be appointed by the President of the Philippines.

(g) The directors and principal officers of the Corporation, shall be qualified
by the "fit and proper" rule for bank directors and officers. To maintain the
quality of management of the Corporation and afford better protection to the
system and the public in general, the SEC in coordination with the relevant
government agencies, shall prescribe, pass upon and review the qualifications
and disqualifications of individuals elected or appointed directors of the
Corporation and disqualify those found unfit. After due notice to the board of
directors of the Corporation, the SEC may disqualify, suspend or remove any
director who commits or omits an act which render him unfit for the position.
In determining whether an individual is fit and proper to hold the position of
a director of the Corporation, due regard shall be given to his integrity,
experience, education, training and competence.
The members of the Board of Directors must be Filipino citizens and at least
thirty (30) years of age. In addition, they shall be persons of good moral
character, of unquestionable integrity, of known probity, and have attained
competence in the fields of law, finance, economics, computer science or
information technology. In addition to the disqualifications imposed by the
Corporation Code, as amended, no person shall be nominated by the national
government if he has been connected directly with a banking or financial
institution as a director or officer, or has substantial interest therein within
three (3) years prior to his appointment.

(h) The Board of Directors may appoint such officers and employees as are
not otherwise provided for in this Act, define their duties, fix their
compensations and impose disciplinary sanctions upon such officers and
employees, for cause. The salaries and other compensation of the officers and
employees of the Corporation shall be exempt from the Salary Standardization
Law. Appointments in the Corporation, except to those which are policy-
determining, primarily confidential or highly technical in nature, shall be
made only according to the Civil Service Law.

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Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

(i) The Corporation shall acquire and use state-of-the-art technology and
facilities in its operations to ensure its continuing competence and capability
to provide updated negative and positive credit information; to enable the
Corporation to relay credit information electronically as well as in writing to
those authorized to have access to the credit information system; and to
insure accuracy of collected, stored and disseminated credit information. The
Corporation shall implement a borrower’s identification system for the
purpose of consolidating credit information.

(j) The provisions of any general or special law to the contrary

notwithstanding, the importation by the Corporation of all equipment,
hardware or software, as well as all other equipment needed for its operations
shall be fully exempt from all customs duties and from all other taxes,
assessments and charges related to such importation.

(k) The Corporation shall have its principal place of business in Metro Manila,
but may maintain branches in such other places as the proper conduct of its
business may require.

(l) Any and all acquisition of goods and services by the Corporation shall be
subject to Procurement Laws.

(m) The national government shall continue to hold sixty percent (60%) of the
common shares for a period not to exceed five (5) years from the date of
commencement of operations of the Corporation. After the said period, the
national government shall dispose of at least twenty percent (20%) of its
stockholdings in the Corporation to qualified investors which shall be limited
to industry associations of banks, quasi-banks and other credit-related
associations, including associations of consumers. The national government
shall offer equal equity participation in the Corporation to all qualified
investors. When the ownership of the majority of the common voting shares
of the Corporation passes to private investors, the stockholders shall cause
the adoption and registration with the SEC of the amended articles of
incorporation within three (3) months from such transfer of ownership.

Section 6. Confidentiality of Credit Information. - The Corporation, the

submitting entities, the accessing entities, the outsource entities, the special
accessing entities and the duly authorized non-accessing entities shall hold
the credit information under strict confidentiality and shall use the same only
for the declared purpose of establishing the creditworthiness of the borrower.

Outsource entities which may process and consolidate basic credit data are
absolutely prohibited from releasing such data received from the Corporation
other than to the Corporation.

The accreditation of an accessing entity, a special entity and/or an outsource

entity which violates the confidentiality of, or which misuses, the credit
information accessed from the Corporation, may be suspended or revoked.

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

Any entity which violates this section may be barred access to the credit
information system and penalized pursuant to Section 11 of this Act.

The Corporation shall be authorized to release and disclose consolidated basic

credit data only to the Accessing Entities, the Special Accessing Entities, the
Outsource Entities and Borrowers. Basic Consolidated basic credit data
released to Accessing Entities shall be limited to those pertaining to existing
Borrowers or Borrowers with pending credit applications. Credit information
shall not be released to entities other than those enumerated under this
Section except upon order of the court.

