Prior to 1968, consumers applying for a credit card, a place to live, or a vehicle to drive were beholden to lenders running amok with unethical and outright predatory lending practices. Within the fine print of an agreement, they would bury important data to conceal the actual cost of credit approval.
The Truth in Lending Act shined a light into those dark practices upon enactment. TILA requires lenders to adhere to specific borrower protections. The act ensures that consumers have the information they need about what they are getting after being approved and all the costs associated with approval.
Specific protections include:
- Defense from predatory lending practices
- Promotion of the informed use of consumer credit
- Education for consumers on the cost of credit by mandating creditor disclosure of various terms, including finance charges and annual percentage rates
Regardless of the type of transaction, lenders must disclose all terms and fees and provide written disclosures over certain credit terms before requiring the consumer to pay. According to the Federal Trade Commission, specific transactions that are covered include open-end (mostly credit cards) and closed-end (home and car purchases).
Disclosures for loans and lines of credit must include:
- Annual percentage rate (APR)
- Finance charges
- Payment schedule
- Specific amount financed
- Total payment amount
- Late payment fees
- Increase in interest rate
- Additional fees, including service charges
Protection from predatory lenders
An essential component of the TILA is what is referred to as the “right of recission,” a vital aspect built-in for borrowers dealing with predatory lenders and their aggressive strategies. Essentially, borrowers have three days to back out of the following:
- Home equity loans
- Lines of credit
However, the right of recession does not apply to mortgages upon signing closing documents.
Financial transactions are complex, with seeming reams of paper to sign. Writing their name on the bottom of documents should be done after a thorough read-through. However, the legalese written into those documents may require help from legal counsel with in-depth insight into the in’s-and-outs of these complicated processes.