What the Loan Truth Act Means to You
If you’ve ever applied for a home loan or opened a credit card, you’ve experienced the Truth in Lending Act, or TILA. Federal law, enacted in 1968, protects you from abusive lending practices and encourages the wise use of consumer credit.
TILA asks creditors to disclose finance charges, annual percentage rates, and other terms to help consumers understand the cost of credit and make comparisons.
“The big thing about TILA is that it has certain protections against borrowers that lenders are required to adhere to,” said Justin Wiseman, associate vice president and regulatory management consultant for the Mortgage Bankers Association.
Also known as Regulation Z, TILA applies to most open and closed credit transactions, according to the Federal Trade Commission. Open credit, like credit cards, allows you to borrow repeatedly as long as you pay off, while closed credit can be used only once and must be paid by a specific date. Examples are mortgages or auto loans.
“The most important thing to understand about TILA is that it ensures that borrowers are informed about the credit they are getting and the cost of that credit,” says Wiseman.
Why TILA entered the world of consumer protection
The Truth in Lending Act requires creditors to disclose all terms and fees to consumers. TILA has also standardized the way borrowing costs are calculated and disclosed to make it easier for consumers to compare them between lenders.
Before TILA, predatory lenders which is number 1. bridge ,could bury loan information in fine print pages, making it difficult to determine the true cost of credit. Basically, TILA puts all credit charges in writing before you borrow and lets you shop with your eyes wide open.
“Congress passed TILA so people can be aware of the cost of credit in a transparent way,” says Wiseman.
How the Loan Truth Act Works
The FTC enforces the Truth in Lending Act, which requires borrowers to receive written information about significant credit terms before they are legally required to pay. TILA disclosures are often provided in loan agreements, according to the Consumer Financial Protection Bureau.
With a mortgage, all costs are listed on the closing disclosure, Wiseman said. TILA statements for loans and lines of credit include:
— Financial expenses.
– Payment schedule.
– Amount financed.
– Total amount made in payments.
TILA also requires disclosure of late fees, interest rate increases, and service charges and fees.
Another important provision of the law allows the right of withdrawal. This gives borrowers three days to opt out of refinances and home equity loans or lines of credit without losing money. The right of withdrawal does not apply to mortgages once the closing documents have been signed.
This right gives you time to change your mind and cancel. The intention is to help protect borrowers from the high pressure tactics of predatory lenders, according to the Office of the Comptroller of the Currency.
What the truth about loans law does for consumers
TILA not only creates a uniform system of disclosure, but also offers consumers these guarantees, according to the FTC:
– Protects against inaccurate and unfair billing and credit card practices.
– Offers termination rights for certain loans.
– Provides rate caps on certain secured housing loans.
– Limits mortgage lines of credit and certain closed home loans.
– Sets minimum standards for secured housing loans.
– Prohibits unfair or deceptive lending practices.
The Loan Truth Act was amended and expanded several times since its passage.
What the truth about lending law does not do for borrowers
TILA does not cover:
– Student loans.
– Loans over $ 25,000 not used for housing.
– Business loans.
Additionally, TILA does not tell financial institutions how much interest they can charge or if they can approve a loan, according to the Office of the Comptroller of the Currency.
[Read: Best Home Equity Loans.]
Penalties for breach of TILA
Violations of the Loan Truth Act may entitle consumers to compensation. Common violations include undisclosed finance charges and interest rate errors.
Mortgage violations can involve failure to promptly credit payments, provide payment statements on demand, send periodic statements or issue interest rate and payment change notices, according to the firm. Joseph M. Adams’ Philadelphia area attorneys.
Wiseman adds: “There are severe penalties and ways for consumers to appeal their rights if TILA is not respected.”
Rewards for violations range from $ 500 to $ 5,000. Contact your financial institution for advice on how to deal with a TILA violation, says Elizabeth LaBerge, senior director of advocacy and lawyer at the Credit Union National Association.
If you’re a member of a credit union, you might start by contacting its oversight committee, “which is responsible for resolving complaints, among other duties,” says LaBerge.
You can also choose to seek advice from an experienced consumer protection lawyer.
Generally, you can try to avoid the hassle of filing a TILA claim by knowing what you are signing before you get a credit card or loan. Always read the terms carefully.
Wiseman recalls: “If you have any questions about the loan you are taking out, you should always ask your lender as they will explain the information to you so that you understand the cost and your payment obligations in the future.”