SEVENTEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )
Second Regular Session ) 18

SENATE

Senate Bill No. 1829 RE fe

Introduced by Senator FRANCIS G. ESCUDERO

MAY 29 P3336

AN ACT
PROVIDING FOR THE PROTECTION OF FINANCIAL CONSUMERS AND FOR
OTHER PURPOSES

EXPLANATORY NOTE

The advent of the global financial crisis brought to fore the importance of the
effective consumer protection in the financial services as consumers were ultimately
exposed to the risks brought about by the failure of financial institutions. In addition,
the evolution of the financial landscape where there is an increasing number of complex
financial products and services coupled with the rapid technological change highlight
the need for financial consumer protection.

As more complex financial products are offered and easily accessed through
financial technology, financial consumers face the risk of being the victim of fraud and
abuse. Time and again, we hear stories of consumers putting their life-long savings in
investment scams or suffering from or facing collection cases due to over indebtedness,
These are just some of the travails experienced by financial consumers.

Thus, recognizing the role of regulators in ensuring that the rights of each and
every consumer are protected, this bill provides, among others, financial regulators
such as Bangko Sentral ng Pilipinas, Insurance Commission and the Securities and
Exchange Commission, rulemaking, surveillance and inspection, market monitoring, and
enforcement powers relative to consumer protection.

In the international arena, the G20', in February 2011, called on the
Organization for Economic Cooperation and Development (OECD), the Financial Stability
Board (FSB) and other relevant international organization to develop common principles
on consumer protection in the field of financial services. Foremost of these principles, is
that financial consumer protection should be an integral part of the legal, regulatory
and supervisory framework.

It Is in this light that this bill is being introduced in order to have in place a
comprehensive financial consumer protection regime wherein financial inclusion,
financial education, good governance and effective supervision all come into play given

* The Group of Twenty, or G20, is the central forum for international cooperation on financial and economic issues.
{tis composed of the EU and 19 countries, namely Argentina, Australia, Brazil, Canada, China, France, Germany,
India, Indoriesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, The United Kingdom
(UK), and the United States of America (USA).



that consumer protection is a shared responsibility among the regulators, consumers,
and other stakeholders.

T submit.



SEVENTEENTH CONGRESS OF THE )
REPUBLIC OF THE PHILIPPINES )
Second Regular Session )

Pe ofthe F otaep

‘18 MAY 29 P336
SENATE

Senate Bill No. 1829 REC “

Introduced by Senator FRANCIS G. ESCUDERO

AN ACT
PROVIDING FOR THE PROTECTION OF FINANCIAL
CONSUMERS AND FOR OTHER PURPOSES

&e it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

Section 1. Short title - This Act shall be known as the "Financial Consumer
Protection Act".

Section 2, Declaration of policy - It is the policy of the state to ensure that
appropriate mechanisms are in place to protect the interest of financial consumers
under the conditions of transparency, fair and sound market conduct, and fair,
reasonable and effective handling of financial consumer disputes, which are aligned
with global best practices. These mechanisms reinforce their confidence in the financial
market and foster the stability of the Philippine financial system.

Section 3. Definition of terms - As used in this Act, the following terms shall
mean:

a) "Consumer" - a person who is a purchaser, lessee, recipient or prospective
Purchaser, lessor or recipient of consumer products and services. A “Financial
Consumer" on the other hand, is a natural person or micro, small or medium-
sized enterprise that had or has current or prospective financial transaction with
financial entities pertaining to financial products and services.

b) “Financial Consumer Complaint” - an expression of dissatisfaction filed by
a financial consumer against a financial person relative to a financial Product or
service in which a response or resolution is expected.

) “Financial Education” - The process by which financial consumers improve
their understanding of financial products, concepts and risks, and develop the
skills and confidence to become more aware of financial risks and opportunities
to make informed choices and to take other effective actions to improve their
financial well-being. This goes beyond the financial information and advice given
in a contractual relationship between the financial person and the consumers.

d) “Financial Provider” - an entity that provides financial Products which are
being supervised or regulated by any of the implementing government agencies
enumerated in this act.



e) "Financial Literacy" - a combination of financial awareness, knowledge,
skills, attitude and behaviors necessary to make sound financial decisions and
ultimately achieve financial well-being.

f) “Financial Person" - a person, natural or juridical, supervised or regulated
by any of the implementing government agencies enumerated in this Act. This
term shall include financial advisers as defined under Section 7 of this Act.

