TILA – Truth In Lending Act of the Consumer Credit Protection Act

The Truth in Lending Act was originally Title I of the Consumer Credit Protection Act, Pub.L. 90-321, 82 Stat. 146, enacted June 29, 1968. The regulations implementing the statute, which are known as “Regulation Z”, are codified at 12 CFR Part 226. Most of the specific requirements imposed by TILA are found in Regulation Z, so a reference to the requirements of TILA usually refers to the requirements contained in Regulation Z, as well as the statute itself.

Truth-in-Lending disclosures were established to create a standard method of how loan information was to be documented and presented to prospective borrower/homeowners. However, the information presented to the prospective borrower/homeowner is not fully explained in layman’s terms so the average borrower/homeowner can fully understand all the financial implications of getting the loan especially when it comes to the amount that is owed over the life of the loan (15 years, 20 years, or 30 years).

It is the law that when you apply for credit to secure a mortgage, prior to initiating any loan, the prospective lender must supply the information this enables you to shop for the best possible rate prior to initiating any transactions with any lender. This method should be used to help the borrower receive favorable terms based on their current financial situation.

By Law a TILA Statement Includes:

  •  Annual Percentage Rate – The cost of borrowing based on your credit over a yearly period. The APR can differ among different financial institutions.  The most important factor is not the interest rate presented to you, but the APR over a period of time – the higher the APR, the more fees and charges you will be paying.
  • Finance Charges – Regulation Z of Federal Truth in Lending Act – The amount that you will pay for interest charges and other fees pertaining to the loan. Regulation Z outlines what charges and fees may apply and be eligible to qualify as finance charges.
  • Other Charges – Not fully explained on TILA statements by lender or broker.

*The total amount financed should include the following:

  1. Principal loan amount (how much you plan to purchase the home)
  2. Other Fees that your lender charges (these are not finance charges)
  3. Finance Charges for the loan
  4. FINAL AMOUNT YOU OWE  $$

Sources:

  1. Truth in Lending Act http://en.wikipedia.org/wiki/Truth_in_Lending_Act
  2. 15 U.S.C.A. § 1601 et seq http://www.fdic.gov/regulations/laws/rules/6500-200.html
  3.  Regulation Z http://www.fdic.gov/regulations/laws/rules/6500-1400.html
  4. Violations of TILA http://www.citizen.org/documents/TILA.pdf