The Truth In Lending Act, A New Federal Standard

The Truth in Lending Act or TILA for short is a federal law that was passed by the U.S. Congress in 1968. The TILA was passed for the purpose of protecting American consumers in regards to their dealings with creditors and lenders. Under the TILA, lenders, creditors, and other related parties and financial institutions are required to disclose the terms and conditions of their lending practices when engaging with borrowers, as well as provide said borrowers with information concerning the annual percentage rate or APR of the loan and the total costs that borrowers will occur by taking out a loan. Moreover, the law also mandates that all information that is disclosed to consumers is done so in a conspicuous manner, including the initial documents that are presented to consumers, as well as billing statements in some cases. The TILA has been amended over the years to adjust to growth and changes within the credit and lending industry within the U.S.

What are the provisions of the TILA?

The TILA provides American consumers with a number of protections as it relates to their interactions and engagement with creditors and lenders. Most notably, the law mandates the following forms of information are disclosed to consumers before closing on loans or lines of credit, otherwise known as a Truth in Lending or TIL disclosure:

• The annual percentage rate or APR
• The associated finance charges.
• The payment schedule.
• The total amount to be financed.
• The total amount of payments that will need to be paid over the life of the loan.

In addition to disclosing certain information to consumers prior to a loan or credit agreement, the TILA also provides consumers with a right of rescission for certain types of loans. Under this right of rescission, a consumer has the right to be given a “three-day cooling-off period”, during which they can reconsider the terms of the loan or credit agreement they have been seeking and decide to call of their decision without losing any money. This right of rescission is designed to protect consumers from predatory lending practices, such as instances in which a consumer agrees to the terms of loan or line of credit without being provided all the pertinent information concerning such an agreement, as well as instances in which a creditor or lender utilizes high-pressure sales tactics to offer credit services to consumers.

What types of credit are covered by the TILA?

The provisions and protections set forth in the TILA are applicable to a variety of different types of credit. Some of these types of credit include:

• Open-end credit- Some common examples of open-end credit include credit cards, bank cards, department store cards, and home equity lines of credit or HELOCs for short. Under the TILA, financial institutions that offer such lines of credit are required to disclose pertinent information regarding their services, provide specific details about any periodic changes in terms, and follow strict guidelines in regards to sales pitches and new applications.
• Close-end credit- Some common examples of closed-end credit include mortgage and car loans. Under the TILA, financial institutions that offer such loans are required to disclose information detailing loan and billing terms and comply with regulations concerning penalties and fees, as well as adhere to a litany of other various requirements.

Alternatively, there are certain financial transactions concerning credit and loan services that are exempt from the TILA. These transactions include:

• “Credit extended primarily for a business, commercial, or agricultural purpose.”
• “Credit extended to other than a natural person (including credit to government agencies or instrumentalities).”
• “Credit in excess of $25 thousand not secured by real or personal property used as the principal dwelling of the consumer”.
• “Public utility credit.”
• “Credit extended by a broker-dealer registered with the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), involving securities or commodities accounts”.
• “Home fuel budget plans.”
• “Certain student loan programs.”

What are the penalties for violating the TILA?

There are a variety of sanctions that can be imposed against financial institutions and lenders who fail to comply with the provisions of the TILA. For example, in instances where a creditor fails to disclose the forms of information that they are required to disclose under the provisions of the TILA, they can be held liable for any financial harm that a consumer may suffer as a result of such a failure to disclose. To this end, the TILA is enforced by the Federal Trade Commission or FTC for short. As such, the FTC has the authority to impose a monetary penalty of up to $5,000, a term of imprisonment of up to one year, or both. Furthermore, American consumers also have the right to pursue private remedies in regards to violations of the TILA, and are eligible to seek actual and statutory damages, as well associated attorney and court fees.

As loans and lines of credit are the primary means by which many American citizens are able to finance their lifestyles and subsequently advance their position with society, ensuring that transactions are regulated is of the utmost importance. As such, much like the Fair Credit Reporting Act or FCRA, the Truth in Lending Act provides Americans with various protections as it pertains to lines of credit and loans, ensuring that certain information is disclosed to them in a timely, transparent, and non-predatory manner. More importantly, however, the law also provides consumers with a means to receive financial compensation in situations where their rights are violated under the law.