What is the Truth in Lending Act?
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UPDATED: Feb 9, 2021
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Established in 1968, the Truth in Lending Act (TILA) was created in an attempt to protect consumers from the confusing world of lending. This act requires lenders to include appropriate disclosures to borrowers depending on the type of loan that they wish to take out. Since 1968, TILA has undergone many amendments, and continues to evolve as new loans and new procedures are created.
Lending and loans of all types are inherently difficult to understand. Not necessarily due to any hidden agenda, but rather because of the legalese and extensive wording required to protect both lender and borrower. As a result, laymen would often sign a document without any knowledge of what they are getting into. Even if they read a contract thoroughly before putting a mark on the dotted line, they often were unable to understand what is actually written, since law citations, words with far too many syllables, and attached addendums littered throughout the documents make it near impossible to comprehend. Through no fault of either party, borrowers were sometimes finding themselves entering agreements they otherwise wouldn’t have if they were able to fully grasp what their contracts contained.
All of the protections involving disclosures are referred to as Regulation Z. Despite its science-fiction-sounding title, Regulation Z simply outlines all of the information lenders must share with borrowers before requesting their signature.
The types of financing covered by Regulation Z include:
- Private student loans
- Mortgage loans
- Personal loans
- Payday loans
- Auto loans
- Credit Cards
TILA has specific sections for both mortgage loans and student loans, offering additional protection for both of those common forms of financing.
Aside from simply providing borrowers with comprehensible disclosures, TILA also:
- Protects consumers from inaccurate credit billing practices
- Provides rescission rights to consumers
- Establishes rate caps on certain property-secured variable rate loans
- Creates loan limits on home equity lines of credit (HELOCs)
- Prohibits deceptive mortgage lending practices
While research and knowledge of financing is invaluable, the government has established this act in an attempt to alleviate some forms of predatory lending. For almost half a century, borrowers have been afforded the protection of proper disclosures, and this act steadily evolves, continuing to shield consumers from the ambiguous and ever-changing world of lending.