Banking Reviwer

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Group 4
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AMOUNT AND PURPOSE OF LOAN

What is a Loan?
A contract where one of the parties deliver to another,
either:
something not consumable so that the latter may use the
same for a certain time & return it
If the bank finds that the proceeds of

the loans and other credits accommodations
have been employed,
without its approval, for purposes other than those agreed
upon with the bank
it shall have the right to:
terminate the loan or other credits accommodations
and demand immediate repayment of the obligations (sec 39,

GBL)
REQUIREMENT FOR GRANT OF LOANS OR OTHER CREDIT

ACCOMMODATIONS
Before granting a loan and other credits accommodation,
a bank must ascertain that the debtor is capable of fulfilling
his commitments to the bank.
A bank shall grant loans and other credits accommodations

ONLY in amounts and for periods of time essential
for the effective completion of the operations to be financed.
Such grant of loans and other credit accommodations

shall be consistent with safe and sound banking practices.
Toward this end, a bank may demand from its credit applicant:
The Monetary Board then and now still prescribes, by

regulation, the conditions and limitations under which banks
may grant extensions or renewals of their
loans other credit accommodations.
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or other consumable thing upon the condition that the same

amount of the same kind and quality shall be paid.
A t t y .
The purpose of all loans and other credits accommodations

shall be stated in the application and in the contract between
the bank and the borrower.
1. A statement of their assets and liabilities

2. A statement of their income and expenditures
3. Such information as may be prescribed by law or by rules
and regulations of the Monetary Board
to enable the bank to properly evaluate the credit application
which includes the corresponding financial statements
submitted for taxation purposes to the Bureau of Internal
Revenue.
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A t t y .
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Should such statements prove to be false or innocent in any material

detail,
the bank may terminate any loan and other credit

accommodation granted on the basis of said statement and shall
have the right to demand immediate repayment or liquidation
of the obligation.
NOTE: Even in the absence of above provision in the GBL, the bank
the bank may still demand immediate repayment
NOTE: Micro-financing loans are small loans granted

to the basic sectors, as defined in the Social Reform and
Poverty Alleviation Act of 1997 (RA 8425),
because the borrower lost the benefit of the period as provided under
the Civil Code:
and other loans granted to the poor and low-income

households for their micro-enterprises and small business
so as to enable them to raise their income levels and improve
their living standards.
the debtor shall lose every right to make use of the period:
When after the obligation has been contracted he
becomes insolvent,
XPN: he gives guaranty or security for the debt
o
When he does not furnish to the creditor

the guaranties or securities which he has promised
When by his own acts he has impaired said guaranties or

securities after their establishment, and when through a
fortuitous event they disappear,
XPN: he immediately gives new ones equally
satisfactory
When the debtor violates any undertaking, in

consideration of which the creditor agreed to the period
When the debtor attempts to abscond (art. 1198 NCC)
In formulation the rules and regulations under this Section, of the

Monetary Board
shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic
sectors that are not covered by traditional collateral. (Sec 40,
GBL)
These loans are granted on the basis of the borrowers cash

flow and are typically unsecured.
REASONS FOR STRINGENT RULES IN GRANTING LOANS
Banking corporation a financial institution with the power to:

o Issue promissory notes intended to circulate as money
(a.k.a BANK NOTES);
o
Receive the money of others on general deposit form a

joint fund that shall be used by the institution for making
temporary loans and discounts, of dealing in bullion,
credits, and remission of money;
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With both powers, and with the privileges, in addition to

these basic powers, of receiving special deposits, and
making collection for the holders of negotiable paper, if
the institution sees fit to engage in such business.
S e c u r i t i e s
u n d e r
The business of a bank is one affected with public interest, for

which reason the bank should guard against loss due to
negligence or bad faith.
The Monetary Board

shall regulate the interest imposed on microfinance
borrowers by lending investors and similar lenders,
such as,
A bank and a financial institution engaged in the grant of loans is

expected to ascertain and verify the identities of the persons it
transacts business with.
the board may, by regulation, reduce the maximum ratios

established in Section 36 and 37 of this Act, or in special
cases, increase the maximum ratios established therein.
The Monetary Board may, similarly, in accordance with the

authority granted to it in Section 106 of the new Central Bank
Act and taking into account the requirements of the economy for
the effective utilization of long-term funds,
prescribe the maturities, as well as related terms and
conditions for various types of bank loans and other credit
accommodations.
Any change by the Board in the maximum maturities
shall apply only to loans and other credit accommodations
made after the date of such action.
In approving the loan of an applicant, the bank concerns itself

with proper information regarding its debtors.
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AUTHORITY TO PRESCRIBE TERMS AND CONDITIONS OF

LOANS AND OTHER CREDIT ACCOMODATIONS
In funding these businesses, the bank invest the

money it holds in trust of its depositors.
OTHER SECURITY REQUIREMENTS FOR BANK CREDITS.

The Monetary Board may, by regulation,
prescribe further security requirements to which the various
types of bank credits shall be subject, and, in accordance
with the authority granted to it in Section 106 of the New
Central Bank Act,
A t t y .
but not limited to, the unconscionable rates of interest

collected on salary loans and similar credit accommodations.
In this connection, Sec. 106 of the NCBA provides:
Required Security Against Bank Loans In order to promote liquidity and solvency of the banking system,
the Monetary Board may issue such regulations as it may deem
necessary with respect
to the maximum permissible maturities of the loans and
investments which the banks may make,
and the kind and amount of security to be required against
the various types of credit operations of the banks
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AMORTIZATION ON LOANS AND OTHER CREDIT

ACCOMODATIONS
The amortization schedule of bank loans and other credit
accommodations shall be adapted to the nature of the operations
to be financed.
In case of loans and other credit accommodations with maturities

of more than 5 years,
provisions must be made for periodic amortization payments,
but such payments must be made at least annually
When the borrowed funds are to be used for purposes

which do not initially produce revenues adequate for regular
amortization payments therefrom,
the bank may permit the initial amortization payment
to be deferred
until such time as said revenues are sufficient for such
purpose,
but in no case shall the initial amortization date be later than
5 years from the date on which the loan or other credit
accommodation is granted.
In case of loans and other credit accommodations to

microfinance sectors,
the schedule of loan amortization shall take into
consideration the projected cash flow of the borrower and
adopt this into the terms and conditions formulated by banks.
u n d e r
A t t y .
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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
Mention usury law
Escalation clauses are not void per se.
HOWEVER: one which grants the creditor an unbridled right

to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent
to an important modification in the agreement - is VOID.
Violate the principle of mutuality of contracts
Art. 1308 NCC: the contract must bind both contracting parties;
its validity or compliance cannot be left
to the will of one of them
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For a stipulation on an escalation clause to be valid, it should

specifically provide:
- That there can be an increase in interest
if increased by law or by the Monetary Board
-
It must include a provision for reduction

of the stipulated interest
in the event that the applicable maximum
rate of interest is reduced by law or by the
Monetary Board (de-escalation clause)
Effect of Annulment of Escalation Clause

General Rule:
In case the escalation clause is annulled,
the principal amount of the loan is subject
to the original or stipulated rate of interest.
u n d e r
A t t y .
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That obligations arising from contracts have the force of

law between the contracting parties
That there must be mutuality between the parties

based on their essential equality to which is repugnant
to have one party bound by the contract leaving the
other free therefrom.
Any contract which appears to be heavily weighed

in favor of one of the parties so as to lead to an unconscionable
result is VOID.
Any stipulation regarding the validity or compliance of the
contract
- which is left solely to the will of one of the
parties is likewise INVALID.
While the Usury Law ceiling on interest rates was lifted by
Circular No. 905,
Upon the maturity, the amount due is subject

to legal interest at the rate of 12% per annum
nothing in the said Circular grants lenders carte blanche authority

Exception:
Jurisprudence: even if there is no de-escalation clause,
the escalation clause is still valid
- if the creditor unilaterally and actually decreased
the interest charges whenever the rate of interest
is reduced by law or the Monetary Board.
UNILATERAL INCREASE OF RATES
The binding effect of any agreement between the parties to a
contract is premised on two settled principles:
to raise interest rates to levels which will either enslave their

borrowers or lead to a hemorrhaging of their assets.
Neither Circular No. 905 nor PD 1684 which further amended the
Usury Law, authorized either party to unilaterally raise the interest
rate without the others consent.
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INIQUITOUS, UNCINSIONABLE, AND EXORBIANT