9) “Financial Products or Services" - financial products or services which are
developed or marketed by a financial person which may include, but are not
limited to savings, credit, insurance, investments, payments, remittances and
other similar products and services.

h) "Financial Regulators” - The implementing government agencies of this
Act, namely, the Bangko Sentral ng Pilipinas (BSP), Securities and Exchange
Commission (SEC), Insurance Commission (IC) and the Cooperative
Development Authority (CDA).

i) "Marketing" - The act of communicating, offering, promoting,
advertising or delivering of financial products and services by financial entities.

j) "Micro, Small or Medium-sized Enterprise (MSME)" - any business
activity or enterprise engaged- in industry, agri-business and/or services whether
single proprietorship, cooperative, partnership or corporation as defined under
R.A. No. 950r, as amended of the Magna Carta for Micro, Small or Medium-sized
Enterprise . Such definition shall be subject to review and adjustment by the
Magna Carta for Micro, Small or Medium-sized Enterprise (MSMED) Council.

Section 4. Scope and Coverage — This Act applies to all financial products
and services offered or marketed by any financial person.

Section 5. Financial Regulators — The BSP, SEC, and IC shall enforce the
Provisions of this act on all financial entities they supervise or regulate by virtue of their
respective charters, special laws and amendments thereto. The CDA shall be considered
an implementing government agency of this Act only with respect to cooperatives
Offering financial services such as but not limited to savings and credit except insurance
Cooperatives which shall be under the jurisdiction of the Insurance Commission for
Purposes of this Act.

Section 6. Powers of the Financial Regulators. — Financial regulators shall
have the following powers:

A. Rulemaking - the implementing government agencies shall have the
authority to formulate their own standards and rule for the application of the
provisions of this Act to the specific financial products within their jurisdiction.
Likewise, they may issue their respective rules of procedure concerning
administrative actions arising from the implementation of this Act.

8B. Surveillance and inspection — the implementing government agencies
may conduct off-site surveillance and on-site examination on their respective
supervised financial entities to ascertain that the provisions of this Act are
complied with. The examination for financial consumer protection compliance
could be conducted separately from examination of prudential regulations
compliance.



C. Market Monitoring — the implementing government agencies may require
reports or documents, as needed, from their respective supervised financial
entities and their third party agents/ service providers. The implementing
government agencies can also access relevant data about financial products,
services and markets from other government agencies in connection with
market monitoring.

D. Enforcement — the implementing government agencies shall have the
authority to impose enforcement actions on their respective supervised
financial entities for non-compliance with this act. Such enforcement actions
may include but are not limited to the following:

a. Restriction on the ability of the supervised financial person to continue
to collect fees or charges in case of excessive fees or charges imposed
by the financial person;

‘b. Disqualification of directors, officers, or employees of the supervised
financial person responsible for violations of the provisions of this title
and its Implementing Rules and Regulations (IRR);

¢. Imposition of fines or penalties for any non-compliance with or breach
of this Act and its IRR;

d.

Issuance of a cease and desist order without the necessity of a prior
hearing if in the implementing government agency's judgment the act
or practice, unless restrained may cause grave or irreparable injury or
Prejudice to the consumer or may amount to fraud or violation the
provisions of this title and its IRR;

e. Suspension of operation of any supervised financial person in relation
to a particular consumer financial product or service when in the
Financial Regulator’s judgment based on findings, such person is
operating in violation of the provisions of this Act and its IRR.

The Financial Regulators may exercise such other powers as may be provided by
law as well as those which may be implied from, or which are necessary or incidental to
the carrying out of, the express powers granted the Financial Regulators to achieve the
objectives and purposes of these laws.

Section 7. Investment Adviser — Investment Advisers shall be subject to the
rules and regulations to be issued by the Securities and Exchange Commission.

Investment Adviser shall mean any person who, for compensation, engages in
the business of advising others, either directly or through publications or writings, as to
the value of investment products or as to the advisability of investing in, purchasing, or
selling investment products, or who, for compensation and as part of a regular
business, issues or promulgates analyses or reports concerning investment products;
but does not include the following:

a. Trust Department/Unit of Banks;



Section 8. Duties and responsit

b. Lawyer, accountant, engineer, or teacher whose performance of
such services is solely incidental to the practice of this profession;

c. Any investment banker or broker dealer whose performance of
such services is solely incidental to the conduct of his business as
such investment banker or broker dealer and who receives no
special compensation therefor;

d. The publisher of any bona fide newspaper, news magazine or
business or financial publication of general and regular circulation;

e. Such other persons as the Security Exchange Commission may
designate by rules and regulations or order.

lities of Financial Persons —

A. Board and Senior Management Oversight ~The Board of Directors (BOD) and

Senior Management of every financial person shall oversee the
implementation of the Compliance Management System (CMS) of the person
that effectively ensures conformity with this Act and shall provide the means
by which a financial person shall identify, measure, monitor and control
consumer protection risks inherent its operations.

