(iE REPRE; \
S RECEIVED

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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Seventeenth Congress
Third Regular Session

8301
HOUSE BILL No.

Introduced by Representative Henry C. Ong

EXPLANATORY NOTE

The advent of the global financial crisis brought to fore the
importance of an 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 victims 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 the 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

1 The Group of Twenty, oF 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).



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.

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

fr 9

HENRY C. ONG i


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Seventeenth Congress
Third Regular Session

8301
HOUSE BILL No. ___

ar! Tntroduced by Representative HenryC.OngSSS~™S

AN ACT PROVIDING FOR THE PROTECTION OF
FINANCIAL CONSUMERS

Be 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 of 2018”.

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:

“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.

c) “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.

°)

“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.

“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.

i) “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,

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 fimited 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 standard and rules 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.

B. 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 cases 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);

c. 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;

. 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 regulation 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;

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

©) 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;

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

Section 8. Duties and responsibilities 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 in its operations.

B. 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

4


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 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.

b. 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 policy 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 required 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 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

‘Family members or business partners


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
censure 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, 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.

D. 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 concems.
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
concems 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 of their rights 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
omissions beyond the authority granted by the financial person.

Section 15, Prescription — All 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 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 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 one five hundred thousand pesos (P500,000), 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 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 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,

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.