INTEREST
CB Circular 905 sec. 1: the rate of interest, including
commissions, premiums, fees, and other charges, on a loan or
forbearance of any money, goods, or credits, regardless of
maturity and whether secured or unsecured, that may be charged
or collected by any person, whether natural or judicial, shall not
be subject to any ceiling prescribed under or pursuant to the
Usury Law
A t t y .
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LEGAL BASIS AND REQUISITES

Article 1278 of the Civil Code:
Compensation shall take place
when 2 persons, in their own right,
are creditors and debtors of each other.
In order that compensation may be proper, the following
must be established:
However the Supreme Court has held:

Interest which is iniquitious, unconscionable, and exorbitant
must be equitably reduced even if not usurious.
Such rate are void.
1. Both parties must be mutually creditors and debtors in their

own right and as principals;
2. Both debts must consist in sum of money or if consumable,
of the same kind or quality;
This is based on public policy and morals

3. Both debts are due;
PREPAYMENT OF LOANS AND OTHER CREDIT
ACCOMODATIONS
A borrower may at any time prior to the agreed maturity date prepay,
in whole or in part,
the unpaid balance of any bank loan and other credit
accommodation,
subject to such reasonable terms and conditions as may be
agreed upon between the bank and its borrower (Sec 45, GBL)
LEGAL COMPENSATION
Operates even against the will of the interested parties and even
without their consent. Such compensation takes place by operation of
law; its effect arise on the very day on which all requisites concur.
4. Both debts are liquidated and demandable; and

5. Neither debt must be retained in a controversy commenced
by third person and communicated with the debtor (neither
debt is garnished)*
*Article 1279 of the Civil Code
Section 46
Development Assistance Incentives
The Bangko Sentral

shall provide incentives to banks which without government
guarantee, extend loans to finance educational institutions,
cooperatives, hospitals and other medical services, socialized
or low-cost housing, local government with social content.
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Section 48
Renewal or Extension of loans and Other Credit
Accommodations.
The Monetary Board
May by regulation prescribe the conditions and limitations
under which a bank may grant extensions or renewals of its
loan and credit accommodations.
PESO LOANS, NOT AVAILABE TO NON-RSIDENTS

To curb undue Speculation in the foreign exchange market and
to further reinforce the memorandum that peso deposits should
be funded from inward foreign exchange remittance,
- the Monetary Board decided to prohibit banks
from extending peso loans to non-residents.
*OFWs are considered residents and accordingly, could avail of

peso loans from Philippine Banks for utilization in the Philippines.
Section 49. Provisions for losses and Write-Offs.

All debts due to any bank on which interest is past due and unpaid
for such periods as may be determined by the Monetary Board,
unless: the same are well-secured and in the process of
collection shall be considered bad debts within the
meaning of this Section.
The Monetary board may fix, by regulation or order in a specific
case, the amount of reserves for bad debts or doubtful accounts or
other contingencies.
Writing off of loans, other credit accommodations, advances and
other assets shall be subject to regulations issued by the Monetary
Board.
u n d e r
A t t y .
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INFLATION
The Sharp increase of money or credit or both without a
corresponding increase in business transaction.
There is inflation when there is an increase in the volume of money
and credit relative to available goods resulting in a substantial and
continuing rise in the general price level.
EXTRAORDINARY INFLATION OR DEFLATION

Extraordinary Inflation - exists when there is an unusual
decrease in the purchasing power of currency
and such decrease could not reasonably
or was manifestly beyond the contemplation
of the parties at the time of the obligation.
Extraordinary deflation involves an inverse situation
Article 1250 of the Civil Code:

In case an extraordinary inflation or deflation of the currency
stipulated should supervene,
o the value of the currency at the time of the establishment of
the obligation
o shall be the basis of payment,
unless: there is an agreement to the contrary
The burden of proving that there had been extraordinary inflation

and deflation in the currency is upon the party that alleged it.
Such circumstances must be proven by competent evidence, and
it cannot be merely presumed.
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For Extraordinary inflation or deflation to affect an obligation,

the following requisites must be proven:
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A t t y .
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Who are covered under the TRUTH IN LENDING ACT?

any creditor, which is defined as any person engaged in the
business of extending credit.
Jurisprudence: Ramos v. CA GR. 119872, July 7, 1997
1. That there was an official declaration of extraordinary inflation

of deflation by the Bangko Sentral ng Pilipinas (BSP)
2.
That the obligation was contractual in nature; and
3. That the parties expressly agreed to consider the effects of the

extraordinary inflation or deflation.
DISCLOSURE
A creditor, prior to the transaction, shall furnish in writing a clear
statement of:
Cash price / delivered price of the property or service to be
acquired;
Amounts, if any, to be credited as downpayment and/or trade-in
Difference between the amounts set forth under clauses (1) and
(2);
TRUTH LENDING ACT (T.I.L.A.)RA 3765: An act requiring

the disclosure of finance charges in connection with the
extension of credit
Policy
Protection from lack of awareness of the true cost of credit by
assuring a full disclosure of such cost (prevent uninformed use of
credit)
Purpose
Promote financial inclusion goals
Intensify consumer protection
Focus on transparency rather than interest cap
Facilitate healthy competition among financial institutions
The charges, individually, which are paid or to be paid by

borrowers in connection with the transaction but which are not
incident to the extension of credit;
Total amount to be financed;
Finance charge expressed in terms of pesos and centavos; and
Percentage that the finance bears to the amount to be financed
expressed as a simple annual rate on the outstanding unpaid
balance of the obligation
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DEFINITIONS
Credit any loan, mortgage, deed of trust, advance, or discount
Person - means any individual, partnership, corporation,
cooperative, or other organized group of persons, or the legal
successor or representative of the foregoing, and includes the
Philippine Government of any agency thereof, or any other
government, or any of its political subdivisions, or any agency of
the foregoing.
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 credit cooperatives 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).
Downpayment - represents the amount paid by the debtor at the
time of the transaction in partial payment for the property or
service purchased.
Trade-in represents the value of an asset, agreed upon by the
credit cooperative and debtor, given at the time of the transaction
in partial payment for the property or service purchased.
Non-finance charges correspond to the amounts advanced by
the credit cooperative 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.
u n d e r
A t t y .
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Finance charge - represents the amount to be paid by the debtor

incident to the extension of credit such as interest or discount,
collection fee, credit investigation fee, attorneys fee and other
service charges.
When and how should these information be furnished to the

debtor or borrower?
The information enumerated must be disclosed to the debtor or
borrower prior to the consummation of the transaction. The
information must be clearly stated in writing.
What is the effect on the obligation in case of violation to the

TRUTH IN LENDING ACT?
The contract or transaction remains VALID OR ENFORCEABLE,
subject to the penalties discussed on the next slides.
What are the penalties in case of violation?

Any creditor who violates the law
is liable in the amount of P100
or in an amount equal to twice the finance charged
required by such creditor in connection with such
transaction, whichever is the greater,
EXCEPT that such liability shall NOT exceed
P2,000 on any credit transaction.
The action must be brought WITHIN ONE YEAR from the date of
the occurrence of the violation.
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The creditor is also liable for reasonable attorneys fees and

court costs as determined by the court.
Any person who wilfully violates any provision of this law or

any regulation issued thereunder
shall be fined by not less than P1,000
but not more than P5,000
or imprisonment of not less than 6 months,
nor more than one year or both.
UPDATES - BSP CIRCULAR NO. 730

Section 3. Information to be disclosed
Subsection X307.2, MORB is hereby amended to read as follows:
" X307.2 Information to be disclosed. As a general rule, loan terms
shall be disclosed to all types of borrower.
For small business/retail/consumer credit, the following are the
minimum information to be disclosed (sample form in Appendix 19):
a. The total amount to be financed;
b. The finance charges expressed in terms of pesos and centavos;
c. The net proceeds of the loan; and
d. The percentage that the finance charge bears to the total amount to
be financed expressed as a simple annual rate or an effective annual
interest rate (EIR) as described in item h of Subsection X307.1. EIR
may also be quoted as a monthly rate in parallel with the quotation of
the contractual rate.
u n d e r
A t t y .
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Subsection X307.4, MORB is hereby amended to read as

follows:
Section 4 Posters " X307.4 Posters.
Banks shall post in conspicuous places in their principal place of
business and branches,
the information as contained in the revised format of
disclosure statement (Appendix 19), with further
enhancement through the Memorandum to All Banks to be
issued for the purpose.
The posters shall include an explicit notification that the
disclosure statement is a required attachment to the loan
contract and the customer has a right to demand a copy of
such disclosure.
Section 5. Appendix 19, MORB, Format of Disclosure Statement on
Loan/Credit Transaction, is hereby revised to reflect the present
industry practices, specifically targeted towards the small business,
retail and consumer loans, but still consistent with R.A. No. 3765.
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BSP CIRCULAR 755
u n d e r
A t t y .
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MEMORANDUM NO. M-2008-020
Coverage:
Entity with credit-granting facilities (CGEs) includes
corporations, organizations, partnerships and single proprietorship
registered with SEC and DTI
To
: ALL BANKS AND FINANCIAL INSTITUTIONS UNDER
BSP SUPERVISION
Registration: to build long term brand value, accountability and

transparency
The entities concerned shall post in conspicuous places in their

principal place of business and branches, the following:
a. Business name
b. Directors, Key Officers and Substantial Stockholders
c. Principal Place of Business
d. Notarize deed of undertaking for compliance
Subject :
R. A. No. 3765 (Truth in Lending Act)
a. an abstract of the provisions of R.A. No. 3765 in the form

prescribed by the Monetary Board which shall be reproduced in a
format sixty (60) cm. wide and seventy-five (75) cm. long (Annex
A); and
b. information regarding interest and other charges on loans such as:
1) type of loan;
e. Other documents required by BSP

