The Truth in Lending Act

In 1968, Congress passed the Truth in Lending Act, or TILA, which was the first major Congressional venture regulating consumer credit. “The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation also includes substantive protections. It gives consumers the right to cancel certain credit transactions that involve a lien on a consumer‘s principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes.” Over the years, Congress amended TILA numerous times, further requiring more informed use of consumer credit.

TILA is comprised of five major areas that provide consumer protection. These areas are:

1.       Disclosure of credit costs and terms
2.       Rescission
3.       Credit card rules
4.       Advertising
5.       Enforcement

Read further for a basic discussion of those five areas.

Scope of TILA

TILA is applicable to virtually every form of consumer credit transactions. It governs home mortgages, small loans, credit card payments, and even pawn transactions. It requires nationwide uniformity of disclosure and has spawned numerous lawsuits wherein consumers claimed that creditors were not in compliance with TILA.

Disclosure of credit costs and terms

As mentioned, the primary purpose of the TIL Act is to promote the informed use of consumer credit. This is accomplished by requiring disclosures about the terms and costs of consumer credit transactions.

In general, disclosures are required at the inception of a transaction; revised disclosures as the result of subsequent events are not required. There are exceptions to this rule.

Rescission

Rescission, or the right to cancel a transaction, arose during the 1960’s when a number of states adopted laws calling for a “right to cancel” certain kinds of consumer contracts, which typically involved those concerning door-to-door selling. These transactions were thought to be especially prone to fraud or predatory practices. Thus, the need for the consumer right to cancel a transaction.

Using state rescission laws as a backdrop, the House of Representatives expressed concern about certain second mortgage practices that arose when consumers sought home improvement to be paid through mortgage refinancing. In those transactions, consumers were unwittingly induced to encumber their homes to satisfy credit obligations. To counter this problem, Congress added a mandatory disclosure clause about security interests and a rescission right for transactions involving non-purchase-money mortgages, meaning that the consumer takes out a mortgage on a house he already owns, on consumer dwellings. The thrust of the provision is that in those transactions consumers will be given the basic TILA cost disclosures and special disclosures about the right to rescind. The consumer is then free, within three business days, to cancel the already consummated transaction, for any reason and at no cost.

Credit Card Rules

TILA created certain consumer protection laws for consumers when using a credit card. These provisions include:

1.       Procedures for the resolution of billing disputes;
2.       Prohibition of unsolicited issuance of credit cards;
3.       Restrictions on the cardholder’s liability for unauthorized use of a credit card;
4.       Prohibition of creditor offsets against deposit accounts of the cardholder;
5.       Limitations on the ability of card issuers to be insulated from cardholder claims and defenses;
6.       Establishment of the right of a merchant to offer discounts to cash customers;
7.       A series of rules on the handling of payments, returns, and credit balances; and
8.       Special disclosure rules concerning changes in the provider of insurance for repayment, renewals, and applications and solicitations.

Advertising

Prior to TILA, merchantscould advertise their wares in a way perceived as deceptive. For instance, a car dealer can state that their car is a steal of a deal because it only costs $500 per month for a Ferrari. However, the car dealer does not inform the consumer how much money down is required or how many payments are required. This was construed as predatory lending from the car dealer and is not allowed under TILA.

Enforcement

To assure compliance, TILA created an enforcement regime. TILA has three types of sanctions to compel compliance. First, consumers can sue for actual damages and attorneys’ fees and sometimes for statutory damage. Second, various federal agencies are charged with enforcement responsibility under TILA, usually using fines and cease-and-desist actions. Third, violators may be subject to criminal sanctions.

If you are a victim of consumer fraud, especially in regard to a foreclosure stemming from a second mortgage where you did not receive all information under TILA, contact the foreclosure defense firm of Melanie Tavare.