The Truth in Lending Act (TILA) protects borrowers by requiring banks and other institutions who offer loans to make appropriate disclosures before lending funds. Originally enacted as Title 1 of the Consumer Credit Protection Act, TILA is designed to protect against unfair lending practices. The law benefits general borrowers and homeowners who finance their house purchase with a mortgage or an equity line of credit.
Under TILA, creditors are protected against the following practices by lenders:
- Unfair credit billing
- Unfair credit card practices
- High-pressure sales
- Failure to disclose
The Truth in Lending Act protects borrowers by:
- Requiring full disclosure of loan costs and terms
- Creating the right of rescission (allowing creditors to back out from loans in a limited time)
- Providing channels for alternative dispute resolution
- Directing borrowers to put creditors on notice when their mortgage is reassigned
- Placing caps on high cost mortgages and some types of home equity lines of credit
- Providing better protections for borrowers’ primary residences secured by loans
Here are some types of credit to which TILA applies:
- Equity line of credit
- Revolving line of credit (such as a credit card)
- Auto loans
The Truth in Lending Act also restricts lenders’ conditional loans that require borrowers to purchase additional investments. For example, a lender can’t compel you to purchase a life insurance policy in addition to your auto loan.
While homebuyers have three days to rescind on a mortgage, under federal law, other loans violating TILA may be rescinded much later—even up to three years.
A majority of courts (including the 9th Circuit Court of Appeals) require borrowers rescinding their loans to seek a court judgment and prove TILA violations in court. Borrowers must initiate this lawsuit within a three year deadline. Furthermore, if borrowers rescind, they must pay back the loan principal. Only then do borrowers receive a refund of interest and fees.
Other courts (such as the 3rd and 4th Circuits) clearly create a huge advantage for the borrowers because they do not require borrowers to sue banks to prove TILA violations within the three year deadline. Moreover, they may not even end up paying back the entire loan principal because they can use the letter of rescission and a potential lawsuit as leverage to negotiate for a lower payback amount.
The Truth in Lending Act may be triggered in many ways. Here are examples of when you may have a TILA claim:
- A lender changed the terms of your home equity line of credit without your knowledge and consent.
- A lender did not provide you with an accurate and truthful rate calculation
- You are charged hidden or other inappropriate fees that your lender failed to disclose.
If there is a TILA claim, you may have several lawsuit options available, including an individual lawsuit, a counter-suit (if your lender is suing you), or a class action.
If you have been a victim of unfair lending practices or high-pressure sales tactics, you may need advice from an experienced consumer protection attorney. An attorney can help you fully understand your rights under the Truth in Lending Act.