2) simple annual rate of interest;
NOTE: Pursuant to Section 6 of said Act,

Any creditor who in connection with any credit transaction
fails to disclose to any person any information in violation of
this Act or any regulation issued thereunder
shall be liable to such person in the amount of P= 100 or in
an amount equal to twice the finance charged required by
such creditor in connection with such transaction,
whichever is greater, except that such liability shall not
exceed P= 2,000 on any credit transaction. x x x
3) manner of interest payment; i.e., whether collected in advance or

otherwise; and
4) other fees and charges imposed by the bank in connection with
the loan.
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JURISPRUDENCE:
BPI V SPOUSES YU (G.R. NO. 184122; JANUARY 20, 2010)
Sps. Yu loaned with BPI defaulted

Cannot pay interest, claim to be baseless
Both the RTC and CA decisions cited BPIs alleged violation of
the Truth in Lending Act and the ruling of the Court in New
Sampaguita Builders Construction, Inc. v. Philippine National
Bank to justify their deletion of the penalty charges. Section 4 of
the Truth in Lending
ISSUE: Whether the reference to the penalty charges in the
promissory note constitutes substantial compliance with the
disclosure requirement of the Truth in Lending Act.
In this case, although BPI failed to state the penalty charges in the
disclosure statement, the promissory note that the Yus signed, on the
same date as the disclosure statement, contained a penalty clause that
said: I/We jointly and severally, promise to further pay a late
payment charge on any overdue amount herein at the rate of 3% per
month. The promissory note is an acknowledgment of a debt and
commitment to repay it on the date and under the conditions that the
parties agreed on. It is a valid contract absent proof of acts which
might have vitiated consent.
u n d e r
A t t y .
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Foreclosure of Real Estate Mortgage

EXTRAJUDICAL FORCLOSURE
u n d e r
Act No. 3135
File application with Executive Judge through the Clerk of

Court
Under direction of Sheriff or Notary Public
PUBLIC AUCTION SALE AND REGISTRATION OF

CERTIFICATE OF SALE:
Conduct Public Auction Sale
Certificate of Sale issued to the highest bidder
Registration / Annotation in Register of Deeds
RIGHT OF REDEMPTION
1 year from registration/ annotation of certificate of sale
L l a g u n o 2 0 1 5 - 2 0 1 6
During Redemption period, Writ of Possession

discretionary/bond required
If Right of Redemption not exercised, consolidate title (issuance

of Deed of Sale)- mortgagor divested of all rights to the
property
After Redemption period, Writ of Possession - ministerial
Procedure:
A t t y .
General Rule:
Applicable ONLY to Extrajudicial Foreclosure
XPN:
Huerta Alba Resort Inc. v. CA Gr.No. 128567 (Sept 1, 2000)
Where the foreclosure is judicially effected, however, no equivalent
right of redemption exixts.
The law declares that a judicial foreclosure, when confirmed by an
order of the court
shall operate to divest the rights of all parties to the action
and to vest their rights in the purchaser, subject to such
redemption rights as may be allowed by law.
Sec 3 Rule 68 Allowed by Law
Mortgagor may redeem by paying amount due under the

mortgage with interest and costs
3 months OR Registration (which is earlier), IF:
- Mortgagor = Juridical Entuty
- Mortgagee = Bank
(Sec 47 GBL)
Example: PNB Charter and GBL

Mortgagee = PNB or BANK
1 year from registration of certificate of sale
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REDEMPTION AFTER STATUTORY PERIOD

Agreement to extend statutory period
A t t y .
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EQUITY OF REDEMPTION
Section 2, Rule 68 of the Rules of Court
(Foreclosure of Real Estate Mortgage)
Estoppel
Ibaan Rural Bank Inc. v. CA Gr.No.123817, Dec 17, 1999
- Due to silence and inaction of the bank,
Mortgagor was misled and made to believe that
he had 2 years to redeem
If period expired, redemption actually repurchase
Right of redemption is by force of law purchaser
compelled to re-sell property to mortgagor at foreclosure
sale price (price costs)
u n d e r
Repurchase carries no such obligation purchaser may or

may not re-sell property to mortgagor at whatever price.
JUDICIAL FORCLOSURE
90 to 120 days
after judgment has become final
Mortgagor given final opportunity to extinguish

obligation and retain ownership of property
In reality, any time
AFTER DEFULT but BEFORE
CONFIRMATION OF SALE
PUBLIC AUCTION SALE AND CONFIRMATION OF SALE

If Equity of redemption not exercised,
- Proceed with public auction sale
Certificate of Sale issued to highest bidder
Procedure:
Confirmation of Sale mortgagor divested of all rights to the

property
Rule 68 Rules of Court

Writ of Possession ministerial
Trial
Judgment Order to Pay
NOTE: Demand essential in order to constitute a
cause of action (No demand = no default)
Jurisprudence: Nuez v. GSIS Family Bank Gr.No. 163988 Nov 17, 2005
OTHER REMEDIES OF MORTGAGOR

Annulment of Mortgage
Sumerariz v. DBP, GR.No L-237664, Dec 26, 1967
Action does not toll the running of the period for

redemption
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Challenge validity of Foreclosure Sale
and shall not bid or take part in any sale of such

real property in case of foreclosure:
Rosales v. CA GR.No, 137566 Feb 28, 2001
Offer to repurchase does not constitute a waiver to question

the sale
provided, that said mortgagee or successor in interest

may take possession of said property after default in
accordance with the prescribed judicial procedures for
foreclosure and receivership and in no case exceeding 5
years from actual possession.
Set aside Sale and Writ of Possession

Grounds: Mortage NOT violated or sale not made in
accordance with Act No. 3135
OTHER CONSIDERATIONS
Real Property may be mortgaged to aliens
(individuals or corporations)
In case of rehabilitation of a corporate debtor, right

of the Bank are merely suspended
Preferred status over unsecured creditors retained as regard

corporations in financial distress
Only enforcement is suspended
RA 133 (as amended by RA 4882)

"Section 1. Any provision of law to the contrary notwithstanding,
private real property
may be mortgaged in favor of any individual, corporation, or
association,
but the mortgage or his successor in interest,
if disqualified to acquire or hold lands of the public domain
in the Philippines,
- shall not take possession of the mortgaged property
during the existence of the mortgage
-
Metrobank v. ASB Holdings Inc., GR No. 166197

Feb 27, 2007
POLICY GENERAL BANKING LAW

Section 50. Major Investments. For the purpose of enhancing
bank supervision,
and shall not take possession of mortgaged property

except: after default and for the sole purpose of
foreclosure, receivership, enforcement or other
proceedings
and in no case for a period of more than 5 years
from actual possession
the Monetary Board shall establish criteria

- for reviewing major acquisitions or investments by a
bank including corporate affiliations or structures that
may expose the bank to undue risks or in any way hinder
effective supervision.
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Section 51. Ceiling on Investments in Certain Assets.

