Truth in Lending Act: Know Your Rights

The Truth in Lending Act has been a federal law since it passed in 1968. It is meant to protect consumers from bad lending practices by setting forth disclosing requirements for terms and costs of the loan. The act is actually part of the Consumer Credit Protection Act. Included in the act is the explicit right of consumers to cancel some types of credit transactions and stop unfair collections practices. 

What Does the TILA Apply to?

The TILA extends to all businesses and persons who extend credit based on four primary conditions:

  1. The credit is given to consumers

  2. The action is carried out regularly, typically meaning more than 25 times

  3. The credit is extended on a finance charge or paid back with more than four installments

  4. The credit is for personal, family or household purposes (i.e., does not extend to business loans)

Credit cards are a unique type of credit and may be subject to regulations even if they do not meet the above criteria. In 2009, new credit card legislation was enacted that further extends regulations on credit cards. The TILA does not extend to student loans, which are governed by a separate act. Mortgages are also typically subject to separate regulations depending on the size of the mortgage.

What Disclosures Are Required?

The type of disclosures required depends on whether the transaction is close-ended or open-ended. However, some are consistent across the board such as:

  • Identity of the creditor

  • Amount or limit being financed

  • Full itemization of the amount financed

  • Annual percentage rate, including any adjustable-rates that are applicable

  • Finance charge or method of determining the finance charge

  • Prepayment/late payment penalties and fees

  • Sales cost, demand feature, security interest, insurance where applicable

You can ask for a list of all disclosures required with most creditors. You can also look up the TILA online for a discussion of what qualifies as a close-ended and open-ended loan. 

How are Institutions Penalized for Violations?

A creditor has 60 days to correct any violation so long as a written suit or notice from the consumer has not been filed. This means it is in the consumer's best interest to file a written report immediately in order to fully utilize the TILA to resolve the issue. If a creditor can prove that incident was an unintentional error, the creditor may not be held responsible criminally but will still have to correct the error. 

Consumers have one year to file a law suit. They may ask for all actual damages, attorney and court fees and any statutory damages. There are nine administrative agencies who may also pursue a law suit against a lender violating the TILA, including the Federal Reserve System and the FDIC. These agencies can issue cease and desist orders and issue finds up to $1,000 or a year in prison for violations. 

 

 


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