. Appropriate product design and delivery - The financial person shall

continuously evaluate their financial products and services to ensure that they
are appropriately targeted to the needs, understanding and capacity of both
their markets and their clients. This shall include, among others, the
following:

a. Affordability and suitability assessments — The financial person should
have written procedures for determining whether a particular financial
consumer product or service is suitable and affordable for a client. This
shall include determination of whether the amount and terms of the
offered financial product or service allow the client, in terms of the
individual ability, to meet the obligations with a low probability of a
serious hardship and reasonable prospect that the financial product or
service will provide value to its client. For the purpose of extending
credit, this assessment will include measures to prevent over-
indebtedness.

4. Cooling-off period — a financial person is expected to adopt a clear
cooling-off policy, as may be prescribed by law or by rules and
regulations issued by the relevant financial regulator upon its
determination that a cooling-off period is necessary for a particular
product subject of regulation by such financial regulator. Such policies
should, among others, provide a client with a cooling-off period that
will allow a client to consider the costs and risks of a financial product
or service, free from the pressure of the sales team of the financial
Person. The length of the cooling-off period should be individually
determined by a financial person based on reasonable expectation of
the time require for a client to fully evaluate all the terms and risks of
the financial product or service and contact others! who may be
affected by its terms and conditions, unless a minimum or fixed period
is required by the financial regulator for compliance by the financial
Provider or incorporation in its contract. Short period transaction or

* Family members or business partners



contracts may be allowed to have no cooling-off period which shall be
provided in the regulation by the financial regulators. During the
cooling-off period, the financial consumer may cancel or return the
contract without penalty; however, nothing herein prevents the
financial provider from recovering the processing fees incurred. The
financial providers are prohibited from engaging in practices that
unreasonably burden the financial consumer in the exercise of the
right of cancellation during the cooling-off period. If the financial
product is a contract of insurance, the right of return cannot be
exercised after the financial consumer has made a claim under the
contract of insurance,

c. Prepayment of loans and other credit accommodations ~ a borrower
may, at any time prior to the agreed maturity date prepay, in whole or
in part, provided that any cost or fees charged to the borrower for
such pre-payment shall be disclosed as required under the succeeding
provision of this Section on transparency, disclosure and responsible
pricing.

C. Transparency, disclosure and responsible pricing — financial persons must

ensure that they adopt disclosure principles in their communications with
financial consumers that will include the use of clear and concise language
understood by the target clients. This must also include updated and accurate
disclosure of information such as, pricing or any cost associated with the
product or service that should be made in a consistent manner to facilitate
comparison between similar financial products and services across the
industry.

Sufficient product disclosure must be provided before the contracting the
product or service to give the client enough basis and time for review. Any
change in the terms of conditions of a product or service shall be provided to
the client.

In their advertising, Financial Providers shall disclose that they are regulated
and the advertising materials must identify the relevant Financial Regulator.

Financial Providers are legally responsible for all statements made in the
marketing and sales materials that they produce related to their products.

Responsible pricing - in addition to the requirements of R.A. No. 3765 or The
Truth in Lending Act, a financial person is required to document the reasons
for setting the price of each financial product or service. Where the pricing
procedures of a financial person are inadequate or unreasonably high, the
concerned implementing government agency shall impose appropriate
corrective actions.

.. Fair and respectful treatment of clients - client selection and treatment shall

not involve discrimination on the basis of personal characteristics or personal
affiliations; provided, that financial entities are not precluded from instituting
the necessary risk mitigating measures.

Personal characteristics refer to race, ethnicity, origin, gender, disability and
sexual orientation. Personal affiliation denotes religious affiliation or political
affiliation.



E. Privacy and protection of client data - each financial person must respect the
Privacy and protect the data of their clients. Consistent with the provisions of
the Data Privacy Act, the financial regulators shall issue regulations for the
disclosure of client data to a third party.