Section 7. Educational Campaign. - A continuing nationwide educational

campaign shall be developed and undertaken by the Corporation to promote
the benefits of a credit information system to the economy; to create
awareness on the rights of consumers/borrowers to access their credit reports
collected, stored and disseminated by the Corporation; to disseminate the
rights of the borrowers to dispute any incorrect/inaccurate credit information
in the database file of the Corporation; to familiarize consumers of the
procedure in collecting, storing and disseminating credit information of
borrowers by the Corporation; and to brief consumers of other related
information.

Section 8. Rules and Regulations. - For purposes of creating a healthy balance

between the need for reliable credit information and safeguarding consumer
protection, ensuring free and healthy competition in the industry, the SEC,
in coordination with relevant government agencies and existing industry
stakeholders, shall issue the implementing rules and regulations (IRRs),
which shall be reviewed, revised and approved by the Oversight Committee to
ensure consistency and compliance with the provisions of this Act, embodying
among others:

a) The basic credit data shall be limited or confined in form and content
to an objective and factual information and shall exclude any subjective
information or opinion;

(b) Restrictions on the use and transfer of credit information;

(c) Rights of the borrowers to access their respective credit information

and to dispute the factual accuracy of such credit information;

(d) Requirements and standards for the establishment of the

Corporation including, but not limited to, ownership, industry,
representation, independent directors and process of nomination of
direction.

(e) Accreditation standards for submitting entities and special accessing

entities and non- accessing entities;

(f) Sanctions to be imposed by the Corporation on:

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Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

(i) The submitting entities for non-submission of reports and for delayed
and/or erroneous reporting;

(ii) Accessing entities, special accessing entities, outsource entities and duly
authorized non-accessing entities, for breaches of the confidentiality of
misuse of, the credit information obtained from the credit information system;
and

(iii) Violations of other applicable rules and regulations: Provided, That these
administrative sanctions shall be in the form of fines in amounts as may be
determined by the Corporation but in no case to exceed Thirty thousand pesos
(PhP30,000.00) a day for each violation, taking into consideration the
attendant circumstances, such as the nature and gravity of the violation or
irregularity. Imposition of administrative sanctions shall be without prejudice
to any criminal and other sanctions as may be applicable under this Act and
relevant laws;

(g) Suspension or cancellation of the rights of any Accessing Entity or Special

Accessing Entity to access Credit Information from the Corporation; Provided,
That the SEC in coordination with relevant government agencies and existing
industry stakeholders, may issue subsequent regulations consistent with the
IRR as approved by the Congressional Oversight Committee.

In addition, the SEC may regulate access to the credit information system as
well as the fees that shall be collected by the Corporation from the Accessing
and Special Accessing Entities, taking into consideration the policy of
lowering the cost of credit, promoting fair competition, and the need of the
Corporation to employ state-of-the-art technology; and

(h) The basic credit data about a borrower shall be limited to credit
information existing on the date of the enactment of this Act and thereafter.

Section 9. Congressional Oversight Committee. - There is hereby created a

congressional oversight committee, composed of seven (7) members from the
Senate and seven (7) members

from the House of Representatives. The Members from the Senate shall be
appointed by the Senate President with at least three (3) Senators
representing the minority. The Members of the House of Representatives shall
be appointed by the Speaker with at least three (3) members representing the
minority.

After the Oversight Committee approved the implementing rules and

regulations, it shall thereafter become functus officio, and therefore cease to
exist: Provided, That the Congress may revive the Congressional Oversight
Committee in case of a need for any major revision/s in the implementing
rules and regulations.