Any bank may acquire real estate
as shall be necessary for its own use in the conduct of its
business:
Provided, however,
That the total investment in such real estate and
improvements thereof, including bank equipment,
shall not exceed 50% of combined capital accounts:
Provided, further,
That the equity investment of a bank
In another corporation engaged primarily in real estate
- shall be considered as part of the bank's total
investment in real estate,
unless otherwise provided by the Monetary Board.
(25a)
NOTE: Rules provided in Sec X606.2 Manual of Regulations for
Banks (inclusions)
- Bank Premises + computation of total investment in
bank premises
- Real properties/ equipment purchased for officers and
employees use.
TALA REALTY SERVICES CORP V. BF SAVINGS AND MORTGAGE GR NO.
143263 JAN 29, 2004
FACTS:
BF REACHED ALLOWABLE LIMIT
MAJOR STOCKHOLDERS FORMED CORPORATION (TALA) TO
PURCHASE EXIXSTING BANK SITES, THEN LEASE BACK TO BF
BF DEFAULTED IN PAYMENT OF RENTS
TALA SUED TO COLLECT
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A t t y .
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BF CITED ARRAGEMENT AS A DEFENSE
ISSUE: WHETHER TALA CAN COLLECT

RULING: NO
PARI DELICTO
ARRANGEMENT INTENDED TO CIRCUMVENT LAW PROPOSED AND
PARTICIPATED IN BY BOTH PARTIES .
SECTION 52. Acquisition of Real Estate by Way of Satisfaction of

Claims.
Notwithstanding the limitations of the preceding Section,
a bank may acquire, hold or convey real property under the
following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way
of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts
previously contracted in the course of its dealings; or
52.3. Such as it shall purchase at sales under judgments,
decrees, mortgages, or trust deeds held by it and such as it
shall purchase to secure debts due it.
Any real property acquired or held under the circumstances
enumerated in the above paragraph shall be disposed of by the bank
within a period of 5 years or as may be prescribed by the Monetary
Board:
Provided, however, That the bank may, after said period, continue to
hold the property for its own use, subject to the limitations of the
preceding Section. (50%)
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Group 5
OTHER BANKING FUNCTIONS

1. Receive in custody funds, documents and valuable objects.
2. Acts as financial agents and buy and sell,
by order and for the account of their customers, shares,
evidence of indebtedness and all types of securities.
2 keys = the guard key banks, the renters key
3. Make collections and payments for account of others and
perform such other services for their customers as are not
incompatible with banking business.
4. Act as managing agent, adviser, consultant or administrator of
investment management/ advisory/ consultancy accounts.
Jurisprudence: LUZAN SIA V. CA GR.No. 102970, May 13, 1993

Sia vs. Court of Appeals G.R. No. 102970, May 13, 1990
MARCH 16, 2014 LEAVE A COMMENT
SAFETY DEPOSIT BOX
Contract of the use of a safety deposit box of a bank is not a deposit

but a lease under Sec 72, A of General Banking Act. Accordingly, it
should have lost no time in notifying the petitioner in order that the
box could have been opened to retrieve the stamps, thus saving the
same from further deterioration and loss. The banks negligence
aggravated the injury or damage to the stamp collection.
A safety deposit box, is an individually secured container, usually

held within a larger sage or bank vault.
Facts:
5. Rent out safety deposit boxes.
Special kind of deposit

Not an ordinary contract of lease
Full and absolute control not given to renters
Guard key remains with the bank
Without it, renters can not open the box
Relation between renting out SDB and renter as to the contents
of the box --BAILOR AND BAILEE, the bailment being for hire and
mutual benefit of both parties.
DUTIES may be defined by the parties contractual
Plaintiff Luzon Sia rented a safety deposit box of Security

Bank and Trust Co. (Security Bank) at its Binondo Branch
wherein he placed his collection of stamps. The said safety
deposit box leased by the plaintiff was at the bottom or at the
lowest level of the safety deposit boxes of the defendant
bank. During the floods that took place in 1985 and 1986,
floodwater entered into the defendant banks premises,
seeped into the safety deposit box leased by the plaintiff and
caused, according damage to his stamps collection. Security
Bank rejected the plaintiffs claim for compensation for his
damaged stamps collection.
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Sia, thereafter, instituted an action for damages against the defendant

bank. Security Bank contended that its contract with the Sia over
safety deposit box was one of lease and not of deposit and, therefore,
governed by the lease agreement which should be the applicable law;
the destruction of the plaintiffs stamps collection was due to a
calamity beyond obligation on its part to notify the plaintiff about the
floodwaters that inundated its premises at Binondo branch which
allegedly seeped into the safety deposit box leased to the plaintiff.
The trial court rendered in favor of plaintiff Sia and ordered Sia to
pay damages.
In this respect, it failed to exercise the reasonable care and prudence

expected of a good father of a family, thereby becoming a party to
the aggravation of the injury or loss.
Issue:
The provisions contended by Security Bank in the lease agreement

which are meant to exempt SBTC from any liability for damage, loss
or destruction of the contents of the safety deposit box which may
arise from its own agents fraud, negligence or delay must be
stricken down for being contrary to law and public policy.
Held:
Whether or not the Bank is liable for negligence.

YES, THE BANK WAS GUILT OF NEGLIGENCE
Contract of the use of a safety deposit box of a bank is not a
deposit but a lease. Section 72 of the General Banking Act
[R.A. 337, as amended] pertinently provides: In addition to
the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations
may perform the following services (a) Receive in custody
funds, documents, and valuable objects, and rent safety
deposit boxes for the safequarding of such effects.
As correctly held by the trial court, Security Bank was guilty
of negligence. The banks negligence aggravated the injury
or damage to the stamp collection.
SBTC was aware of the floods of 1985 and 1986; it also
knew that the floodwaters inundated the room where the safe
deposit box was located. In view thereof, it should have lost
no time in notifying the petitioner in order that the box could
have been opened to retrieve the stamps, thus saving the
same from further deterioration and loss.
Accordingly, the aforementioned fourth characteristic of a fortuitous

event is absent. Article 1170 of the Civil Code, which reads Those
who in the performance of their obligation are guilty of fraud,
negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages is applicable. Hence, the
petition was granted.
ELECTRONIC TRANSACTIONS
SECTION 59. Authority to Regulate Electronic Transactions.
The Bangko Sentral shall have full authority
to regulate the use of electronic devices, such as computers,
and processes for recording, storing and transmitting
information or data in connection with the operations of a
bank, quasi-bank or trust entity, including the delivery of
services and products to customers by such entity.
Part 7, Electronic Banking Services and Operations MORB Section

X701 requires: Section X701 (2008 - X621) Electronic Banking
Services.
The following are the guidelines concerning electronic banking
activities. X701.1 (2008 - X621.1)
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Application Banks wishing to provide and/or enhance existing

electronic banking services shall submit to the BSP an application
describing the services to be offered/enhanced and how it fits the
banks overall strategy.
This shall be accompanied by a certification signed

by its president or any officer of equivalent rank and
function
to the effect that the bank has complied
with the following minimum pre-conditions:
a. An adequate risk management process is in place

to assess, control, monitor and respond
to potential risks arising from the proposed electronic
banking activities;
b. A manual on corporate security policy and procedures exists
that shall address all security issues affecting its electronic
banking system, particularly the following:
(1) Authentication - establishes the identity of both the
sender and the receiver; uses trusted third parties that verify
identities in cyberspace;
(2) Non-repudiation - ensures that transactions cannot be
repudiated or presents undeniable proof of participation by
both the sender and the receiver in a transaction;
(3) Authorization - establishes and enforces the access rights
of entities (both persons and/or devices) to specified
computing resources and application functions; also locks
out unauthorized entities from physical and logical access to
the secured systems;
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(4) Integrity - assures that data have not been altered; and
(5) Confidentiality - assures that no one except the sender
and the receiver of the data can actually understand the data.
c. The system had been tested prior to its implementation and that the
test results are satisfactory. As a minimum standard, appropriate
systems testing and user acceptance testing should have been
conducted; and
d. A business continuity planning process and manuals have been
adopted which should include a section on electronic banking
channels and systems.
OUTSOURCING OF INFORMATION TECHNOLOGY

SYSTEM/ PROCESSES
BSP Cir. No. 765, series of 2012; Section X162 of MORB:
Statement of Principle of Outsourcing.
An institution may outsource banking support and marketing
activities subject to the provisions set forth below. As such, an
institution that avails of outsourcing should have in place appropriate
mechanisms to ensure the effective management of attendant risks.
Outsourcing
Any contractual agreement between a bank and a qualified
service provider for the latter to perform designated activities on a
continuing basis on behalf of the bank.
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Prohibition against outsourcing of inherent banking functions:

1. Services associated with
placement of deposits and withdrawals,
recognition based on recording of movements
in the deposit accounts.
2. Granting of loans and extension of other credit exposures.
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under conditions of fair and sound consumer credit practices.

The Bangko Sentral likewise
encourages competition and transparency to ensure more efficient
delivery of services and fair dealings with customers.
Towards this end, the following rules and regulations shall govern
the credit card operations of banks and subsidiary/affiliate
credit card companies, aligned with global best practices.
3. Position-taking and market risk-taking activities.

