|Long title||An Act to safeguard the consumer in connection with the utilization of credit by requiring full disclosure of the terms and conditions of finance charges in credit transactions or in offers to extend credit; by restricting the garnishment of wages; and by creating the National Commission on Consumer Finance to study and make recommendations on the need for further regulation of the consumer finance industry; and for other purposes.|
|Acronyms (colloquial)||TILA, CCPA|
|Nicknames||Consumer Credit Protection Act|
|Enacted by||the 90th United States Congress|
|Effective||May 29, 1968|
|Statutes at Large||82 Stat. 146|
|Titles amended||15 U.S.C.: Commerce and Trade|
|U.S.C. sections created||15 U.S.C. ch. 41 § 1601|
| Credit CARD Act of 2009 |
Dodd–Frank Wall Street Reform and Consumer Protection Act
Economic Growth, Regulatory Relief and Consumer Protection Act
The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.
TILA also 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. With the exception of certain high-cost mortgage loans, TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires uniform or standardized disclosure of costs and charges so that consumers can shop. It also imposes limitations on home equity plans that are subject to the requirements of 12 CFR 1026.40 and certain "higher-priced" mortgage loans (HPMLs) that are subject to the requirements of 12 CFR 1026.35 . The regulation prohibits certain acts or practices in connection with credit secured by a consumer's principal dwelling.
The Truth in Lending Act was originally Title I of the Consumer Credit Protection Act, Pub.L. 90–321 , 82 Stat. 146 , enacted May 29, 1968. The regulations implementing the statute, which are known as "Regulation Z", are codified at 12 CFR 226 . Most of the specific requirements imposed by TILA are found in Regulation Z, so a reference to the requirements of TILA usually refers to the requirements contained in Regulation Z, as well as the statute itself.
From TILA's inception, the authority to implement the statute by issuing regulations was given to the Federal Reserve Board (FRB). However, effective July 21, 2011, TILA's general rule making authority was transferred to the Consumer Financial Protection Bureau (CFPB), whose authority was established pursuant to provisions enacted by the passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act in July 2010. Any forthcoming regulations implementing the statute, which are also formally referred to as Regulation Z, will be codified at 12 CFR 1026 and attempt to mirror the FRB's Regulation Z whenever feasible. The Federal Reserve will retain some limited rule making authority under TILA for loans made by certain motor vehicle dealers, and for certain other provisions.
The TILA introduced the Annual Percentage Rate (APR) calculation mandated for all consumer lenders. Certain misleading interest rate calculations used previously, mainly on auto loans, were barred. For more than a decade, consumer loans were reported by APR in an economically meaningful way. Then in the 1980s the auto manufacturers began to exploit a loophole in TILA and its administration. Neither the Act nor its administrators adequately differentiated between "amount financed" and "finance charges", two terms that appear on the TILA required disclosure statements. By "bundling" the price of the car and its financing charges (which come from the auto maker's captive finance company), auto makers were able to shift money between the two categories, even to eliminating the financing charge entirely. Thus "zero percent APR" financing was born.
Typical offers from auto companies are "Zero Percent APR financing available or $1,000 rebate". The consumer who elects "zero percent" financing gives up a $1,000 rebate (reduction in car price). Effectively, he or she pays $1,000 to get the "interest free" loan. Since only auto makers can do this type of bundling, banks, credit unions and other competitors are left at a disadvantage. They must disclose true APR rates while the auto makers can claim no interest costs. In the process, the typical consumer is left with a complex finance problem. "Zero percent" financing can cost a lot less, or a lot more, than conventional financing with a non-auto maker institution.
The regulation is divided into subparts.
Subpart B relates to open-end credit lines (revolving credit accounts), which includes credit card accounts and home-equity lines of credit (HELOCs).
Subpart C relates to closed-end credit, such as home-purchase loans and motor vehicle loans with a fixed loan term. It contains rules on disclosures, treatment of credit balances, annual percentage rate calculations, right of rescission, non requirements, and advertising.
Subpart D contains rules on oral disclosures, Spanish language disclosure in Puerto Rico, record retention, effect on state laws, state exemptions (which only apply to states that had Truth in Lending-type laws prior to the Federal Act), and rate limitations.
Subpart E contains special rules for mortgage transactions.
Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, model disclosures that, if used properly, will ensure compliance with the Act, and the rules for computing annual percentage rates in closed-end credit transactions and total annual loan cost rates for reverse mortgage transactions.