Section 10. Indemnity in Favor of the Corporation, its Officers and Employees.
- Unless the Corporation or any of its officers and employees is found liable

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Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

for any willful violation of this Act, bad faith, malice and/or gross negligence,
the Submitting Entities, Accessing Entities, Special Accessing Entities,
Outsource Entities and duly authorized non-accessing entities shall hold the
Corporation, its directors, officers and employees free and harmless to the
fullest extent permitted by law and shall indemnify them from any and all
liabilities, losses, claims, demands, damages, deficiencies, costs and expenses
of whatsoever kind and nature that may arise in connection with the
performance of their functions without prejudice to any criminal liability
under existing laws.

Section 11. Penalties. - Any person who willfully violates any of the provisions
of this Act or the rules and regulations promulgated by the SEC in
coordination with the relevant government agencies shall, upon conviction,
suffer a fine of not less than Fifty thousand pesos (PhP50,000.00). nor more
than One million pesos (PhP1,000,000.00) or imprisonment of not less than
one (1) year nor more than five (5) years, or both, at the discretion of the court.

Section 12. Inviolable Nature of the Secrecy of Bank Deposits and/or Client
Funds. - Pursuant to Republic Act No. 1405 (Law on Secrecy of Bank
Deposits), Republic Act No. 6426 (The Foreign Currency Deposit Act),
Republic Act No. 8791 (The General Banking Law of 2000), Republic Act No.
9160 (Anti-Money Laundering Law) and their amendatory laws, nothing in
this Act shall impair the secrecy of bank deposits and and/or client funds and
investments in government securities or funds.

Section 13. Annual Report. - The SEC shall submit an annual report to
Congress on the status of the implementation of this Act.

Sec. 14. Principal Government Agency. - The SEC shall be the lead
government agency to implement and enforce this Act. As lead agency, the
SEC shall consult and coordinate with other relevant government agencies in
the adoption of all rules and regulations for the full and effective
implementation and enforcement of this Act, taking into account the policy
objectives contained in Section 2 hereof.

Section 15. Separability Clause. - Should any provision of this Act or the
application thereof to any person or circumstance be held invalid, the other
provisions or sections of this Act shall not be affected thereby.

Section 16. Repealing Clause. - This Act repeals Presidential Decree No. 1941
in its entirety. All laws, decrees, executive orders, rules and regulations or
parts thereof which are inconsistent with this Act are hereby repealed,
amended or modified accordingly.
Section 17. Effectivity Clause. - This Act shall take effect fifteen (15) days
following its publication in the Official Gazette or in at least two (2)
newspapers of general circulation.

Approved

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

(Sgd.) PROSPERO C. NOGRALES (Sgd.) MANNY VILLAR

Speaker of the House of Representative President of the Senate

This Act which is a consolidation of Senate Bill No. 1881 and House Bill No.
4260 was finally passed by the Senate and the House of Representative on
September 1, 2008.

(Sgd.) MARILYN B. BARUA-YAP (Sgd.) EMMA LIRIO-REYES

Secretary General House of Representative Secretary of the Senate

Approved: OCT 31, 2008

(Sgd.) GLORIA MACAPAGAL-ARROYO

President of the Philippines

Suggested Reading:

BSP CIRCULAR NO. 855 SERIES OF 2014: Guidelines on Sound Credit Risk
Management Practices

References:
Mary S. Schaeffer Essentials of Credit, Collections, and Accounts Receivable
Miranda, Gregorio S. Credit and Collections 4th Ed. National Bookstore,
2002.
O’Brien, L. (2019, November 26). WHAT IS A CREDIT COLLECTIONS POLICY?
Lockstep Collect.https://anytimecollect.com/blog/credit-collections-
policy/Strategies for a More Effective Collections Policy. (n.d.). Dun &
Bradstreet. Retrieved January 27, 2021, from
https://www.dnb.com/resources/collections-policy.html
What is A Collection Policy? (n.d.). Level Set. Retrieved January 30, 2021,
from
https://www.levelset.com/blog/collection-policy-an-overview

“THERE’S NO SHORTAGE OF REMARKABLE IDEAS,

WHAT’S MISSING IS THE WILL TO EXECUTE THEM.”

— SETH GODIN

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 5

Course Code: Fin 106

Descriptive Title: Credit and Collections
Instructor: Rhea P. Cortez