Whenever you are thinking of acquiring a loan or credit, it is understandable that certain doubts and concerns come to your head. And of course, no one wants to be the victim of a scam or some abusive lender. This is why you need to have in mind the Truth in Lending Act.
Any situation that includes your money involved, is delicate, especially if you go into obtaining an installment loan online or any credit you find on the web. It is normal to feel distrust and ask for consumer protection.
After you read this article you will know:
- What is the Truth in Lending Act;
- Importance of the Truth in Lending Act;
- What is its appliance.
If you have a credit card or home loan, you are already protected by the Truth in Lending Act (TILA). The primary objective of this legislation is to protect consumers from abusive credit practices, and it also promotes the right to informed use of consumer credit.
Based on the TILA, it is the obligation of creditors to provide information on finance charges, annual percentage rates, and other terms to help consumers understand the cost of credit and based on that data have the opportunity to compare it with other similar products.
Also known as Regulation Z, it applies to most open and closed credit transactions, according to the Federal Trade Commission (FTC). Open credit, like credit cards, is what allows you to borrow repeatedly as long as you pay the debt on time. Closed credit can be used once and must be paid before a specific date. The most common are mortgages, personal or car loans.
In a nutshell, TILA is the federal law that guarantees that borrowers will receive all the information and regulations about the credit they are obtaining and its cost, to avoid surprise charges.
This could be illegal on the part of the lender.
In a more detailed way and so that you can better understand your rights with the federal truth-in-lending act, we will tell you what information you should receive when applying for a loan or mortgage:
- How much is the financing charge: It refers to the amount of money it costs you to take the loan.
- What is the Annual Percentage Rate: Also known as APR, it refers to the total cost of the loan taking into account other prepaid expenses such as discount points. The APR is expressed in a percentage rate that helps you compare offers. For example, if you have loan estimates at the same interest rate, but one has a higher APR than the other, you should check to see if you have mortgage insurance, or if one has higher closing costs than another.
- How much is the financed amount: It refers to the amount of money you are borrowing. It is a requirement that you know this information in detail.
- The total payments that you will make with the loan you request: It refers to the total payments that you would be making throughout the life of the loan. For example, if your loan is for 30 years, you will pay 360 installments and if it is for 15 years, you will pay 180 payments.
Total sale price: It refers to the total sale price, including the prompt payment and the amount of the loan you are taking.
With TILA you avoid misleading information, false lenders, and opportunists. Before, lenders used to provide misleading information about real information that was hidden in contracts in a kind of ineligible “fine print”. In addition, consumers tended to be more careless when they were not aware of the terms and ended up signing contracts that they did not even read.
This United States federal law prevents these types of circumstances because all credit costs are in writing and must be explained before borrowing.
The FTC is enforcing the Truth in Lending Act, requiring that borrowers receive written disclosures about important credit terms before they are legally obligated to repay. TILA disclosures are often provided in loan agreements, according to the Consumer Financial Protection Bureau.
For example, when you open a mortgage, all costs are stated in the closing disclosure. There you should find out about the annual interest rate, finance charges, payment schedule, financed amount, the total amount made in payments, among other details.
Also essential is the disclosure of late fees, interest rate increases (if any), charges, and fees for services.
Another important provision of the law allows the right of withdrawal. This gives borrowers three days to cancel refinances and home equity loans or lines of credit without losing money.
The right of withdrawal does not apply to mortgages once the closing documents are signed. This right gives you time to change your mind and cancel. The intent is to help protect borrowers from the high-pressure tactics of predatory lenders.
The Truth in Lending Act applies to any person or company that regularly offers consumer credit that is subject to a finance charge or requires a written agreement for payments in more than four installments.
The credit must also be for personal, family, or household purposes. This means that the Truth in Lending Act does not apply to a business obtaining credit for business purposes.
Consumers can also sue for violations of the Truth in Lending Act and recover legal damages of between $ 100 and $ 1,000 for each violation. Statutory damages are specific awards of money for violations of law without the need to show actual injury or loss.
This means that a court can award money damages to a consumer without the consumer having to prove actual injury or loss from the violation of the law.
In contrast, a court awards actual damages to a plaintiff when a plaintiff can prove an injury or loss that arises directly from the specific action of the defendant. The Truth in Lending Act also empowers a court to award consumers actual damages, costs of taking legal action, and reasonable attorneys’ fees.
In addition to money damages, the Truth in Lending Act also provides consumers with the right of termination.
This means that a consumer can cancel a contract. Under the Truth in Lending Act, the right of termination applies when a homeowner uses his home as collateral in a credit transaction.
For example, if a consumer takes out a home improvement loan and uses the home as collateral, the contract is subject to cancellation for certain violations of the Truth in Lending Act. However, the termination of a contract does not apply to the initial purchase of a home.
Important information for you to know:
TILA does not cover:
- Student loans.
- Loans of more than $25,000 that are not used for housing.
- Business loans.