Eighteenth Congress
First Regular Session

6603

HOUSE BILL NO.

Introduced by
REPRESENTATIVE LOREN B. LEGARDA

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

Explanatory Note

Consumer confidence and trust in the financial system promotes stability, growth,
efficiency, and innovation. However, with the rapid development of complex financial
products coupled with the use of advanced technologies, consumer fraud, abuse
and misconduct have increased. 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 the Bangko Sentral ng Pilipinas, Insurance Commission and the Securities and
Exchange Commission, rulemaking, surveillance and inspection, market monitoring,
enforcement and adjudication 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 organizations 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.

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


{t 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 to play
given that consumer protection is a shared responsibility among the regulators,
consumers and other stakeholders.

In view of the foregoing, immediate passage of this bill is earnestly sought.

= TOREN B-LEGARDA


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Eighteenth Congress
First Regular Session

6603

HOUSE BILL NO.

Introduced by
REPRESENTATIVE LOREN B. LEGARDA

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

Be it enacted in the Senate and House of Representatives of the Philippines in
Congress assembled:

SECTION 1. Title. — This Act shall be known as the “Financial Consumer Protection
Act of 2020.”

SEC. 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.
Towards this end, the State shall implement measures to protect the following rights

of financial consumers:

a. Right to equitable and fair treatment;

b. Right to disclosure and transparency of Financial Products and Services;
c. Right to protection of consumer assets against fraud and misuse;

d. Right to data privacy and protection;

e. Right to complaints handling and redress.


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“SEC. 3. Definition of Terms. — For purposes of this Act, the following terms shall

mean or be understood as follows:

a) ‘Financial Consumer” — a person or entity who is purchaser, lessee,

b)

°)

d)

e)

recipient or prospective purchaser, lessor or recipient of Financial
Products or Services. It shall also refer to any 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
or Services;

“Financial Consumer Complaint” — an expression of dissatisfaction filed by
a Financial Consumers against a Financial Service Provider relative to a
financial product or service in which a response or resolution is expected;
“Financial Products or Services” — financial products or services which are
developed or marketed by a Financial Service Provider which may include,
but are not limited to savings, credit, insurance, investments, payments,
remittances and other similar products and services. This also includes
digital financial services, which pertain to the broad range of financial
services accessed and delivered through digital channels;

“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);

“Financial Service Provider’ — a person, natural or juridical which provides
financial products or services and are being supervised or regulated by
any Financial Regulators enumerated in this Act. This term shall include
Investment Advisers as defined under Section 7 of this Act;


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f) “Marketing” — The act of communicating, offering, promoting, advertising
or delivering of Financial Products and Services by Financial Service
Providers;

9) “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. 9501, as amended or 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.

SEC. 4. Scope and Coverage. — This Act applies to all Financial Products and

Services offered or marketed by any Financial Service Provider.

SEC. 5. Financial Regulators. - The BSP, SEC, IC shall enforce the provisions of
this Act on all Financial Service Providers 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 IC for

purposes of this Act.

SEC. 6. Powers of the Financial Regulators. — Financial Regulators shall have the

following powers:

a. Rulemaking — Financial Regulators shall have the authority to formulate their
own standard and rules for the application of the provisions of this Act to the
specific Financial Products or Services within their jurisdiction guided by
internationally accepted standards and practices. Financial Regulators may


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also determine reasonableness of charges or fees which a Financial Service
Provider may demand, collect or receive for any service or product offered to
consumers, except interest rates which shall be governed by the Usury Law.
Likewise, they may issue their respective rules of procedure concerning

administrative actions arising from the implementation of this Act.

. Surveillance and Examination. — Financial Regulators may conduct off-site

surveillance and on-site examination on their respective supervised Financial
Service Providers to ascertain that the provisions of this Act are complied
with. The examination for Financial Consumer protection compliance may be
conducted separately from examination of prudential regulations compliance.
The provisions on the conduct of examination and surveillance provided in the
respective charters of Financial Regulators, and pertinent special laws shall
be made applicable in the examination and surveillance.

The department heads and the examiners of the Financial Regulators
shall be authorized to administer oaths to any director, officer, or employee of
the supervised Financial Service Providers subject to their examination, and
to compel the presentation of all books, documents, papers, or records
necessary in their judgment to ascertain the facts relative to the compliance of
Financial Service Providers to this Act.

The supervised Financial Service Provider shall afford to its respective
Financial Regulator full opportunity to examine its records, and review its
systems and procedures at any time during business hours when requested

to do so by the Financial Regulator.

