TRUTH IN LENDING ACT
About the Federal Truth in Lending Act
The Truth In Lending Act (“TILA”), and the Real Estate Settlement Procedures Act (“RESPA”) are violated daily by lenders and predatory lending victims are everywhere. These laws are in place to protect you, the homeowner, but yet are often completely disregarded. Your loan is probably unlawful, and you may be entitled to substantial damages whether or not you’re currently in foreclosure. The federal Truth in Lending Act (15 U.S.C. §§ 1601-1667f, as amended), was originally enacted by Congress in 1968 as a part of the Consumer Protection Act. The law is designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs. The Truth In Lending Act is designed to reduce confusion among consumers resulting from the different methods of computing interest and prevent fraud, deception and unfair business practices. It does not require creditors to calculate their credit charges in any particular way. However, whatever alternative they use, they must disclose certain basic information so that the consumer can understand exactly what the credit costs. The Truth in Lending Act is implemented by the Federal Reserve Board. Regulation Z explains that lenders must comply with the consumer credit parts of the law. Regulation Z: applies to offers or extensions of consumer credit if four conditions are met:
- The credit is offered to consumers.
- Credit is offered on a regular basis.
- The credit is subject to a finance charge (i.e. interest) or must be paid in more than four installments according to a written agreement.
- The credit is primarily for personal, family or household purposes. If credit is extended to business, commercial or agricultural purposes, Regulation Z does not apply.
One of the biggest lending transactions any individual is likely to enter is borrowing to purchase a home. These transactions have become more complicated in recent years. Historically, someone trying to buy a home had very few options. Often, only a traditional thirty year loan was available. Now, loans of various duration and interest rate variations are available to every home buyer. The Federal Reserve Board and the Federal Home Loan Bank Board have published a book entitled “Consumer Handbook on Adjustable Rate Mortgages ” to help consumers understand the purpose and uses of adjustable rate mortgage loans. Regulation Z requires that creditors offering adjustable rate mortgage loans make a special disclosure booklet available to consumers.
Disclosure is generally required before credit is extended. In certain cases, it must also be made in periodic billing statements. The term “closed end credit transaction” is defined by exclusion. That is, it includes any credit arrangement (either a consumer loan or credit sale) that does not fall within the definition of an “open end credit transaction”. Open end credit includes credit arrangements like revolving credit cards, where the “borrower” (that is the credit card holder) is not required to pay off the principal amount by any particular point in time. Rather, the borrower is simply charged interest periodically and is usually required only to make some minimum payment. Under Regulation Z, disclosure must be made of the following important credit terms:
- Finance Charge – This is perhaps the most important disclosure made. This is the amount charged to the consumer for the credit.
- Annual Percentage Rate – This is the measure of the cost of the credit which must be disclosed on a yearly basis. The method for calculating this rate is determined the underlying transaction.
- Amount Financed – The amount that is being borrowed in a consumer loan transaction, or the amount of the sale price in a credit sale.
- Total of Payments- This includes the total amount of the periodic payments by the borrower/buyer.
- Total Sales Price – This is the total cost of the purchase on credit, including the down payment and periodic payments. Disclosures must be clear and conspicuous and must appear on a document that the consumer may keep. Evidence of compliance with the Truth In Lending requirements must be retained for at least two years after the date of disclosure.
Other Features of the Truth in Lending Act
The Truth In Lending Act has other important features. If you elect to advertise credit terms, the law requires disclosure of key lending terms. Also, the law entitles the consumer the right to rescind certain credit transactions under certain circumstances, such as home equity loans. The penalties for failure to comply with the Truth In Lending Act can be substantial. A creditor who violates the disclosure requirements may be sued for twice the amount of the total finance charge on the loan. In the case of a home mortgage, this can be a very significant amount. Costs and attorney’s fees may also be awarded to the consumer. A lawsuit must be begun by the consumer within a year of the violation, but certain tolling provisions apply giving the consumer more time.
These laws are in place to protect you, the homeowner, the American people, but yet some mortgage brokers and lenders act as if it’s the wild, wild west. You need to become educated and take the law into your own hands or hire a lawyer. Were you placed in a mortgage that wasn’t what you thought it was? Are you in a negative amortization loan? Did you get the switch and bait? Do you think you might be the victim of predatory lending? If you are in foreclosure, the Truth In Lending Act can stop the foreclosure process immediately. If you’re a victim then don’t be a victim twice and let them take your home. Fight for your rights.
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