The Truth in Lending Act (TILA) contained in Title I of the Consumer Credit Protection Act is a federal law enacted on May 29, 1968 that protects consumers in their dealings with lenders and creditors. The Act mandates that credit and charge card companies disclose their interest rates and other information about an account to the borrower before processing the loan. The information required to be revealed under the Act includes the terms of the loan, the total amount of the loan, the annual interest rate and the number, amount and due dates of all payments for repayment of the loan. The Truth in Lending Act was implemented by the Federal Reserve through a series of regulations.
TILA applies to most types of credit, whether it be closed-end credit (such as an auto loan or mortgage), or open-ended credit (such as a credit card). Though TILA requires additional disclosures and places many restrictions on mortgages, with the exception of certain high-cost mortgage loans that are subject to the requirements of Sec. 226.32, and home equity plans that are subject to the requirements of Sec. 226.5b, TILA does not regulate the charges that may be imposed for consumer credit.
The TILA, implemented by Regulation Z (12 CFR 226), became effective on July 1, 1969. “Regulation Z”, the regulations implementing TILA is codified at 12 CFR Part 226. Most specific requirements imposed by TILA are found in Regulation Z, and therefore a reference to the requirements of TILA usually refers to the requirements contained in Regulation Z, as well as the statute itself.
From time to time, amendments to the Act brought about changes to TILA. The amendments of 1995 dealt primarily with tolerances for real estate secured credit. Regulation Z was amended on September 14, 1996 to incorporate changes to the TILA that limit lenders’ liability for disclosure errors in loans secured by real estate and consummated after September 30, 1995. An amendment to TILA in 1970 prohibited unsolicited credit cards. Additional major amendments to the TILA and Regulation Z were made by the Fair Credit Billing Act of 1974, the Consumer Leasing Act of 1976, the Truth in Lending Simplification and Reform Act of 1980, the Fair Credit and Charge Card Disclosure Act of 1988, the Home Equity Loan Consumer Protection Act of 1988, the Home Ownership and Equity Protection Act of 1994, the TILA Amendments of 1995, and the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). By 73 Fed. Reg. 44522, dated July 30, 2008, the final rules amending Regulation Z, 12 CFR part 226, which implements the Truth in Lending Act and Home Ownership and Equity Protection Act, effective on October 1, 2009 was published.[i]
The ultimate aim of TILA is to protect consumers in their dealings with lenders and creditors and to ensure that consumers are aware of the terms and costs of credit.[ii] This will help the consumer compare different loans and help them in settling for the best. TILA requires that consumers must be provided with a written disclosure of the costs associated with a mortgage loan, such as Annual Percentage Rate (APR), finance charges, and annual fees. Also known as Regulation Z, TILA gives consumers the right to cancel certain credit transactions that involve a lien on the consumer’s principal dwelling.[iii]
Though each state has its own variations of TILA, the most important feature of TILA remains the proper disclosure of key information to protect both the consumer and the lender in credit transactions.
[i] 15 USCS Appx 12 CFR prec § 226.1
[ii] 15 USCS Appx 12 CFR § 226.1