Client Protection in the Philippines

Executive Summary

The banking industry in the Philippines has undergone significant transformation in recent years. There have been marked improvements in regulations alongside increased revenues for banks. The Filipino government has enacted multiple laws regulating the financial industry as well as protecting consumers. However, significant institutional overlap exists, which is not easy to unravel. Client protection appears to occupy a very important position in the banking and financial sector, at least with regards to microfinance. On paper, there is a great framework for protecting consumers from financial woes and providing them with fair treatment.

  • The National Poverty Commission spearheads the promotion of client protection in microfinance and has developed a consumer protection guidebook, which serves as a compilation of the rules and regulations on consumer protection for financial services.
  • The OECD, in partnership with the Filipino government is working on a financial literacy program, however, its results have not yet been released.
  • The Microfinance Council of the Philippines has a very interesting code of ethics where they state that they will “consistently assess the impact of our services with the objective of exerting extra efforts to lift members and clients out of poverty in the shortest time possible.”

Status of Consumer Protection in Philippines

The economic slowdown of 1997 persuaded then President Joseph Estrada to consider further liberalizing trade and introducing a clear set of rules to attract foreign direct investment. As a result, the General Banking Act and the Securities Regulation Code were introduced along with other reforms aimed to reinvigorate the Philippine economy.

Over time, the banking industry of the country has seen significant transformation guided by reforms carried out by the banking regulator and the government. There have been great improvements in the banking industry regulations among with increased revenues for banks. Moreover, the Philippine banking industry has been undergoing consolidation that will further strengthen its position as new entities will increase the competition level. Furthermore, banks will continue to be supported by a benign economic outlook.

Legal Framework

The Philippine government adopted RA 7394 (Consumer Act of the Philippines of 1991) as the legal basis for consumer protection in the country. The law embodies the state policy on the protection of consumers and establishes standards of conduct for business and industry in the country.

The Act aims to protect the “interest of the consumer, promote his general welfare and establish standards of conduct for business and industry” by adopting the following measures:

  • protection against hazards to health and safety;
  • protection against deceptive, unfair and unconscionable acts and practices;
  • provision of information and education to facilitate sound choice and the proper exercise of rights by the consumer;
  • provision of adequate rights and means of redress; and
  • involvement of consumer representatives in the formulation of social and economic policies.

Directly related to microfinance is Title IV of the Act that states that the government shall “simplify, clarify and modernize the laws regarding credit transactions and encourage the development of fair and economically sound consumer credit practices.” To enhance consumer awareness on the true cost of financial services, the law requires the transparency or full disclosure of the true cost of credit transactions and determination of interest and finance charges. This provision of the act reiterates the intent of RA 3765 (the Truth in Lending Act) requiring creditors and providers of loans, as well as credit-granting NGOs, to furnish their borrowers with information. Prior to the consummation of any transaction, they must provide a clear written statement disclosing the amount, interest and other finance charges related to their loan.

Other Laws, Rules and Regulations that govern Financial Practices in the Philippines are:

Central Bank: Bangko Sentral ng Philipinas (BSP)

The Central Bank supervises the operations of banks, including those engaged in the provision of microfinance services, and exercises regulatory powers over the operations of financing companies and other non-bank financial institutions performing quasi-banking functions. Also, it issues the necessary rules and regulations for the safe and prudent operations of banks and supervises and conducts regular examination of banks to ensure that financial practices and regulations are effectively implemented.

Within the BSP, there exists the Microfinance Group, which specializes in examining the operations of microfinance banks and also the Consumer Affairs Group which specializes in consumer protection.

Financial Literacy program with the help of the OECD

The BSP has embarked on a consumer education program that aims to improve the basic financial literacy of the public.

In line with this financial education program, the BSP approved in January 2004 the creation of the BSP Consumer Education Committee (CEC) which aims to address the basic financial literacy needs of consumers of financial products and services. The objectives of the CEC’s financial literacy advocacy are to:

  • enhance public understanding of the supervisory role of BSP as guardian of financial stability and fair banking practices;
  • increase public awareness and comprehension of various financial products and services; and
  • improve financial consumers’ ability to make informed judgments and confident decisions about financial transactions.

To pursue BSP’s commitment to financial literacy advocacy, the Financial Consumer Affairs Group (FCAG) was created by BSP Governor Amando M. Tetangco Jr. on October 2006.  The creation of the group supports the Supervision and Examination Sector of the BSP, ensuring the protection of depositors and investors and enabling the smooth and orderly functioning of the entire financial system. The objectives of FCAG are aligned with the policy direction of the BSP-CEC, which is to create a consumer education campaign plan to equip consumers with adequate, timely, and relevant information about financial products and services.