CREDIT CARD TRANSACTIONS
4. Managing of risk exposures.
5. Strategic decision-making.
Allowed with prior approval of MB
1. Data imaging, storage, retrieval and other related systems
2. Clearing and processing of checks not included in
Philippine Clearing House Systems
3. Printing of bank deposit statements, bank loan statements
and other non-deposit records, bank form etc.
4. Credit investigation and collection
5. Janitorial, procurement, legal services
6. Other services not inherent to banking functions
CREDIT CARD TRANSACTIONS
X320.1 Definition of terms

a. Credit card.
Means any card, plate, coupon book or other credit device existing
for the purpose of obtaining money, property, labor or services on
credit.
b. Credit card receivables.
Represents the total outstanding balance
of credit cardholders
arising from purchases of goods and services, cash advances,
annual membership/renewal fees as well as interest,
penalties, insurance fees, processing/service fees and other
charges.
c. Minimum amount due or minimum
payment required.
Means the minimum amount that the credit cardholder
needs to pay on or before the payment due date
Sec. X320 Credit Card Operations; General Policy.

The Bangko Sentral
shall foster the development of consumer credit through
innovative products such as credit cards
for a particular billing period/cycle as defined

under the terms and conditions or reminders
stated in the statement of account billing
statement which may include:
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(1) total outstanding balance multiplied by the required payment

percentage or a fixed amount whichever is higher;
(2) any amount which is part of any fixed monthly
installment that is charged to the card;
(3) any amount in excess of the credit line;
and
(4) all past due amounts, if any.
d. Default or delinquency.
Shall mean non-payment of, or payment of
any amount less than,
the Minimum Amount Due or Minimum Payment Required
within (2) cycle dates, in which case,
the Total Amount Due
for the particular billing period as reflected in the monthly
statement of account may be considered
in default or delinquent.
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outstanding voting stock of which

is directly or indirectly owned, controlled or held
with the power to vote by a bank or other FI.
g. Affiliate
refers to an entity linked directly or indirectly to a bank or other FI
through any one or a combination of any of the following:
(1) Ownership, control or power
to vote, whether by permanent or temporary proxy
or voting trust, or other similar contracts,
by a bank or other financial institution
of at least (10%) or more of the outstanding voting stock of the
entity, or vice-versa;
(2) Interlocking directorship or

officership,
except in cases involving independent directors as defined
under existing regulations;
(3) Common stockholders owning at least (10%)

of the outstanding voting stock of each FI and the entity; or
e. Acceleration clause.
Shall mean any provision in the contract
between the bank and the cardholder
that gives the bank the right to demand the obligation in full in case
of default or non-payment of any amount due or for whatever
valid reason.
f. Subsidiary refers to a corporation or

firm more than (50%) of the
(4) Management contract or any arrangement granting power

to the bank or other FI to direct or cause the direction of
management and policies of the entity, or vice-versa.
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h. Simple annual rate

is the uniform percentage which represents
the ratio between the finance charge
and the amount to be financed under the assumption
that the loan is payable in one (1) year
with single payment upon maturity
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i. Credit card acquirer

- refers to the institution that accepts and facilitates
The processing of the credit card transaction
which is initially accepted by the merchant.
j. Credit cardholder
- refers to a person who owns and benefits from
the use of a credit card.
and there are no upfront deductions to principal.
For loans with terms different from the

above assumptions,
the effective annual interest rate shall
be calculated and disclosed to the borrower as the relevant
true cost of the loan comparable to the concept of
simple annual rate.
For loans with contractual interest rates

stated on monthly basis, the effective interest
rate may be expressed as a monthly rate.
In accordance with the PAS definition,
effective interest rate
is the rate that exactly discounts estimated future
cash flows
k. Credit card business activity report

- report which contains the quantitative data
on credit card industry.
l. Credit card issuer- refers to a bank or

a corporation that offers the use of its credit
card.
m. Pre-approved credit cards are

unsolicited credit cards issued by credit card
issuers to consumers who have not applied
for such credit cards. Acts described under
Appendix 103 and other similar acts are
deemed tantamount to the act of issuing preapproved
credit cards, notwithstanding any
contrary stipulations in the contract.
through the life of the loan to the net amount

of loan proceeds.
For consistency,methodology and standards for discounted
cash flow models shall be prescribed to be used for the purpose.
n. Application is a documented request

of the credit card applicant to a credit card
issuer for the availment of a credit card. The
intention and consent for the availment of
the credit card must be clear and explicit.
(As amended by Circular Nos. 845 dated 15 August 2014,
812 dated 23 September 2013 and 754 dated 17 April 2012)
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RISK MANAGEMENT SYSTEM

X320.2 Risk management system.
To safeguard their interests, banks and subsidiary/affiliate credit card
companies are required
to establish an appropriate system for managing risk exposures
from credit card operations which shall be documented in a complete
and concise manner.
The risk management system shall cover the organizational set-up,

records and reports, accounting, policies and procedures and internal
control.
Written policies, procedures and internal control guidelines shall
be established on the following aspects of credit card operations:
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9. Collection of past due accounts;

10. Handling of accounts for write-off;
11. Suspension, cancellation and
withdrawal or termination of card;
12. Renewal of cards, upgrade or
downgrade of credit limit;
13. Lost or stolen cards and their
replacement;
14. Accounts of DOSRI and employees;
1. Requirements for application;
15. Disposition of errors and/or questions

about the billing statement/statement of account
and other customerscomplaints; and
2. Solicitation and application

processing;
16. Dealings with marketing agents/

collection agents.
(As amended by Circular No. 702 dated 15 December 2010)
3. Determination and approval of credit

limits;
MINIMUN REQUIREMENTS
4. Issuance, distribution and activation

of cards;
X320.3 Minimum requirements

Banks and their subsidiary or affiliate credit cards companies
shall not issue pre-approved credit cards
5. Supplementary or extension cards;

6. Cash advances;
7. Billing and payments;
8. Deferred payment program or special
installment plans;
as provided under Appendix 103, notwithstanding any

contrary stipulations in the contract.
(As amended by Circular Nos.845 dated 15 August 2014 and
702 dated 15 December 2010)
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INFORMATION TO BE DISCLOSED TO THE CARDHOLDER

IN THE AGREEMENT OR CONTRACT
X320.4 Information to be disclosed
Banks or their subsidiaries/affiliate creditcard companies
shall disclose to each person to whom the credit card privilege

is extended in the agreement, contract or any equivalent
document governing the issuance or use of the credit card or
any amendment thereto or in such other statement
furnished the cardholder from time to time,
prior to the imposition of the charges and to the extent
applicable, the following information:
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d. for installment loans,

the number of installments, amount
and due dates or periods of payment schedules
to repay the indebtedness;
e. the default, late payment/penalty fees

or similar delinquency-related charges payable
in the event of late payments;
f. the conditions under which interest

may be imposed, including the time period,
within which any credit extended may be
repaid without interest;
a. the finance charges, individually

itemized, which are paid or to be paid by the cardholder;
b. 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;
c. the percentage that the finance charge bears

to the total amount to be financed expressed
as a simple annual rate or an annual effective interest rate, as
described in Item h of Subsec. X320.1. EIR may also
be quoted as a monthly rate in parallel with the quotation of
the contractual rate;
g. the method of determining

the balance upon which interest and/or delinquency
charges may be imposed;
h. 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;
i. where one (1) 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; and
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j. 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 customers transactions shall also be disclosed.
Banks and their subsidiary or affiliate credit card companies shall

also provide the following information to their cardholders:
1. A table of the applicable fees, penalties and interest rates
on credit card transactions,
including the period covered by and the manner of and
reason for the imposition of such penalties, fees and
interests;
fees and applicable conversion reference rates for third
currency transactions, in plain sight and language, on
materials for marketing credit cards, such as brochures, flyers,
primers and advertising materials, on credit card application
forms,and on credit card billing statements:
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Provided, That these disclosures are in

addition to the full disclosure of the fees, charges and
interest rates in the terms and conditions of the credit card
agreement found elsewhere on the application form
and billing statement; and
2. A reminder to the cardholder

in the monthly billing statement,
or its equivalent document,
that payment of only the minimum amount due or any
amount less han the total amount due for the billing
cycle/period, would mean the imposition
of interest and/or other charges:
Provided, That such table of fees, penalties

and interest rates and reminder shall be printed in plain
language and in bold black letters against a light or white
background,
and using the minimum Arial 12 theme font and size, or its
equivalent in readability, and on the first page, if applicable
document has more than one page.
Transitory provisions.
Banks and their subsidiary or affiliate credit card companies
shall be given a period of 120 days from 06
January 2011 to fully implement the
required disclosure requirements.
(As amended by Circular No. 754 dated 17 April 2012 and
Circular No. 702 dated 15 December 2010)
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INTEREST ON PAST DUE LOANS

