Truth in Lending Act

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Credit cards, loans, and other lines of credit are vital to the spending that drives the American economy forward. Without access to credit, small business would struggle to expand, you wouldn’t be able to buy a new car, or finance a remodeling project on your home. Unfortunately, creditors and other lenders have, in the past, used unfair practices to deceive and otherwise mislead consumers.

Without a clear concept of the terms and conditions you enter into when you take out a loan or open a new credit card, you could be exposed to outrageously high interest rates or unfair payment schedules that risk your financial health for the sake of the bottom line of a creditor or lender. The Truth in Lending Act (TILA) was crafted to prevent you and all consumers from unfair practices in the lending industry.

Overview of the Truth in Lending Act

The Truth in Lending Act was originally enacted in 1968 with the goal of protecting consumers against predatory or unfair practices on the part of lenders and creditors. TILA was enacted over time by the Federal Reserve using a series of regulations. Overall, the purpose of the act is to promote informed use of consumer credit by requiring lenders and creditors to provide disclosures about the terms and conditions of use, as well as information about how costs associated with borrowing money are calculated and disclosed.

TILA gives any consumer the right to cancel credit transactions that involve a lien on a primary dwelling, provides regulation over certain credit card practices, and offers consumers the opportunity to result credit billing disputes in a fair and timely manner. The act does not regulate any charges or costs imposed on consumer credit by lenders, but rather, seeks to establish uniform disclosure of costs and charges so that consumers can accurately shop for affordable financing and credit options.

Originally part of the Consumer Credit Protection Act, enacted in 1968, the modern version of TILA was adopted as a separate law in 1987.

Evolution of the Truth in Lending Act

Regulations established and maintained under TILA have been implemented over time using the title Regulation Z. The Federal Reserve Board had control over the implementation of new regulations through July 2011, at which point the creation and implementation of new guidelines under TILA was transferred to the Consumer Financial Protection Bureau.

A big reason for the constant evolution of TILA was the existence of loopholes created by the language in the original bill from 1968. For example, during the 1980s many auto lenders began to exploit a specific loophole regarding the term APR in financing. Previously, consumer loans were reported by APR numbers in a meaningful way.

In the 1980s however, auto manufacturers and lenders created a boom in “zero percent APR” advertising by bundling the amount financed and the finance charges in an auto purchase together in the total amount. This allowed auto manufacturers and lenders to shift money between the categories, and eliminating finance charges entirely.

This particular instance created a circumstance where banks, credit unions, and other lenders were left at a disadvantage because they could not bundle financing amounts, and misled consumers about the long-term value and cost of a loan. In declining to provide the true APR rates, auto makers claim to offer consumers with no interest costs, and force them to choose between complex financial situations.

Structure of the Truth in Lending Act

TILA is organized into various subparts. Each of these subparts relates to different types or forms of credit. The subparts you need to be aware of include:

  • Subpart B: This section deals with open-end credit lines such as credit card accounts or home-equity lines of credit.
  • Subpart C: This section covers closed-end credit, such as loans to purchase a home or a motor vehicle loan with a fixed loan term. Specifically, it contains regulations and guidelines for disclosures, treatment of credit balances, how annual percentage rates are calculated, rescission rights, non-requirements, and advertising schemes.
  • Subpart D: This section focuses on oral disclosures, including Spanish language disclosures in Puerto Rico. Also covered under this subpart are record retention, effect on state laws, state exemptions, and rate limitations.
  • Subpart E: This section applies strictly to mortgage transactions, establishing special rules for these credit lines that include:
    • Requirements for certain closed-end home mortgages
    • Transaction disclosures and annual loan cost rates for reverse mortgages
    • Prohibits “high-cost” mortgages
    • Prohibits “higher-priced” mortgages
    • Prohibits credit secured by a dwelling
    • Establishes guidelines for mortgage transfer disclosure guidelines
    • Requirements for home equity plans
    • Promotes valuation independence.

TILA is an incredibly complex law. It also contains several appendices that provide information on procedures for determining specific state laws, state exemptions, and the issuance of staff interpretations, as well as special rules for certain credit plans, a list of enforcement agencies, and rules for computing annual percentage rates (in closed-end transactions) and total annual loan coast rates (in reverse mortgages).

Confused? Seek the Help of Fair Debt Lawyers

The important thing to remember is that TILA exists to regulate what credit and lending companies can advertise and say about the benefits of their particular loans or services. The key feature of the act is the proper disclosure of information so that you, as a consumer, can make an informed, financially safe, decision regarding a potential loan, new credit card, or other line of credit.

If you feel overwhelmed by the complexity of the law, and believe you have been the victim of predatory lending practices, we encourage you to contact the legal experts at Fair Debt Lawyers. It is our job to familiarize ourselves with the ins and outs of the Truth in Lending Act. Our team of legal professionals knows which practices are fair under TILA, and which practices represent a clear violation of the guidelines.

Contact Fair Debt Lawyers today to gain the insight you need into TILA, and potential violations of the act. We’ll help establish the validity of your case, and represent you in litigation against the creditor or lender whose practices run against the parameters of the Truth in Lending Act.