With the guiding principle provided by the CEC, FCAG is responsible for conducting advocacy initiatives aimed at educating and supporting the interest of the public on financial literacy issues that include:

  • Assisting consumers on the resolution of complaints or disputes with BSP-supervised financial institutions,
  • Initiating the adoption of or modification of policies, rules, and regulations in line with consumer protection laws and BSP’s financial literacy advocacy, and
  • Providing liaison activities/services between the SES and the public, the legislative, and the financial sector with regard to consumer issues related to use of banking services.

To support the vision of FCAG, the group will embark on a broad-based financial education campaign that will:

  • Facilitate the proper exercise of consumers’ rights and responsibilities,
  • Educate and provide consumers with information about products, services, and transactions offered by BSP-supervised financial institutions, and
  • Minimize the occurrence of consumer victimization by financial frauds and scams.

To achieve FCAG’s objectives, the group will pursue a platform that will support short/medium-term and continuing projects in coordination and partnership with other BSP departments, other regulatory agencies, and private partners involved in financial literacy advocacy.

National Credit Council (NCC)

The NCC was created in 1993 mainly to rationalize and optimize government credit and guarantee programs. It also aims to institutionalize consultation linkages and policy dialogues to encourage a higher level of private sector participation in credit delivery in rural areas. The NCC is an inter-agency body chaired by the Department of Finance (DOF), formulated and approved by the Regulatory Framework for Microfinance Institutions in July 2002. The framework specifically directed the NCC, in coordination with concerned stakeholders, to formulate a uniform set of performance standards that will cut across all types of institutions involved in microfinance. These standards will serve as the microfinance industry benchmarks to allow the comparison of performance among all institutions engaged in the delivery of microfinance services. These benchmarks will also guide regulators in the assessment of financial institutions under their supervision. The Performance Standards for All Types of Microfinance Institutions are based on international best practices, industry benchmarks, and ratios that are being used by different players in the microfinance industry.

National Anti-Poverty Commission (NAPC)

Philippine legislation says that it is the role of the NAPC to:

  • Develop a policy environment, especially in the area of savings generation,
  • Rationalize existing government programs for credit/guarantee,
  • Use the existing government financial entities for the provision of MF products and services for the poor,
  • Promote mechanisms necessary for the implementation of MF services, including indigenous MF practices.

The law also mandates NAPC to monitor the utilization of the People’s Development Trust Fund (PDTF) and perform the following activities:

  • Source funds for the establishment of/and augmentation of PDTF;
  • Recommend the accreditation of organizations/institutions acting as resource partners for institutional development;
  • Ensure that validation/monitoring activities are conducted for PDTF-funded projects; and
  • Promote research and development work on livelihood & MF technology, publications/communications programs for poor beneficiaries

NAPC is spearheading the promotion of client protection in microfinance through its initiatives on financial literacy and on-line filing of the complaints system. Industry advisories have also been issued to ensure the observance of sound and sustainable microfinance practices. They have created a Consumer Protection Guidebook on the status of consumer affairs in the Philippines and the regulatory framework, containing conceptual definitions and sections outlining what consumer protection is, the policies on client protection focused on microfinance, and steps to file and handle consumer complaints and grievances.

Securities Exchange Commission (SEC)

They have developed a code of ethics, under the Client Protection section stating the following: Clients should be presented a Written Client Agreement in a language understood by the client. The contents of the Client Agreement should be:

1.     Name and address,

2.     Undertaking to inform/notify of any material changes,

3.     Description of the nature of services and remuneration/fees to be paid,

4.     Information about firm,

5.     Confirmation of purchases and sales, and

6.     Customer account statement (SRC Rule 52.1-8), including monthly statement of account and the statement contents.


Bankers Association of the Philippines (BAP)

The Bankers Association of the Philippines was the result of the Association of Manila Banks and the Manila Clearing House merger in March 1949. At the time, there were 12 members, today the organization counts 36 members, 14 of them international.

It is the Association’s moral objective to ensure that the stability, robustness, and growth of the financial system is being promoted by maintaining its strong linkages with the legislative body, government institutions, and other banking and bank-related associations. The Association ceaselessly works with its primary regulator, the Bangko Sentral ng Pilipinas, framing banking rules and regulations for the purpose of increasing the efficiency and effectiveness of the banking system’s services to the community.

Much like any other trade organization, the BAP provides a necessary avenue for member banks to raise and discuss issues that affect the commercial banking industry. Acquisition and dissemination of information vitally significant to the membership is a major responsibility of the Association, especially when an emerging market such as the Philippines aims to integrate with global financial markets. Perhaps unique to the BAP is its mandate to act as the unifying voice in dealing with the regulatory authorities in an environment where business interest and backgrounds of domestic vis-à-vis foreign banks are very profoundly diverse. This is so essential in the deliberation of pertinent rules and regulations that it may impair the efficiency and growth potential of the commercial banking industry.