X320.5 Interest accrual on past due loans.
Interest income on past due loans
arising from discount amortization (and not
from the contractual interest of the accounts)
shall be accrued as provided in PAS 39.
FINANCE CHARGES
X320.7 (2011- X320.6) Finance charges.
The amount of finance charges in connection
with any credit card transaction charged
to the cardholder includes interest, fees, service charges, discounts,
and such other charges incident to the extension of credit.
(As amended by Circular No. 754 dated 17 April 2012)
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o Provided, further, That said late payment or

penalty fees may be based on the total outstanding balance of the
credit card obligation,
including amounts payable under installment term or
deferred payment schemes,
if the contract between the issuer and the cardholder contains
an acceleration clause and the total outstanding balance of
the credit card is classified and reported as past due.
(As amended by Circular No. 754 dated 17 April 2012
CONFIDENTIALITY OF INFORMATIONS
X320.10 (2011-X320.9)Confidentiality of information.
Banks and subsidiary affiliate credit card companies
shall keep strictly confidential the data
on the cardholder or consumer,
LATE PAYMENT/ PENALTY FEE

except under the following circumstances:
X320.9 (2011- X320.8) Late payment/ penalty fees.
No late payment or penalty fee
shall be collected from cardholders
unless:
o
the collection thereof is fully disclosed

in the contract between the issuer and the cardholder:
Provided, That late payment or penalty fees

shall be based on the unpaid minimum amount due
or a prescribed minimum fixed amount:
a. disclosure of information
is with the consent of the cardholder or consumer;
b. release, submission or exchange of customer information

with other financial institutions, credit information bureaus,
credit card issuers, their subsidiaries and affiliates;
c. 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;
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d. disclosure to collection agencies,

counsels and other agents of the bank or card company
to enforce its rights against the cardholder;
e. 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
f. 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.
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a provision authorizing the

issuer to suspend or terminate its effectivity,
if circumstances warrant.
INSPECTION OF RECORDS COVERING CREDIT CARD

TRANSACTIONS
X320.12 (2011- X320.11) Inspection of records covering credit
card transactions.
Banks or their subsidiary/ affiliate credit card companies
shall make available for inspection or examination
by the appropriate department of the SES
complete and accurate files on card applicant/cardholder
to support the consideration for approval of the application
and determination of the credit limit
which shall be in accordance with the verified debt
repayment ability and/or net worth of the
card applicant/cardholder.
SUSPENSION, TERMINATION OF EFFECTIVITY AND

REACTIVATION
X320.11 (2011- X320.10) Suspension, termination
of effectivity and reactivation.
Banks or their subsidiary/affiliate credit card companies
shall formulate criteria or parameters for suspension, revocation
and reactivation
of the right to use the card and
shall include in their contract with cardholders
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HANDLING OF COMPLAINTS
X320.14 (2011- X320.13) Handling of complaints.
Banks or subsidiary affiliate credit card companies
shall give cardholders
at least (20) calendar days

from statement date to examine charges posted in his/her
statement of account
and inform the bank/ subsidiary credit card companies in writing

of any billing error or discrepancy.
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Nothing in this Subsection

shall be construed to prohibit any action by
the bank/subsidiary credit card company
o to collect any amount which has not been
indicated by the cardholder
to contain a billing error or apply against the credit limit
of the cardholder the amount indicated to
be in error.
COLLECTION PRACTICES
X320.15 (2011-X320.14) Unfair collection practices.
Within (10) calendar days from receipt

of such written notice,
the bank/subsidiary credit card company
shall send a written acknowledgment
Banks, subsidiary/ affiliate credit card companies, collection

agencies, counsels and other agents may
to the cardholder
resort to all reasonable and legally permissible means

to collect amounts due them under the credit card agreement:
unless: the action required is taken within such

(10)-day period.
Provided, That in the exercise of their rights and performance of

duties, they must observe good faith and reasonable conduct
Not later than (2) billing cycles or (2) months

which in no case shall exceed (90) days
after receipt of the notice
and prior to taking any action to collect the contested
amount, or any part thereof,
banks/subsidiary credit card companies
o shall make appropriate corrections in their records and/or
send a written explanation or clarification to the
cardholder after conducting an investigation.
and refrain from engaging in unscrupulous or untoward acts.
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UNFAIR COLLECTION PRACTICES

Without limiting the general application of the foregoing,
The following conduct is a violation of this Subsection:
a. the use or threat of violence
or other criminal means to harm
the physical person, reputation, or property of any person;
b. the use of obscenities, insults, or profane language

which amount to a criminal act or offense
under applicable laws;
c. disclosure of the names of credit cardholders

who allegedly refuse to pay debts,
except as allowed under Subsec. X320.9;
d. threat to take any action that cannot

legally be taken;
e. communicating or threat to communicate

to any person credit information
which is known to be false, including failure
to communicate that a debt is being disputed;
f. any false representation or deceptive means

to collect or attempt to collect any debt
or to obtain information concerning a cardholder; and
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g. making contact at unreasonable/ inconvenient times or hours

which shall be defined as
contact before 6:00 A.M.
or after 10:00 P.M., unless the account is past due for
more than sixty (60) days or the cardholder.
WHAT WE SHOULD KNOW ABOUT CREDIT CARD
INTERESTS
On September 17, 2009, the Supreme Court in a landmark decision it
held in the case of Macalinao vs. BPI (G.R. No. 175490), declared as
void the credit card agreement between petitioner Macalinao and
respondent BPI mastercard, charging 3% monthly interest and an
additional penalty fee of 3% per month for late payments.
The Supreme Court even called said interest and penalty charges as
unconscionable and uniquitous, and therefore illegal.
In the words of the Supreme Court:We find for petitioner. We are of the opinion that the interest rate
and penalty charge of 3% per month should be equitably reduced to
2% per month or 24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and
Use of the BPI Credit Card, there was a stipulation on the 3%
interest rate. Nevertheless, it should be noted that this is not the first
time that this Court has considered the interest rate of 36% per
annum as excessive and unconscionable.
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We held in Chua vs. Timan:

The stipulated interest rates of 7% and 5% per month imposed on
respondents loans must be equitably reduced to 1% per month or
12% per annum.
We need not unsettle the principle we had affirmed in a plethora of
cases that stipulated interest rates of 3% per month and higher are
excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the
law. While C.B. Circular No. 905-82, which took effect on January
1, 1983, effectively removed the ceiling on interest rates for both
secured and unsecured loans, regardless of maturity, nothing in the
said circular could possibly be read as granting carte blanche
authority to lenders to raise interest rates to levels which would
either enslave their borrowers or lead to a hemorrhaging of their
assets.
Since the stipulation on the interest rate is void, it is as if there was
no express contract thereon. Hence, courts may reduce the interest
rate as reason and equity demand.
The same is true with respect to the penalty charge. Notably, under
the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card, it was also stated therein that respondent BPI shall
impose an additional penalty charge of 3% per month. Pertinently,
Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable.
In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of each case
since what may be iniquitous and unconscionable in one may be
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totally just and equitable in another.

