What was the 'Truth In Lending Act - TILA'

The Truth in Lending Act (TILA) was a federal law enacted in 1968 to protect consumers in their dealings with lenders and creditors. The TILA was implemented by the Federal Reserve Board through a series of regulations. The most important aspects of the act concern the pieces of information that must be disclosed to a borrower prior to extending credit: annual percentage rate (APR), term of the loan and total costs to the borrower. This information must be conspicuous on documents presented to the consumer before signing, and also possibly on periodic billing statements.

BREAKING DOWN 'Truth In Lending Act - TILA'

The TILA was implemented by the Federal Reserve Board’s enactment of Regulation Z (12 CFR Part 226). The terms within the TILA apply to most types of credit, including closed-end credit, more commonly referred to as an installment loan, and open-ended revolving credit, such as a credit card or line of credit. The regulations are designed to guard consumers against inaccurate or unfair practices on the part of the lender. Different states and industries have their own variations of TILA, but the chief feature remains the proper disclosure of key information to protect both the consumer and the lender in credit transactions.

Consumer Protections under the Truth in Lending Act

The act regulates what companies can advertise and say about the benefits of their loans or services. For example, borrowers considering an adjustable-rate mortgage must be offered specific reading materials from the Federal Reserve Board to ensure they understand the parameters of an ARM. The TILA prevents loan originators from receiving compensation for issuing mortgages where the compensation is based on the existence of certain terms and conditions within the loan documents. The TILA also forbids lenders from steering potential buyers to loans that financially benefit the lender. Instead, lenders must show potential borrowers all available, applicable loans.

Additionally, the TILA provides the right of rescission. This gives borrowers a three-day period where they can reconsider their decision and decide not to take the loan without any risk of loss to personal funds. The right of rescission allows borrowers who were subjected to high-pressure tactics to cease the proceedings. This right can be applied to any loan a consumer may pursue.

Items Not Governed by the Truth in Lending Act

The TILA does not regulate the interest rates a lender may charge for services. Additionally, the act does not dictate to whom credit can be extended beyond standard laws against discrimination.

RELATED TERMS
  1. Adequate Notice

    Adequate notice is a written document that specifies in detail ...
  2. Descriptive Billing

    Descriptive Billing is a type of credit card billing that lists ...
  3. Lender

    A lender makes funds available with the expectation that the ...
  4. Prime

    Prime is a classification of borrowers, rates or holdings in ...
  5. Five Cs Of Credit

    The five C's of credit is a method used by lenders to determine ...
  6. Federal Reserve Regulations

    Federal Reserve Regulations are rules put in place by the Federal ...
Related Articles
  1. Small Business

    Lending Clubs: Better Than Banks?

    If you need to borrow money and your credit is making it tough, this new option may be just what you're looking for.
  2. IPF - Mortgage

    What Are the Main Types of Mortgage Lenders?

    Shopping for a mortgage lender can feel confusing and a little intimidating. Understanding the differences among the main types of lenders can help you narrow down the field.
  3. Personal Finance

    Personal Loans: Consider These Alternative Lenders

    Looking for an alternative source of financing for a personal loan? Take a look at these companies.
  4. Personal Finance

    Can't Get A Bank Loan? Turn To Your Neighbor

    Peer-to-peer lending can be an inexpensive way to gain access to credit when banks are restricting lending. Understand how it works before jumping in.
  5. Personal Finance

    Getting A Mortgage: How The Process Has Changed

    After the banking crisis, banks have tightened their lending standards. Find out how the current mortgage-lending standards have changed in the last five years.
  6. Financial Advisor

    Tips To Improve Chances Of A Small Business Loan

    Enhance your small business loan eligibility by keeping these important tips in mind.
  7. Personal Finance

    How to Find the Best Refinance Companies

    From traditional lenders to online loans, here's everything you need to know about refinancing your mortgage.
  8. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  9. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  10. IPF - Mortgage

    How to Pick the Right Lender When Refinancing a Mortgage

    Refinancing your mortgage has never been easier with the range of lenders and access to information that are available to you.
RELATED FAQS
  1. Revolving Credit vs Line of Credit

    Understand how to differentiate between a line of credit and a revolving credit account, their uses, and how both differ ... Read Answer >>
Trading Center