;. Market Monitoring. — Financial Regulators shall have the authority to require

their respective supervised Financial Service Providers and their third party

agents/service providers to submit reports or documents, as needed, and to


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access relevant data about financial products, services and markets from

other government agencies in connection with market monitoring.

|. Enforcement. — The Financial Regulators shall have the authority to impose

enforcement actions on their respective supervised Financial Service

Providers for non-compliance with this Act. Such enforcement actions may

include, but are not limited to, the following:

1.

Restriction on the ability of the supervised Financial Service Provider to
continue to collect fees or charges in cases of excessive fees or charges
imposed by the Financial Service Provider, except interest rates which
shall be governed by the Usury Law;

. Disqualification and/or suspension of directors, officers or employees of

the supervised Financial Service Provider responsible for violations of the
provisions of this Act, its implementing regulations, or orders of the

Financial Service Providers;

. Imposition of fines, suspension, or penalties for any non-compliance with

or breach of this Act, its implementing regulations, or orders of the

Financial Service Providers;

. Issuance of a cease and desist order to the Financial Service Provider

without the necessity of a prior hearing if in the Financial Regulator’s
judgment, the act or practice, unless restrained, amounts to fraud or a
violation the provisions of this Act and its implementing regulations or may
unjustly cause grave or irreparable injury or prejudice to Financial
Consumers.

The Financial Service Provider shall be afforded an opportunity to defend
its act or practice in a summary hearing before the Financial Regulator or
its designated body, upon request made by the Financial Service Provider

within five (5) calendar days from its receipt of the order. If no such


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hearing is requested within said period, the order shall be final. If a hearing
is requested by the Financial Service Provider, the proceedings shall be
conducted summarily without adhering to the technical rules of evidence,
and all issues shall be determined primarily on the basis of records, after
which the Financial Regulator may either reconsider or make final its
order,

5. Suspension of operation of any supervised Financial Service Provider in
relation to a particular Financial Product or Service when in the Financial
Regulator’s judgment based on findings, the Financial Service Provider is
operating in violation of the provisions of this Act and its implementing

regulations;

. Adjudication. — Financial Regulators shall have the authority to adjudicate all

actions arising from or in connection with financial transactions that are purely
civil in nature and the claim or relief prayed for by the Financial Consumer is
solely for payment or reimbursement of sum of money not exceeding the
amount of P 100,000.00 or as may be prescribed by the Financial Regulators.
The decision of the Financial Regulators in the adjudication shall be final and
executor, and may not be restrained or set aside by the court except on
petition for certiorari on the ground of lack or excess of jurisdiction of the
Financial Regulators. The petition for certiorari may only be filed within ten
(10) days from receipt by the aggrieved party of the decision. The
adjudicatory power shall be exercised by the Head of the concerned Financial
Regulator or a duly authorized officer or body, Provided, that in case of BSP,
the decision of the authorized officer or body is not appealable to the
Monetary Board.

Financial Regulator may order the payment or reimbursement of money,

which is subject of the action filed before them. The Financial Regulators, in


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the exercise of their adjudicatory powers, shall have the power to issue
subpoena duces tecum and summon witnesses to appear in its proceedings
and in appropriate cases, order the examination, search and seizure of all
documents, and books of accounts of any entity or person under investigation
as may be necessary for the proper disposition of the cases before them.
Further, Financial Regulators shall have the authority to punish for contempt,
both direct and indirect, in accordance with the pertinent provisions of any
penalties prescribed by the Rules of Court;

f. Other Powers. — Financial Regulators may exercise such other powers as
may be provided by their enabling laws or charters 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.

SEC. 7. Investment Adviser. — Investment Advisers shall be subject to the rules.

and regulation to be issued by the SEC.

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;
b) Lawyer, accountant, engineer, or teacher whose performance of such

services is solely incidental to the practice of his profession;


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c) Any investment banker or broker dealer whose performance of such
service is solely incidental to the conduct of his business as such
investment banker or broker dealer and who receives ano special
compensation therefor;

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

) Such other persons as the SEC may designate by rules and regulation or
order.

SEC. 8. Duties and Responsibilities of Financial Service Providers. —

a. Board and Senior Management Oversight. - The Board of Directors
(BOD) and Senior Management of Financial Service Providers shall
oversee the implementation of the Compliance Management System
(CMS) of Financial Service Providers that effectively ensures conformity
with this Act and shall provide the means by which Financial Service
Providers shall identify, measure, monitor and control consumer protection
risks inherent in its operations.

b. Appropriate product design and delivery. — Financial Service Providers
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 ad their clients. This shall include,
among others, the following:

1. Affordability and suitability assessments — Financial Service Providers
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 a client, in terms


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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.