The Supreme Court ruling in the Macalinao case as well as in earlier
cases on the issue of interest rates is very clear and emphatic that
interest rates of 3% per month and higher are iniquitous,
unconscionable, and exorbitant.
What then are the implications of the Supreme Court ruling in the
Macalinao case especially with regard to credit cardholders? Can
credit cardholders raise the decision in this case as a defense in cases
filed by credit card companies against them demanding the payment
of 3% monthly interest rate or more as stipulated between the credit
cardholder and the credit card company? Or is the ruling in the
Macalinao case a legal basis to compel Bangko Sentral ng Pilipinas
(BSP) to issue a Circular mandating credit card companies to reduce
both the monthly rate of interest and monthly penalty charges being
imposed on credit cardholders to one (1%) percent each? Can banks
now be compelled to reduce the interest rates to conform with the
rate of interest prescribed in the Macalinao case? (monthly interest
rate of 1% and monthly penalty rate of 1%)
The answer is NO. The Supreme Court in its decision in the
Macalinao did NOT order banks/credit card companies to reduce
their interest rates.
Simply because it is only Congress or the Bangko Sentral ng
Pilipinas (BSP) which can prescribe the rates of interest.
However, the credit cardholder can cite the ruling in the Macalinao
case in his/her reply in the event the credit card company sends a
demand letter or in his/her written answer to a complaint filed by the
credit card company. If in spite of the reply of the credit cardholder
to a demand letter of the credit card company (citing the Supreme
Court ruling in the Macalinao case), the credit card company decides
to file a complaint in court, the credit cardholder in his/her Answer to
the Complaint can again use the ruling in the Macalinao case to
strengthen his/her case.
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In the light of the above-quoted Supreme Court decision, legislation

is still the answer and the final solution to this perennial problem of
overcharging of credit card interests. Therefore, endorsing said bill
as an urgent measure of this administration is imperative. In the
meantime, credit cardholders who wish to question their respective
credit card interest charges have no other choice but to go through an
expensive legal battle to fight for their rights.
RULE ON PRICE TAGS/ LABELS
AND PROVODING PROHIBITION AGAINST
THE IMPOSITION OF A SURCHARGE, EXTRA CHARGE
OR ADDITIONAL CHARGE IN THE USE OF CREDIT/
ATM/ DEBIT CARDS FOR PAYMENT OR PURCHASE OF
PRODUCTS/ SERVICES
One price tag requirement clearly indicating the price plus
VAT, if vatable
Modes of payment and other price tag practices
Cash pay price indicated in the tag
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Payment using card/ ATM debit card no surcharge or

extra charge.
SECTION 54 GENERAL BANKING LAW.

Prohibition to Act as Insurer.
A bank shall not directly engage in insurance
business as the insurer.
The term doing an insurance business or transacting an insurance
business, shall include:
Making / proposing
to make as insurer, any insurance contract,
Making / proposing to make, as surety,

any contract or suretyship as vocation
and not as merely incidental to any other legitimate business
or activity;
Doing any kind of business,

Including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the
meaning of the Insurance Code; and
Doing or proposing to do any business substance equivalent to
any of the foregoing in a manner designed to evade the
provision of the Insurance Code.
ATM/credit card- pay price indicated in the tag
Consumer is given the option to pay cash, card or

installment payment option disclosed by way of
separate information.
Cash price tag not same and separate and regular price
tag not allowed.
Separate and different Cash price tag and card price tag
not allowed
The fact no profit is derived from the making of insurance

contracts, agreements or tansactions or that no separate or direct
consideration is received thereof,
shall not be deemed conclusive to show that the making thereof
does not constitute the doing or transacting of an insurance
business. (sec 2 (2) Insurance Code of the Philippines)
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SECTION 55. PROHIBITED TRANSACTIONS .

55.1. No director, officer, employee, or agent of any bank shall
(a) Make false entries in any bank report or statement or participate
in any fraudulent transaction,
thereby affecting the financial interest of,
or causing damage to, the bank or any person;
(b) Without order of a court of competent jurisdiction,

disclose to any unauthorized person any information relative
to the funds or properties
in the custody of the bank belonging to private individuals,
corporations, or any other entity:
Provided, That with respect to bank deposits, the
provisions of existing laws shall prevail;
(c) Accept gifts, fees or commissions

or any other form of remuneration in connection
with the approval of a loan or other credit accommodation
from said bank;
(d) Overvalue or aid in overvaluing any security

for the purpose of influencing in any way the actions
of the bank or any bank; or
(e) Outsource inherent banking functions.
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55.2. No borrower of a bank shall

(a) Fraudulently overvalue property offered as security
for a loan or other credit accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression
of material facts for the purpose
of obtaining, renewing, or increasing
a loan or other credit accommodation or extending
the period thereof;
(c) Attempt to defraud the said bank

in the event of a court action to recover
a loan or other credit accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift,
fee, commission, or any other form of compensation
in order to influence such persons into approving
a loan or other credit accommodation application.
55.3. No examiner, officer or employee

of the Bangko Sentral or of any department, bureau, office, branch
or agency of the Government
that is assigned
o to supervise, examine, assist or render technical
assistance to any bank
o
shall commit any of the acts enumerated in this Section

or aid in the commission of the same.
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(87-Aa) The making of false reports or misrepresentation or

suppression of material facts by personnel of the Bangko Sentral ng
Pilipinas
o shall constitute fraud
o
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56.2. The act or omission has resulted or may result

in material loss or damage or abnormal risk
to the institution's depositors, creditors, investors,
stockholders or to the Bangko Sentral or to the public in
general;
and shall be subject to the administrative and criminal

sanctions provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act No. 1405,

otherwise known as the Banks Secrecy Law,
no bank shall employ casual or non-regular personnel
or too lengthy probationary personnel in the conduct of its
business involving bank deposits.
SECTION 56. CONDUCTING BUSINESS IN AN UNSAFE OR

UNSOUND MANNER.
In determining whether a particular act or omission, which is not
otherwise prohibited by any law, rule or regulation affecting banks,
quasi-banks or trust entities,
may be deemed as conducting business in an unsafe or unsound
manner for purposes of this Section,
the Monetary Board shall consider any of the following
circumstances:
56.1. The act or omission has resulted or may result in
material loss or damage, or abnormal risk or danger
to the safety, stability, liquidity or solvency
of the institution;
56.3. The act or omission has caused any undue injury,

or has given any unwarranted benefits,
advantage or preference to the bank
or any party in the discharge by the director or officer
of his duties and responsibilities through manifest partiality,
evident bad faith or gross inexcusable negligence; or
56.4. The act or omission involves

entering into any contract or transaction
manifestly and grossly disadvantageous
to the bank, quasi-bank or trust entity,
whether or not the director or officer profited or will profit
thereby.
Whenever a bank, quasi-bank or trust entity
o persists in conducting its business
in an unsafe or unsound manner,
the Monetary Board may, without prejudice to the
administrative sanctions provided in Section 37 of the
New Central Bank Act,
o take action under Section 30 of the same Act
and/or immediately exclude the erring bank
from clearing, the provisions of law to the
contrary notwithstanding.
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V. Placement under conservatorship

Sec. 67 Conservatorship of the GBL
The grounds and procedures for placing a bank under
conservatorship, as well as,
the powers and duties of the conservator appointed for the bank
shall be governed by the provisions of Sec. 29 and the last 2
paragraphs of Sec. 30 of the New Central Bank Act
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Conservator merely takes place of board of directors

Conservator cannot simply repudiate valid obligations of the
bank
Authority, only to bring court actions to assail said contracts
Cessation of Banking Business
Grounds for appointment of consverator

Whenever Monetary Board finds bank or quasi-bank in the state of:
Continuing inability or
Unwillingness to maintain a condition of liquidity to protect
the interests of depositors and creditors
Monetary Board may appoint a conservator as necessary to:
Take charge of assets, liabilities and management
Reorganize management
Collect all monies and debts due
Exercise all powers necessary to restore viability
Conservator shall report to the Monetary Board and have the
power to revoke actions of previous management or board of
a bank or quasi-bank
Powers of Conservator Cannot Impair the Obligations of

Contracts
Powers do not extend to post-facto repudiation of perfected
transactions
Law merely gives the conservator power to revoke contracts that
are deemed to be defective under the law ex. Void, voidable,
unenforceable or rescissible
Voluntary Liquidation
No voluntary dissolution undertaken w/out prior
approval of Monetary Board, need for:
Written notice to Monetary Board
Liquidation plan
Receivership
o Monetary Board may summarily and without need for
prior hearing forbid an institution from doing business in
the Philippines and designate the Philippine Deposit
Insurance Corporation as receiver if bank or quasi-bank:
Is unable to pay its liabilities
Has insufficient realizable assets
Cannot continue business without probable loss to
depositors or creditors wilfully violated cease and
desist order that has become final
Receiver
Gather and take charge of all assets and liabilities of the
institution
Administer the same
Exercise the general powers
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Determine in not later than (90) days from take over whether the
institution should be rehabilitated or may resume business with
safety.
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If receiver determines that institution cannot be rehabilitated

Monetary Board shall notify the board of directors in
writing and direct receiver to proceed with liquidation
Close Now Hear Later Scheme

Law does not contemplate prior notice and hearing
before a bank may be directed to stop operations and be
placed under receivership
It is enough that subsequent judicial review be provided
To prevent unwarranted dissipation of bank assets
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Assets deemed in Custodia Legis

o Under receivership, bank officers are no longer
authorized to transact business in connection with the
banks assets and property
o
Receiver takes control and possession of its assets
Stay of Execution
Restriction of Banks Capacity to Act

