The Truth in Lending Act, or TILA, is a federal statute that was enacted in 1968, to provide protections which were not previously guaranteed, to consumers who used credit for purchases. This included both open-ended credit, such as credit cards, and closed-ended credit, such as home and auto loans.
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When Does the Truth in Lending Act Apply to Creditors?
The TILA does not govern interest rates, but does require that interest rates and other terms of credit or loan agreements to be disclosed to consumers. The information must be provided prior to a consumer signing a contract for a loan or credit. This allows consumer to shop among lenders and pick the one that has the most favorable terms.
Creditors are subject to the TILA if all of the following requirements are met:
- Credit is offered to consumers;
- Credit if offered or extended regularly (more than 25 times per year);
- The credit if mostly for household, personal and family purposes; and
- The credit is subject to a finance charge or payable in more than four installments, by written agreement/
The Act does not apply to:
- Creditors who extend credit mostly for business, commercial, agricultural, or organizational purposes;
- Student loan programs; and
- Close-ended Credit Transactions (ex. Sales credit and loans).
What Must a Creditor Disclose to a Consumer?
A creditor must provide the following information to a consumer for closed-ended credit transactions:
- Identity of the creditor;
- Amount financed;
- Itemization of amount financed;
- Annual percentage rate, including applicable variable-rate disclosures;
- Finance charge;
- Total of payments;
- Payment schedule;
- Prepayment/late payment penalties; and
- If applicable to the transaction:
- Total sales cost;
- Demand feature;
- Security interest;
- Insurance;
- Required deposit; and
- Reference to contract.
A creditor must provide the following information to a consumer for open-ended credit transactions:
- Annual percentage rate including applicable variable-rate disclosures;
- Method of determining finance charge and balance upon which finance charge imposed, as explained in 12 C.F.R. Sec. 226.6;
- Amount or method of determining any membership or participation fees;
- Security interests if applicable to transaction;
- Statement of billing rights; and
- Periodic account statement.
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What Happens If a Creditor Violates the Act?
Creditors are liable for not meeting all of the disclosure requirements, even if the consumer is not harmed by the creditor’s failure to disclosure. However, there are two exceptions:
- The error is corrected within 60 days of discovery by the creditor (not by the consumer); or
- The failure to disclose is a genuinely unintentional error.
Consumers may, if necessary, file suit against the creditor in any U.S. District court. A statute of limitations of one year generally applies.
Complaints may also be filed with the Federal Trade Commission, the agency responsible for regulating creditors.
Should I Consult an Attorney?
If you believe you have been subject to a violation of your rights under the Truth in Lending Act, you may wish to contact a local finance attorney, who can explain your rights and potential remedies under the Act. If your creditor/lender clearly violated the law, then it is possible for you to file a lawsuit or be able to dispute any penalties you might be facing.
It's important to have all documentation and information about your situation at hand, and that you already filed a claim with the FTC and other government agencies. Taking these first steps will give your lawyer the best chance for success!
