§§ 4301B- 4303B.1 96.12.31

A. LOANS IN GENERAL

Section 4301B Loan Limits; Prohibited Loans. The following rules shall govern the limitations and prohibitions on loans by BLAs.

§ 4301B.1 Loan limits. No stockholder may borrow upon the security of real estate from any BLA having assets of P100,000 or more an amount in excess of ten percent (10%) of the total assets of the BLA, nor may such BLA make a loan upon any one (1) piece of real estate amounting to more than ten percent (10%) of the total assets of the association. In the case of a BLA having assets amounting to less than P100,000, no loan to any one (1) borrower and no loan upon any one (1) piece of real estate shall exceed P10,000.

§ 4301B.2 Prohibited loans. BLAs shall not make any loan upon property that is suitable for use only as theater, public hall, church, convent, school, club, hotel, garage, or other public building: Provided, however, That to facilitate the investment of the idle funds of a BLA, the Monetary Board may, in special instances, waive the provisions of this paragraph, in cases of public hall, school, hotel and other public buildings.

Sec. 4302B Loan Documentation; Security; Surrender of Pledged Shares

§ 4302B.1 Loan documentation. Every loan made by the BLA shall be properly evidenced by a note or other instrument in writing.

§ 4302B.2 Security. Every loan shall be secured by a first mortgage or deed of trust on unencumbered real estate and also by

the pledge to the association of shares of stock of the BLA the matured value of which shall at least equal the amount loaned: Provided, however, That loans may be made on the security of free shares pledged to the BLA for the payment of the loan in case, at the time the loan is made, the withdrawal value of such free shares under the by-laws shall exceed the amount borrowed and interest thereon for six (6) months.

§ 4302B.3 Surrender of pledged shares. In the discretion of the board of directors, a loan may be repaid by the surrender of pledged shares whose withdrawal value equals the amount loaned and all interest and fines due thereon.

Whenever a borrowing stockholder shall be three (3) months in arrears in the payment of his dues on stock or in the interest or premium or installments of premium on any loan, the whole loan, at the option of the / board of directors, shall become due and payable and the board may proceed by action to enforce collection upon the securities held by the BLA. The withdrawal value of all shares pledged as collateral security at the time of the commencement of the action shall be applied to the payment of the loan, and such shares from the time of such application shall be deemed surrendered to the BLA.

Sec. 4303B Interest and Other Charges The following rules shall govern the rates of interest and other charges on loans granted by BLAs.

§ 4303B.1 Rate ceilings. The rate of interest including commissions, premiums,

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§§ 4303B.1 - 4304B.2 96.12.31

fees and other charges on loans and forbearance of money, regardless of maturity and whether secured or unsecured, shall not be subject to any ceiling.

§ 43038.2 Interest in the absence of contract. The rate of interest for the loan or forbearance of any money, goods or credit and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve percent (12%) per annum.

§ 4303B.3 Escalation clause; when allowable. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the Monetary Board: Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board: Provided, further, That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest.

§ 4303B.4 Fixing of interest. The rates of interest on loans may be fixed in the bylaws or may be prescribed from time to time by the board of directors, subject to the provisions of the Usury Law and to any regulation which the Monetary Board may issue with respect thereto.

§ 4303B.5 Accrual of interest earned on loans. No interest income shall be accrued on past due accounts. Interest on past due accounts shall be taken up as income only when actual payments thereon are received.

Sec. 4304B Past Due Accounts

§ 4304B.1 Accounts considered past due. Loans granted by a BLA shall be considered past due if unpaid at maturity: Provided, That in the case of loans payable in installments, only the loan installment which is due and unpaid shall be considered past due.

The foregoing does not preclude the BLA's board of directors from exercising its option under Subsec. 4302B.3 to enforce collection on the whole loan after the borrowing stockholder shall have been in arrears for three (3) months in the payment of his dues on stock or in the interest or premium or installments of premium on any loan: Provided, That the loan declared due and demandable by the board of directors shall be considered past due thirty (30) days after notice to the borrower.

