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Advocates of Truth V BSP

1) Advocates for Truth in Lending filed a petition to declare that the Bangko Sentral ng Pilipinas Monetary Board does not have authority to enforce Central Bank Circular No. 905 from 1982, which suspended the Usury Law of 1916. 2) Central Bank Circular No. 905 removed interest rate ceilings for various types of banks and non-bank financial institutions. 3) The Court held that while Circular No. 905 removed interest rate ceilings, it did not authorize lenders to charge interest rates that would enslave borrowers or lead to loss of their assets, as such rates would be unconscionable and contrary to law.

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110 views2 pages

Advocates of Truth V BSP

1) Advocates for Truth in Lending filed a petition to declare that the Bangko Sentral ng Pilipinas Monetary Board does not have authority to enforce Central Bank Circular No. 905 from 1982, which suspended the Usury Law of 1916. 2) Central Bank Circular No. 905 removed interest rate ceilings for various types of banks and non-bank financial institutions. 3) The Court held that while Circular No. 905 removed interest rate ceilings, it did not authorize lenders to charge interest rates that would enslave borrowers or lead to loss of their assets, as such rates would be unconscionable and contrary to law.

Uploaded by

Ahmed Gakusei
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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234 Advocates v.

BSP (2013) [Autonomy of will]


Papandayan, Ahmed M.

ADVOCATES FOR TRUTH IN LENDING, INC. v.


BANGKO SENTRAL MONETARY BOARD
G.R. No. 192986
January 15, 2013

Facts: Advocates for Truth in Lending, Inc. filed a Petition for Certiorari seeking to declare that
the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the Central Bank Monetary
Board (CB-MB) by virtue of R.A. No. 7653, has no authority to continue enforcing Central Bank
Circular No. 905, issued by the CB-MB in 1982, which "suspended" the Usury Law of 1916 (Act
No. 2655).

R.A. No. 265, which created the Central Bank (CB) of the Philippines, empowered the CB-MB to,
among others, set the maximum interest rates which banks may charge for all types of loans and
other credit operations, within limits prescribed by the Usury Law. When it issued CB Circular No.
905, Series of 1982. Some sections thereof entails the removal of ceilings on specific interest
rates: Sections 5, 9 and 10, Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by
removing the ceilings for interest and other charges, commissions, premiums, and fees
applicable to commercial banks; Sections 12 and 17 removed the interest ceilings for thrift banks;
Sections 19 and 21 removed the ceilings applicable to rural banks; and, Sections 26, 28, 30 and
32 removed the ceilings for non-bank financial intermediaries.

On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the
Bangko Sentral ng Pilipinas (BSP) to replace the CB.

Issue: Whether or not the lifting of the ceilings for interest rates authorizes stipulations charging
excessive, unconscionable, and iniquitous interest.

Held: No. It is settled that nothing in CB Circular No. 905 grants lenders the authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets. As held in Castro v. Tan:
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation
of property, repulsive to the common sense of man. It has no support in law, in principles of justice, or in
the human conscience nor is there any reason whatsoever which may justify such imposition as righteous
and as one that may be sustained within the sphere of public or private morals.

Stipulations authorizing iniquitous or unconscionable interests have been struck down for being
contrary to morals, if not against the law. Further, under Article 1409 of the Civil Code, these
contracts are deemed inexistent and void ab initio, and therefore cannot be ratified, nor may the
right to set up their illegality as a defense be waived.

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