There are no consumer protection principles displayed on their website.

Network Details:

Total Number of Members 36
National Banks 22
International Banks 201,662

Source: Rural Bankers Association of the Philippines (RBAP)

The mission of the Rural Bankers Association of the Philippines is to support the ability of its members to offer quality banking services to all their constituencies, comply with regulatory requirements, and to promote the welfare of the communities in which they operate.

It has close to 694 members. The requirements to become a member of RBAP are:

  • one year debit for monthly dues (P400.00/mo. with 5% discount),
  • list of officers,
  • admission fee of P5,000.00, and
  • certificate of membership from BSP and Federation.

The operating principles of RBAP are:

  • To establish and maintain an organization that supports the ability of members to operate as an aggressive force in the promotion of the civic welfare of the communities in which they operate,
  • To maintain a commitment to developing rural economies and to promoting community enterprise development through good service and sound practices,
  • To develop a pledge of quality and extend this pledge to all rural bank customers, thus ensuring that rural banks remain responsive to their customer base,
  • To develop mechanisms and capacities to serve the banking needs of the broadest range of customers from the smallest to the largest,
  • To work in partnership with BSP and other regulatory bodies to set and maintain the highest standards of compliance,
  • To assist members to learn from each other, to avoid unfair competition and practices and to work effectively in association rather than in competition,
  • To develop a common code of standard banking practices and assist members to operate effectively and efficiently within such practices and standards,
  • To develop and support public confidence in the rural banking system through mechanisms and means that support the ability of the Rural Banking System in providing for careful stewardship of bank resources, and
  • To ensure that the entire system operates as a leader in the field of employee relations setting examples in the rural areas with regard to conditions of employment efficiency and customer service.

Microfinance Council of the Philippines (MCPI)

The Microfinance Council of the Philippines is a network of 44 institutions working towards the rapid development of the microfinance industry in the Philippines. The 45 institutions include 36 practitioners and 9 service providers. While membership among the practitioners is currently dominated by non-government organizations (NGOs), the roster of practitioners also includes microfinance-oriented rural banks and one thrift bank.

There are two types of membership in MCPI: regular and associate membership. Regular members are institutions engaged in retail microfinance operations; membership is restricted to NGOs, thrift banks, development banks, rural banks, cooperatives, and credit unions. To become a regular member, the MFI must have a minimum number of 1,000 active clients and a loan portfolio outstanding of at least PhP 3 million. Associate members are restricted to private and local organizations engaged in the wholesale of microfinance loans, network organizations that assist MFIs, and technical service providers.

MCPI’s code of ethics includes the following points:

  • Provide the poor with permanent and sustainable access to appropriate social and financial services;
  • Charge market rates of interest on loans and savings, avoiding interest rate subsidies or excessive interest rates;
  • Promote and maintain a client-friendly culture among our members of the Board, management, and the entire staff of the organization;
  • Provide access to all forms of information requested by members and clients regarding past, current, and future transactions;
  • Adequately inform members and clients about policies, procedures, and transaction costs in order to enable them to make informed choices and decisions;
  • Treat members and clients with respect and dignity, empathizing with them most especially in times of crisis;
  • Consistently assess the impact of our services with the objective of exerting extra efforts to lift members and clients out of poverty in the shortest time possible.

Network Details:

Total Number of Members 46
Regular Members* 38
Associate Members 8

*Regular members are institutions engaged in retail microfinance operations; membership is restricted to NGOs, thrift banks, development banks, rural banks, cooperatives, and credit unions.


Consumer Protection appears to occupy a very important position on the banking and financial sector debate in the Philippines, at least when referring to microfinance. On paper, there seems to be a great framework to protect consumers from financial woes and provide them with fair treatment.

It is important to note the collaborative initiatives that the OECD began in 2004 alongside the BSP, however, the results of this endeavor have not been made public. Might it be too early to assess the program’s impact? Or are there no clear parameters to make such an assessment? The same holds true for the Consumer Protection codes that have been developed by MCPI and RBAP, the former is very explicit, but how is it applied? The latter promotes consumer protection yet, its codes are not even online.

These profiles are not exhaustive and have not been reviewed by country experts. If you notice a gap or error in any of the profiles, we would very much appreciate your comments about how they can be improved. In this way we can work together to expand our understanding of the variety of client protection strategies and initiatives that are being pursued in different parts of the world.

Consumer protection is a pillar of advancing financial inclusion. To learn more about the research, advocacy and standards work conducted by the Center for Financial Inclusion to protect the interests of low-income, vulnerable consumers in emerging markets, visit our consumer protection page. See also CFI’s Handbook on Consumer Protection for Inclusive Finance for legal guidance on protecting consumers of digital financial servics.

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