§ 43048.2 Write-off of loans as bad debts. The writing-off of loans by BLAs shall be governed by the following regulations.

a. The term loans shall include all types of credit accommodations granted to, and advances made by, the association, including interest thereon recorded in the books;

b. Writing-off of loans by an association shall be made not often than twice a year by its board of directors;

c. Notice/application for write-off of loans shall be submitted to the appropriate supervising and examining department of the BSP at least thirty (30) days prior to the intended date of write-off: Provided, That no such loans with an individual outstanding amount of P15,000 or more, as certified in said notice/application, shall be written-off without the prior approval of:

(1) The Monetary Board, in case of loans to directors and officers of the association, direct. or indirect; or

(2) The head of the appropriate supervising and examining department of the BSP, subject to confirmation by the

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Monetary Board, in the case of loans other than those mentioned in (1) above.

Sec. 4305B "Truth in Lending Act" Disclosure Requirements. BLAS are required to strictly adhere to the provisions of R.A. No. 3765, otherwise known as the "Truth in Lending Act", and shall make the true and effective cost of borrowing an integral part of every loan contract.

The following regulations shall apply to all BLAs engaged in the following types of credit transactions:

a. Any loan, mortgage, deed of trust, advance and discount;

b. Any conditional sales contract, any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract;

c. Any rental-purchase contract; d. Any contract or arrangement for the hire, bailment, or leasing of property;

e. Any option, demand, lien, pledge, or other claim against, or for delivery of, property or money;

f. Any purchase, or other acquisition of, or any credit upon the security of, any obligation or claim arising out of any of the foregoing; and

g. Any transaction or series of transactions having a similar purpose or effect.

The following categories of credit transactions are outside the scope of these regulations:

1. Credit transactions which do not involve the payment of any finance charge by the debtor; and

2. Credit transactions in which the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits, insurance contracts, sale of bonds,

etc.

§§ 4304B.2 - 4305B.1 96.12.31

§ 4305B.1 Definition of terms a. Person means any individual, partnership, corporation, association, or other organized group of persons, or the legal successor or representative of the foregoing, and includes the Philippine Government or any agency thereof, or any other government, or any of its political subdivisions, or any agency of the foregoing.

b. Cash price or delivered price, in case of trade transactions, is the amount of money which would constitute full payment upon delivery of the property (except money) or service purchased at the BLA's place of business. In the case of financial transactions, cash price represents the amount of money received by the debtor upon consummation of the credit transaction, net of finance charges collected at the time the credit is extended (if any).

C. Down payment represents the amount paid by the debtor at the time of the transaction in partial payment for the property or service purchased.

d. Trade-in represents the value of an asset, agreed upon by the BLA and debtor, given at the time of the transaction in partial payment for the property or service purchased.

e.

Non-finance charges correspond to the amounts advanced by the BLA for items normally associated with the ownership of the property or of the availment of the service purchased which are not incident to the extension of credit. For example, in the case of the purchase of an automobile on credit, the creditor may advance the insurance premium as well as the registration fee for the account of the debtor. f. Amount to be financed consists of the cash price plus non-finance charges less the amount of the down payment and value of the trade-in.

g. Finance charge represents the amount to be paid by the debtor incident to

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the extension of credit such as interest or discount, collection fee, credit investigation fee, attorney's fee, and other service charges. The total finance charge represents the difference between (i) the aggregate consideration (down payment plus installments) on the part of the debtor, and (ii) the sum of the cash price and non-finance charges.

h. Simple annual rate is the uniform percentage which represents the ratio, on an annual basis, between the finance charges and the amount to be financed.

In the case of single payment upon maturity, the simple annual rate (R), in percent is determined by the following method:

In cases where the credit matures in less than one (1) year (e.g., installment payments are required every month for six (6) months), the same formula will apply except that number of payments in a year would refer to the number of installment periods, as defined in the credit contract, as if the credit matures in one (1) year. For example, number of payments in a year would be twelve (12) for this purpose in cases where six (6) monthly installment payments are called for in the credit transaction1.

In cases where credit terms provide for premium or penalty charges depending on, say, the timeliness of the debtor's payments, the annual rate to be disclosed in writing shall be the rate for regular payments, i.e., the premium and penalty need not be taken into account in the determination of the annual rate. Such premium or penalty charges shall, however, be indicated in the credit contract.

§ 4305B.2 Information to be disclosed BLAS shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth the following information to be disclosed:

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;

C. The difference between the amounts set forth under Items a and b;

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 total amount to be financed; f. The finance charges expressed in terms of pesos and centavos; and

g. 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.

The contract covering the credit transaction, or any other document to be acknowledged and signed by the debtor, shall indicate the above seven (7) items of information. In addition, the contract or document shall specify additional charges, if any, which will be collected in case certain stipulations in the contract are not met by the debtor.

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