Clients have the right to review their client data to ensure that inaccurate or
deficient data is corrected or amended.

F. Financial consumer protection assistance mechanism — Each financial person
must establish a single consumer assistance handling unit to render free
assistance to financial consumers on financial transactions concerns. This
shall include handling of complaints, inquiries and requests.

Financial consumers who are unsatisfied with the financial person's handling
of their complaints, inquiries and requests, may elevate their concerns to the
financial regulator that supervises the financial person concerned.

Section 9. Bundling of Products - When a borrower is obliged by the financial
provider to purchase any product, including an insurance policy, as a pre-condition for
receiving a loan from the financial provider, the borrower should be free to choose the
provider of the product and this information should be known to the borrower.

Section 10. Training - Staff of financial providers who deal directly with
consumers must receive adequate training, suitable for the complexity of the products
or services they sell. Financial intermediaries are qualified as appropriate for the
complexity of the financial product or service they sell.

Section 11. Alternative dispute resolution - The redress mechanism before
the financial regulator shall be mediatory in nature. If the financial consumer is
unsatisfied with the result of the mediation conducted by the financial regulator, the
financial consumer may bring the matter before an accredited external arbitrator of the

financial regulator concerned, if any, prior to the filing of the appropriate action in court
or tribunal.

Section 12. No waiver of rights - No provision of a contract for a consumer
financial product or service shall be lawful or enforceable if such Provision waives or
otherwise deprives a client of a legal right to sue the financial service provider, receive
information, have their complaints addressed and resolved, have their non-public client
data protected or cancel the use of the consumer financial product or service without
an unreasonable penalty.

Section 13. Non-exemption from compliance — Notwithstanding any prior
stipulation in a contract, financial entities shall not be exempted from compliance with
the provisions of this Act, or deprive financial consumers under this act.

Section 14, Liability of a financial person on the acts or omissions of its
authorized representatives — The financial person shall be responsible for the acts
or omissions of its directors, officers, employees or agents, in marketing and transacting
with financial consumers of its financial products and services, provided that the said
acts or omissions are not beyond the authority granted by the financial person. The said
directors, officers, employees or agents shall be solely responsible for acts or omission
beyond the authority granted by the financial person.



Section 15. Prescription — A\l actions or claims accruing under the provisions
of this title and the rules and regulations pursuant thereto shall prescribe within five (5)
years from the time the financial consumer transaction was consummated, or within
five (5) years from the discovery of the deceit or non-disclosure of material facts. For
insurance contracts, the prescriptive period for the commencement of action provided
under the insurance code shall apply.

Section 16. Penalty for Violation of this Act - Whenever a financial person
willfully violates any provision of this Act or any related rules, regulations, orders or
instructions, issued by the Financial Regulators, the person or Persons responsible for
such violation shall be punished by imprisonment by not less than one (1) year but not
more than five (5) years, or by a fine of not less than fifty thousand (P50,000.00) pesos
but not more than five hundred thousand pesos (P500,000.00), or both, at the
discretion of the court. In addition, said violator shall be subject to disgorgement of the
amount obtained from the financial consumers/investors plus interest.

A foreign national who violates any provision of this Act shall be deported
without further proceedings after service of sentence and/or payment of fine.

Section 17. Administrative Sanctions - The provisions on the administrative
sanctions of the respective charters of the Financial Regulators shall be made applicable
to any financial person, or financial person, its directors, Officers, employees, or agents
without prejudice to the enforcement actions provided under Section 6 (D) of this Act
and the criminal sanctions provided under Section 16 of this Act, for any willful violation
of this Act or any related rules, regulations, orders or instructions of the Financial
Regulators, provided, that in addition to the administrative sanctions that may be
imposed, the authority of the financial person to operate may be suspended or
cancelled by the Financial Regulator which primarily regulates such financial person.

Section 18. Repealing clause - All laws, executive orders, rules and
regulations or parts thereof which are inconsistent with this Act are hereby repealed or
amended accordingly. Articles 131 to 147 of Title IV of Republic Act No. 7394 are
hereby repealed.

Section 19. Transitory Provisions — The Financial Regulators shall prepare
the necessary rules and regulations to implement the provisions of this Act within one
(1) year from its effectivity.

Section 20, Effectivity clause - This Act shall take effect fifteen (15) days
after its publication in the Official Gazette or in at least two (2) national newspapers of
general circulation.

Approved,