.. Cooling-off period — Financial Service Providers are 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 policy
should, among others, provide a client with a cooling-off period that
will allow a client to consider the costs and risks of Financial Product or
Service, free from the pressure of the sales team of the Financial
Service Provider. The length of the cooling-off period should be
individually determined by Financial Service Providers based on
reasonable expectation of the time required for a client to fully evaluate
all the terms and risks of Financial Products or Service and contract
concerned parties 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 Service Provider or to be
incorporated in the terms of the Financial Product or Service. Short
period transaction or 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


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the Financial Service Providers from recovering the processing fees
incurred. The Financial Service 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.

3. 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 the transparency, disclosure and
responsible pricing.

c. Transparency, disclosure and responsible pricing — Financial Service
Providers 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 of

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 materials, Financial Service Providers shall disclose

the contact information of their consumer assistance unit providing

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consumer assistance and handling Financial Consumer Complaints.
Financial Service Providers shall also disclose that they are regulated and
the advertising materials must identify the relevant Financial Regulator.

Financial Service Providers are legally responsible for all statements
made in the marketing and sales materials that they produced related to
their products. Disclosure of information on Financial Products or Services
shall be made available to the public by the Financial Service Provider

through printed materials, mass media, websites or digital platforms.

i. Responsible pricing — in addition to the requirements of R.A. No. 3765 or

the Truth in Lending Act, Financial Service Providers are required to
document the reasons for setting the price of each financial product or
service. Where the pricing procedures of a Financial Service Provider are
inadequate or unreasonably high, the concerned Financial Regulator shall

impose appropriate corrective actions.

. Fair and respectful treatment of clients — Financial Service Providers shall

have the right to select their clients, Provided, that the selection and
treatment of their clients shall not involve discrimination on the basis of a
person's race, ethnicity, origin, gender, disability, sexual orientation,
feligious affiliation or political affiliation, Provided further, that Financial
Service Providers are not precluded from instituting the necessary risk
mitigating measures.

Privacy and Protection of client data — Each Financial Service Provider
must respect the privacy and protect the date of their clients. Consistent
with the provisions of the Data Privacy Act, the Financial Regulators shall
issue regulations governing 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 correct or amended.

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g. Financial consumer protection assistance mechanism — Each Financial
Service Provider must establish a single consumer assistance 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 Service
Provider's handling of their complaints, inquiries and requests, may
elevate their concerns to the Financial Regulator that supervises the

Financial Service Provider concerned.

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

known to the borrower.

SEC. 10. Training. — Staff of Financial Service Providers who deal directly with
Financial Consumers must receive adequate training, suitable for the complexity
of the products or services thy sell. Financial Service Providers must be qualified

as appropriate for the complexity of the financial product or service they sell.

SEC. 11. No waiver of rights. — No provision of a contract for a Financial
Product or Service shall be lawful or enforceable if such provision waives or
otherwise deprives a client of legal right to sue the Financial Service Product or

Service without an unreasonable penalty.

SEC. 12. Non-exemption from compliance. — Notwithstanding any prior

stipulation in a contract, financial entities shall not be exempted from compliance

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“with the provisions of this Act, or deprive Financial Consumers of its Financial

Products and Services.

SEC. 13. Liability of a Financial Service Provider on the acts or omissions
of its authorized representatives — The Financial Service Provider 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.

SEC. 14. Prescription — All actions or claims accruing under the provisions of
this Act and the rules and regulations issued 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 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.

SEC. 15. Penalty for Violation of this Act — Whenever a Financial Service
Provider willfully violates any provision of this Act or any related rules,
regulations, order or instructions, issued by the Financial Regulators, the person
or persons responsible for such violation shall be punished by imprisonment of
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 Two Million
Pesos (P2,000,000.00), or both, at the discretion of the court. In addition, in case
profit is gained or loss is avoided as a result of the violation, a fine of no more

than three (3) times the profit gained or loss avoided may also be imposed.

SEC. 16. Administrative Sanctions — The provision on administrative sanctions
of the respective charters of the Financial Regulators shall be made applicable

to any Financial Service Provider, its directors, officers, employees or agents

2B


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‘without prejudice to the enforcement actions provided under Section 6 (D) of this
Act and the criminal sanctions provided under Section 15 of this Act, or 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 Service Provider to
operate in relation to a particular Financial Products or Services may be

suspended or cancelled by the Financial Regulator.

SEC. 17. 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 IF of Republic Act No. 7394

are hereby repealed.

SEC. 18. Transitory provision — The Financial Regulators shall prepare the
necessary rules and regulations to implement the provisions of this Act within

one (1) year from its effectivity.

SEC. 19. Effectivity clause — This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in at least two (2) national newspaper of

general circulation.

Approved,

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