The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to promote the informed use of consumer credit by requiring standardized disclosures about credit cost and terms.
TILA grants consumers a rescission right for certain home-secured loans, regulates several credit card practices, and sets procedures for resolving billing disputes. With limited exceptions for high-cost mortgages, the law does not cap rates or fees. Instead it mandates uniform disclosures so borrowers can compare options. These requirements are implemented through Regulation Z, codified at . The regulation also limits practices in home-equity plans () and “higher-priced” mortgage loans ().
The regulation prohibits certain acts or practices — most connected to lender compensation — in connection with credit secured by a consumer's principal dwelling.
History
The Truth in Lending Act was originally Title I of the Consumer Credit Protection Act, . 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.
TILA introduced the annual percentage rate (APR) calculation that consumer lenders must disclose. In the auto market, manufacturers and their captive finance companies have long used promotional financing offers, such as 0 percent APR loans or cash rebates, which interact with TILA's definitions of "finance charge" and "amount financed." The choice between a low promotional rate and a cash rebate changes the total cost of credit and depends on vehicle price, rebate size, and term.
Organization
The regulation is divided into subparts.
Subpart B relates to open-end credit lines (revolving credit accounts), which includes credit card accounts and home-equity lines of credit (HELOCs). Prior to revisions finalized in 2001, the language provision referenced Spanish language disclosures in Puerto Rico; the rule now permits disclosures in any language if English versions are available on request, except for advertisements.
Subpart E contains special rules for mortgage transactions.
- § 1026.35 establishes requirements for "higher-priced" mortgage loans (HPMLs).
- § 1026.40 sets the requirements for home equity plans.
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 that, if used properly, will ensure compliance with the Act, and the rules for computing annual percentage rates in closed-end credit transactions and total annual loan cost rates for reverse mortgage transactions. Each consumer with an ownership interest in the property may exercise the right to rescind until midnight of the third business day after the triggering event.
The right of rescission does not apply to loans used to purchase or construct the consumer's principal dwelling, nor does it apply to a refinancing or consolidation with the same creditor of a loan already secured by the consumer's principal dwelling, except to the extent that new funds beyond the existing balance are advanced.
- Credit extended primarily for business, agricultural, or commercial purposes.
- Credit extended to an entity rather than a natural person, with limited exceptions for certain trusts.
- Credit in excess of an annually adjusted threshold, not secured by real estate or by personal property used or expected to be used as a principal dwelling. The Bureau and the Board publish the updated dollar-amount threshold each year.
See also
- Truth in Savings Act
References
Further reading
- Truth in Lending Act (PDF/details) as amended in the GPO Statute Compilations collection
- United States Code (2004). 15 USC 1601 et seq..
- Regulation text
- Truth in Lending Handbook, Office of Comptroller of the Currency, Administrator of National Banks, December 2006.
- Truth in Lending Act Legislative History Law Librarian's Society of D.C.