Truth in Lending Act
Encyclopedia
The Truth in Lending Act (TILA) of 1968 is United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.
TILA also gives consumers the right to cancel certain credit transactions that involve a lien
on a consumer's principal dwelling, regulates certain credit card
practices, and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high-cost mortgage loan
s, TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires uniform or standardized disclosure of costs and charges so that consumers can shop. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and certain higher-cost mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer's principal dwelling
.
, . 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.
From TILA's inception, the authority to implement the statute by issuing regulations was given to the Federal Reserve Board. However, on July 21, 2011, TILA's general rulemaking authority was transferred to the Consumer Financial Protection Bureau, which was established on that date pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act which was enacted in July 2010. The Federal Reserve will retain some limited rulemaking authority under TILA for loans made by certain motor vehicle dealers, and for certain provisions related to tits
Subpart B relates to open-end credit lines (revolving credit
accounts), which includes credit card accounts and home-equity lines of credit (HELOCs).
Subpart C relates to closed-end credit, such as home-purchase loans and motor vehicle loans with a fixed loan term. It contains rules on disclosures, treatment of credit balances, annual percentage rate
calculations, right of rescission,non requirements, and advertising.
Subpart D contains rules on oral disclosures, Spanish language
disclosure in Puerto Rico
, record retention, effect on state laws, state exemptions (which only apply to states that had Truth in Lending-type laws prior to the Federal Act), and rate limitations.
Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Section 226.33 requires disclosures, including the total annual loan cost rate, for reverse mortgage
transactions. Section 226.34 prohibits specific acts and practices in connection with mortgage transactions.
Several appendices 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, model disclosures which if used properly will ensure compliance with the Act, and the rules for computing annual percentage rate
s in closed-end credit transactions and total annual loan cost rates for reverse mortgage
transactions.
TILA also gives consumers the right to cancel certain credit transactions that involve a lien
Lien
In law, a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation...
on a consumer's principal dwelling, regulates certain credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
practices, and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high-cost mortgage loan
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
s, TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires uniform or standardized disclosure of costs and charges so that consumers can shop. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and certain higher-cost mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer's principal dwelling
Dwelling
Dwelling, as well as being a term for a house, or for living somewhere, or for lingering somewhere, is a philosophical concept which was developed by Martin Heidegger. Dwelling is about making yourself at home where the home itself is a building that is a house...
.
History
The Truth in Lending Act was originally Title I of the Consumer Credit Protection ActConsumer Credit Protection Act
The Consumer Credit Protection Act, , composed of several titles relating to consumer credit, mainly title I, the Truth in Lending Act, title II related to extortionate credit transactions, title III related to restrictions on wage garnishment, and title IV related to the National Commission on...
, . The regulations implementing the statute, which are known as "Regulation Z", are codified at 12 CFR
Code of Federal Regulations
The Code of Federal Regulations is the codification of the general and permanent rules and regulations published in the Federal Register by the executive departments and agencies of the Federal Government of the United States.The CFR is published by the Office of the Federal Register, an agency...
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.
From TILA's inception, the authority to implement the statute by issuing regulations was given to the Federal Reserve Board. However, on July 21, 2011, TILA's general rulemaking authority was transferred to the Consumer Financial Protection Bureau, which was established on that date pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act which was enacted in July 2010. The Federal Reserve will retain some limited rulemaking authority under TILA for loans made by certain motor vehicle dealers, and for certain provisions related to tits
Organization
The regulation is divided into subparts.Subpart B relates to open-end credit lines (revolving credit
Revolving credit
Revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Examples of revolving credits used by consumers include credit cards. Corporate revolving credit facilities are typically used to provide liquidity for a company's day-to-day...
accounts), which includes credit card accounts and home-equity lines of credit (HELOCs).
Subpart C relates to closed-end credit, such as home-purchase loans and motor vehicle loans with a fixed loan term. It contains rules on disclosures, treatment of credit balances, annual percentage rate
Annual percentage rate
The term annual percentage rate , also called nominal APR, and the term effective APR, also called EAR, describe the interest rate for a whole year , rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate...
calculations, right of rescission,non requirements, and advertising.
Subpart D contains rules on oral disclosures, Spanish language
Spanish language
Spanish , also known as Castilian , is a Romance language in the Ibero-Romance group that evolved from several languages and dialects in central-northern Iberia around the 9th century and gradually spread with the expansion of the Kingdom of Castile into central and southern Iberia during the...
disclosure in Puerto Rico
Puerto Rico
Puerto Rico , officially the Commonwealth of Puerto Rico , is an unincorporated territory of the United States, located in the northeastern Caribbean, east of the Dominican Republic and west of both the United States Virgin Islands and the British Virgin Islands.Puerto Rico comprises an...
, record retention, effect on state laws, state exemptions (which only apply to states that had Truth in Lending-type laws prior to the Federal Act), and rate limitations.
Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Section 226.33 requires disclosures, including the total annual loan cost rate, for reverse mortgage
Reverse mortgage
A remortgage is a form of equity release available in the United States. It is a loan available to seniors aged 62 or older, under a Federal program administered by HUD. It enables eligible homeowners to access a portion of their equity...
transactions. Section 226.34 prohibits specific acts and practices in connection with mortgage transactions.
Several appendices 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, model disclosures which if used properly will ensure compliance with the Act, and the rules for computing annual percentage rate
Annual percentage rate
The term annual percentage rate , also called nominal APR, and the term effective APR, also called EAR, describe the interest rate for a whole year , rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate...
s in closed-end credit transactions and total annual loan cost rates for reverse mortgage
Reverse mortgage
A remortgage is a form of equity release available in the United States. It is a loan available to seniors aged 62 or older, under a Federal program administered by HUD. It enables eligible homeowners to access a portion of their equity...
transactions.