The TILA helps consumers in comparison-shopping for credit; it contains guidelines and restrictions on advertising by requiring rates to be disclosed as annual percentage rates (APRs), and the disclosure of the costs associated with obtaining credit. Depending on whether or not the creditor is offering open-end credit, such as credit cards or home-equity lines of credit, or closed-end credit, such as car loans or mortgages, the rules of disclosure the creditors must follow also differs.
The regulation contains six subparts. The Truth in Lending (TIL) law is basically structured through subparts A through F.
- Subpart A [sections 226.1 through 226.4] contains generic information about the authority, purpose, coverage, and organization of the Truth in Lending Act. It sets forth some basic definitions, the method for cost calculation and states about transactions that are covered and that are exempt from the regulation.[i] It also contains method of determining the finance.
- Subpart B [sections 226.5 through 226.16] establishes rules for open-end credit, and contains disclosure rules for home-equity lines of credit such as prohibitions against closing accounts or changing account terms, credit and charge card accounts, and other open-end credit.[ii] This subpart requires that initial disclosures and periodic statements be provided. Additional disclosures are required for credit and charge card applications. Subpart B also states rules for resolving billing errors, calculating the annual percentage rate (APR), and credit balances. The rules for advertising open-end credit are contained in this subpart. It also lays down the rules prohibiting issuance of credit cards and places restrictions on the right to offset a cardholder’s indebtedness.[iii]
- Subpart C [sections 226.17 through 226.24] relates to closed-end credit. It contains rules on disclosures, treatment of credit balances, annual percentage rate calculations, rescission requirements, and advertising.[iv] It also deals with first and second mortgage and Home Equity Loans including residential mortgage transactions, demand loans, and installment credit contracts. Closed-end credit category includes direct loans by banks and purchased dealer paper, as also disclosure rules for regular and variable rate loans, credit balances, calculating the APR, and advertising closed-end credit.[v]
- Subpart D [sections 226.25 through 226.30] contains regulations for oral and other-than-English language disclosures.[vi] It applies to both open-end and closed-end credit and sets forth a creditor’s duty to retain evidence of compliance with the regulation.[vii] It also clarifies the relationship between the regulation and state law, and sets rate limitations that require creditors to set a cap for variable rate transactions secured by a consumer’s dwelling.[viii]
- Subpart E [sections 226.31 through 226.34] contains special rules for home mortgage transactions. The mortgage under this subpart includes high-cost, closed-end mortgages and reverses mortgages.[ix] It requires additional disclosures and provides limitations for certain home mortgage transactions having rates or fees above a certain percentage or amount; it prohibits specific acts and practices in connection with such mortgage transactions; and it includes disclosure requirements for both open-end and closed-end credit reverse mortgage transactions.[x]
- Subpart F [section 226.36] contains the requirements for electronic communications. These provisions relate to the requirements of the E-Sign Act regarding the electronic delivery of required disclosures.
The regulations also contain an appendix that set forth model forms and clauses that creditors may use when providing open-end and closed-end disclosures. The appendixes contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, and the rules for computing annual percentage rates in closed-end credit transactions and total annual loan cost rates for reverse mortgage transactions.
[i] 15 USCS Appx 12 CFR § 226.1
[ii] 15 USCS Appx 12 CFR § 226.1
[iii] 15 USCS Appx 12 CFR § 226.5
[iv] 15 USCS Appx 12 CFR § 226.1
[v] 15 USCS Appx 12 CFR § 226.17
[vi] 15 USCS Appx 12 CFR § 226.27
[vii] 15 USCS Appx 12 CFR § 226.1
[viii] 15 USCS Appx 12 CFR § 226.28
[ix] 15 USCS Appx 12 CFR § 226.32
[x] 15 USCS Appx 12 CFR § 226.1