Republic of the Philippines
HOUSE OF REPRESENTATIVES.
Queson City

EIGHTEENTH CONGRESS
First Regular Session

House pitt no.°426

Introduced by HON. LUIS RAYMUND “LRAY” F. VILLAFUERTE, JR.

EXPLANATORY NOTE

Article XVI Section 9 of the Constitution of the Republic of the Philippines states
that, “The State shall protect consumers from trade malpractices ...” Article 2 of
Republic Act No. 7394 or the “Consumer Act of the Philippines” further specifies that
State measures shall be implemented to achieve, “protection against deceptive, unfair
and unconscionable sales acts can practices”, “provision of information and education
to facilitate sound choice and the proper exercise of rights by the consumer” and the
“provision of adequate rights and means of redress” among others.

In February 2011, the Group of Twenty (G20) called upon 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.

Consumer confidence and trust in the financial system promotes stability, growth,
efficiency and innovation. With the rapid development of complex financial products
coupled with the used of advanced technologies, however, consumer fraud, abuse
and misconduct have increased. The rising incidence of fraud and abuse not only
hinders national economic progress but also causes grave damages to financial
consumers.


This bill establishes a comprehensive consumer protection framework which
covers a complex range of financial products and services, and delivery channels. The
bill intends to address gaps in the provision of financial services, especially in digital
financial services. The bill aims to further protect consumers as they proceed in their
transactions with financial entities.

This bill also provides appropriate mechanisms for consumer welfare protection under
the conditions of transparency, fair and sound market conduct and just, reasonable,
and effective handling of financial consumer disputes.

By consolidating principles of financial inclusion, good governance and effective
supervision for financial service providers, this bill provides more comprehensive

consumer protection in the modem world.

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

LUIS IND Y” F. VILLAFUERTE, JR.

‘



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Queson City

EIGHTEENTH CONGRESS
First Regular Session

House BIL Noe416
PSEA ne
Introduced by HON. LUIS RAYMUND “LRAY” F. VILLAFUERTE, JR.
mena eee oi eee ewe ea
AN ACT

PROVIDING FOR THE PROTECTION OF FINANCIAL CONSUMERS AND FOR
OTHER PURPOSES

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 2020”.

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. Towards this
end, the State shall implement measures to protect the following rights of financial
consumers:

a. Right to equitable and fair treatment;

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

|. Right to data privacy and protection;

. Right to complaints handling and redress.

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SECTION 3. Definition of Terms. - As used in this Act, the following terms shall

mean or be understood as follows:

a. “Financial Consumer” — a person or entity who is a purchaser, lessee,
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.

b. “Financial Consumer Complaint” — an expression of dissatisfaction filed by
a Financial Consumer against a Financial Service Provider relative to a financial
product or service in which a response or resolution is expected.

c. “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.

d. “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).

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

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

g. “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 (MSEMED) Council.


SECTION 4. Scope and Coverage - This Act applies to all Financial Products
and Services offered or marketed by any Financial Service Provider.

SECTION 5. Financial Regulators - The BSP, SEC and 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.

SECTION 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 best practices. Financial Regulators
may 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.

b. 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 under this Act.


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 judgement 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
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;

2. 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;


3. Imposition of fines, suspension, or penalties of any non-compliance with or
breach of this Act, its implementing regulations, or orders of the Financial
Service Providers;

4. 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
judgement, the act or practice, unless restrained, amounts to fraud or a
violation of the provisions of this Act and its implementing regulations or may
unjustly cause grave or irreparable injury to 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 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 judgement 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 One Hundred Thousand Pesos (P100,000.00) or as may be
prescribed by the Financial Regulators. The decision of the Financial
Regulators in the adjudication shall be final and executory, 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 office or body, Provided,
that in the case of BSP, the decision of the authorized officer or body is not
appealable to the Monetary Board.

Financial Regulators may order the payment or reimbursement of money which
is subject of the action filed before them. The Financial Regulators, in 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 the 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 and 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.

SECTION 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;

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;

@. Such other personas as the SEC may designate by rules and regulations or
order.

SECTION 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 and 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 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.


2. 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 a 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 the Financial Products or
Service and contact 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 of 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
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.

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

10


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 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 produce related tot heir 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.

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, religious affiliation or political
affiliation, Provider further, that Financial Service Providers are not precluded
from instituting the necessary risk mitigating measures.


e. Privacy and protection of client - each Financial Service Provider 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
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 corrected or amended.

f. 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 transaction 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.

SECTION 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
know to the borrower.

SECTION 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 they sell. Financial Service Providers must be qualified as
appropriate for the complexity of the financial product or service they sell

SECTION 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 a legal right to sue the Financial Service Provider, receive
information, have their complaints addressed and resolved, have their non-public data


protected or cancel he use of the Financial Product of Service without an unreasonable
penalty.

SECTION 12. 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 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.

SECTION 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.

SECTION 15 Penalty for Violation of this Act- Whenever a Financial Service
Provider 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 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.

SECTION 16. Administrative Sanctions - The provisions 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 without prejudice to the enforcement actions provided under Section 6 (D) of

13


this Act and the criminal sanctions provided under Section 15 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 Service Provider to operate in relation
to a particular Financial Products or Services may be suspended or cancelled by the
Financial Regulator.

SECTION 17. Repealing Clause. - All laws, executive orders, rules, and
regulations or parts thereof which are inconsistent with his Act are herby repealed or
amended accordingly. Articles 131 to 147 of Title IV of Republic Act No. 7394 are
herby repealed.

SECTION 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

SECTION 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.