Not able to do new business ex. Grant new loans or accept
new deposits
Bank still allowed to collect interests on its loans, receiving
collectibles, receivables or paying off creditors claims and
other transactions pertaining to normal bank operations
Foreclosure allowed
Reasons behind receivership

Valid exercise of police power to protect the financial
interests of the public
To maintain faith in the banking system and protect the

national economy
Exclusive Jurisdiction of Liquidation Court

Only regarding adjudication claims against the bank (not
vice-versa)
To prevent multiplicity of suits and for convenience
Effects of Receivership and Liquidation

Retention of Juridical Personality
o Can sue or be sued through liquidator
Not Liable to Pay Interest

o Cannot be held liable to pay interest on bank
deposits which accrued during the period when
the bank is actually closed and non-operational
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Disposition and Distribution of Assets
After payment of cost of proceedings, including reasonable

expenses and fees of the receiver,
the receiver shall pay such debts of the institution in accordance
with the preference of credit as provided in the Civil Code
All revenues and earnings realized by receiver in the winding up

affairs and administering of the assets shall be used to pay debts,
costs and fees
Bank is liable for acts of the receiver
Receiver is liable to the bank for culpable or negligible failure to

collect and safeguard bank assets
THREE LEVELS OF REHABILITATION

1. Conservatorship
2. Receivership
3. Liquidation
CONSERVATORSHIP: CONSERVATOR
With such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities, and the
management thereof, reorganize the management, collect all monies
and debts due said institution, and exercise all powers necessary to
restore its viability.
The conservator shall report and be responsible to the
Monetary Board and shall have the power to overrule or revoke
the actions of the previous management and board of directors of the
bank or quasi-bank.
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WHO CAN BE A CONSERVATOR?

The conservator should be competent and knowledgeable in
bank operations and management.
HOW LONG SHOULD THE CONSERVATORSHIP LAST?
The conservatorship shall not exceed one (1) year.
WOULD YOU WANT TO BE A CONSERVATOR? HOW IS A
CONSERVATOR COMPENSATED?
The conservator shall receive remuneration to be fixed by the
Monetary Board in an amount not to exceed (2/3) of the salary of the
president of the institution in (1) year, payable in twelve (12) equal
monthly payments
Provided, That, if at any time within one-year period, the
conservatorship is terminated on the ground that the institution
can operate on its own, the conservator shall receive the
balance of the remuneration which he would have received up
to the end of the year; but if the conservatorship is
terminated on other grounds, the conservator shall not be
entitled to such remaining balance.
The Monetary Board may appoint a conservator connected with
the Bangko Sentral, in which case he shall not be entitled to
receive any remuneration or emolument from the Bangko
Sentral during the conservatorship. The expenses attendant to
the conservatorship shall be borne by the bank or quasi-bank
concerned.
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WHEN CAN THE MONETARY BOARD TERMINATE THE

CONSERVATORSHIP?
1. The Monetary Board shall terminate the conservatorship
when it is satisfied that the institution can continue to operate
on its own and the conservatorship is no longer necessary.
DUTIES OF RECEIVER
1. Gather and take charge of all the assets and liabilities of
the institution
2. The conservatorship shall likewise be terminated should the

Monetary Board, on the basis of the report of the conservator
or of its own findings, determine that the continuance in
business of the institution would involve probable loss to its
depositors or creditors, in which case the provisions of Section 30
shall apply.
3. Exercise the general powers of a receiver under the Revised

Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution: Provided,
That the receiver may deposit or place the funds of the
institution in non-speculative investments.
RECEIVERSHIP: RECEIVER
1. Unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not
include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
4. The receiver shall determine as soon as possible, but not later

than ninety (90) days from take over, whether the institution
may be rehabilitated or otherwise placed in such a condition so that it
may be permitted to resume business with safety to its depositors and
creditors and the general public.
2. Has insufficient realizable assets, as determined by the

Bangko Sentral, to meet its liabilities; or
3. Cannot continue in business without involving probable
losses to its depositors or creditors; or
4. Has willfully violated a cease and desist order that has
become final, involving acts or transactions which amount to fraud
or a dissipation of the assets of the institution. *PDIC IS THE ONLY
RECEIVER.
WHY IS THE INTEREST OF PDIC IN LINE WITH THE BANK?
Failure on the part of the bank to pay means that they will pay
Upon payment, they will be subrogated to the rights of the debtor
2. Administer the same for the benefit of its creditors
LIQUIDATION: LIQUIDATOR (PDIC)

If the receiver determines that the institution cannot be
rehabilitated or permitted to resume business in
accordance with the next preceding paragraph, the Monetary
Board shall notify in writing the board of directors of its
findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:
a. File ex parte with the proper Regional Trial Court, and without
requirement of prior notice or any other action, a petition for
assistance in the liquidation of the institution pursuant to a
liquidation plan adopted by the Philippine Deposit Insurance
Corporation for general application to all closed banks. In case
of quasi-banks, the liquidation plan shall be adopted by the
Monetary Board.
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b. Convert the assets of the institutions to money, dispose of

the same to creditors and other parties, for the purpose of paying
the debts of such institution in accordance with the rules on
concurrence and preference of credit under the Civil Code of
the Philippines and he may, in the name of the institution, and with
the assistance of counsel as he may retain, institute such
actions as may be necessary to collect and recover accounts
and assets of, or defend any action against, the institution.
c. The assets of an institution under receivership or liquidation
shall be deemed in custodia legis in the hands of the receiver and
shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of
garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under this section or
under Section 29 of this Act shall be final and executory, and
may not be restrained or set aside by the court except on petition
for certiorari on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction.
The petition for certiorari may only be filed by the
stockholders of record representing the majority of the capital
stock within (10) days from receipt by the board of directors
of the institution of the order directing receivership, liquidation
or conservatorship.
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1|B

AMOUNT AND PURPOSE OF LOAN

If the bank finds that the proceeds of

and demand immediate repayment of the obligations (sec 39,

REQUIREMENT FOR GRANT OF LOANS OR OTHER CREDIT

A bank shall grant loans and other credits accommodations

Such grant of loans and other credit accommodations

The Monetary Board then and now still prescribes, by

or other consumable thing upon the condition that the same

The purpose of all loans and other credits accommodations

1. A statement of their assets and liabilities

Should such statements prove to be false or innocent in any material

the bank may terminate any loan and other credit

NOTE: Micro-financing loans are small loans granted

and other loans granted to the poor and low-income

When he does not furnish to the creditor

When by his own acts he has impaired said guaranties or

When the debtor violates any undertaking, in

When the debtor attempts to abscond (art. 1198 NCC)

In formulation the rules and regulations under this Section, of the

These loans are granted on the basis of the borrowers cash

Banking corporation a financial institution with the power to:

Receive the money of others on general deposit form a

With both powers, and with the privileges, in addition to

The business of a bank is one affected with public interest, for

The Monetary Board

A bank and a financial institution engaged in the grant of loans is

the board may, by regulation, reduce the maximum ratios

The Monetary Board may, similarly, in accordance with the

In approving the loan of an applicant, the bank concerns itself

AUTHORITY TO PRESCRIBE TERMS AND CONDITIONS OF

In funding these businesses, the bank invest the

OTHER SECURITY REQUIREMENTS FOR BANK CREDITS.

but not limited to, the unconscionable rates of interest

In this connection, Sec. 106 of the NCBA provides:

AMORTIZATION ON LOANS AND OTHER CREDIT

In case of loans and other credit accommodations with maturities

When the borrowed funds are to be used for purposes

In case of loans and other credit accommodations to

ESCALATION CLAUSE: WHEN ALLOWABLE

Mention usury law

Escalation clauses are not void per se.

HOWEVER: one which grants the creditor an unbridled right

Violate the principle of mutuality of contracts

For a stipulation on an escalation clause to be valid, it should

It must include a provision for reduction

Effect of Annulment of Escalation Clause

That obligations arising from contracts have the force of

That there must be mutuality between the parties

Any contract which appears to be heavily weighed

Upon the maturity, the amount due is subject

nothing in the said Circular grants lenders carte blanche authority

to raise interest rates to levels which will either enslave their

INIQUITOUS, UNCINSIONABLE, AND EXORBIANT

LEGAL BASIS AND REQUISITES

However the Supreme Court has held:

1. Both parties must be mutually creditors and debtors in their

This is based on public policy and morals

4. Both debts are liquidated and demandable; and

The Bangko Sentral

PESO LOANS, NOT AVAILABE TO NON-RSIDENTS

*OFWs are considered residents and accordingly, could avail of

Section 49. Provisions for losses and Write-Offs.

EXTRAORDINARY INFLATION OR DEFLATION