For certain transactions secured by a borrower's principle dwelling, TILA requires that the borrower be granted three business days following loan consummation to rescind the transaction. The right of rescission allows borrowers time to reexamine the credit agreement and cost disclosures, as well as to reconsider whether they want to place their homes at risk by offering it as security for the credit. Each borrower and any person who has a vested interest in the property may exercise the right to rescind until midnight of the third business day following consummation, or delivery of all material disclosures, whichever occurs last. If the required rescission notice or material TILA disclosures are inaccurate or not delivered, the borrowers right to rescind may be extended from three days after consummation to up to three years.
When a borrower rescinds, the security interest becomes void and the borrower is not liable for any amount, including finance charges. The bank must return any money or property given to anyone in connection with the transaction within 20 calendar days and remove any record of security interest that the bank may have taken for the new loan. Until the rescission period has ended, the bank may not 1) disperse funds other than to a valid escrow account, 2) perform any services, or 3) deliver any materials.
The right of rescission does not apply to loans that are obtained for the purpose of purchasing a home, nor does it apply to a refinance or consolidation of a home loan with the same creditor unless the amount refinanced or consolidated exceeds the unpaid balance on the existing debt.
TILA requirements do not apply to the following types of loans or credit:
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient incurs a debt and is usually liable to pay interest on that debt until it is repaid as well as to repay the principal amount borrowed.
A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthly mortgage payments. Borrowers are still responsible for property taxes or homeowner's insurance. Reverse mortgages allow elders to access the home equity they have built up in their homes now, and defer payment of the loan until they die, sell, or move out of the home. Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower is generally not required to repay any additional loan balance in excess of the value of the home.
The term annual percentage rate of charge (APR), corresponding sometimes to a nominal APR and sometimes to an effective APR (EAPR), is the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate. Those terms have formal, legal definitions in some countries or legal jurisdictions, but in the United States:
Predatory lending refers to unethical practices conducted by lending organizations during a loan origination process that are unfair, deceptive, or fraudulent. While there are no internationally agreed legal definitions for predatory lending, a 2006 audit report from the office of inspector general of the US Federal Deposit Insurance Corporation (FDIC) broadly defines predatory lending as "imposing unfair and abusive loan terms on borrowers", though "unfair" and "abusive" were not specifically defined. Though there are laws against some of the specific practices commonly identified as predatory, various federal agencies use the phrase as a catch-all term for many specific illegal activities in the loan industry. Predatory lending should not be confused with predatory mortgage servicing which is mortgage practices described by critics as unfair, deceptive, or fraudulent practices during the loan or mortgage servicing process, post loan origination.
A mortgage broker acts as an intermediary who brokers mortgage loans on behalf of individuals or businesses.
Credit is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately, but promises either to repay or return those resources at a later date. In other words, credit is a method of making reciprocity formal, legally enforceable, and extensible to a large group of unrelated people.
A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk and shorter duration of the loan.
The Home Mortgage Disclosure Act is a United States federal law that requires certain financial institutions to provide mortgage data to the public. Congress enacted HMDA in 1975.
Loan origination is the process by which a borrower applies for a new loan, and a lender processes that application. Origination generally includes all the steps from taking a loan application up to disbursal of funds. For mortgages, there is a specific mortgage origination process. Loan servicing covers everything after disbursing the funds until the loan is fully paid off. Loan origination is a specialized version of new account opening for financial services organizations. Certain people and organizations specialize in loan origination. Mortgage brokers and other mortgage originator companies serve as a prominent example.
The Real Estate Settlement Procedures Act (RESPA) was a law passed by the United States Congress in 1974 and codified as Title 12, Chapter 27 of the United States Code, 12 U.S.C. §§ 2601–2617. The main objective was to protect homeowners by assisting them in becoming better educated while shopping for real estate services, and eliminating kickbacks and referral fees which add unnecessary costs to settlement services. RESPA requires lenders and others involved in mortgage lending to provide borrowers with pertinent and timely disclosures regarding the nature and costs of a real estate settlement process. RESPA was also designed to prohibit potentially abusive practices such as kickbacks and referral fees, the practice of dual tracking, and imposes limitations on the use of escrow accounts.
Mortgage insurance is an insurance policy which compensates lenders or investors in mortgage-backed securities for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. The policy is also known as a mortgage indemnity guarantee (MIG), particularly in the UK.
Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Apart from the bank regulatory agencies the U.S. maintains separate securities, commodities, and insurance regulatory agencies at the federal and state level, unlike Japan and the United Kingdom. Bank examiners are generally employed to supervise banks and to ensure compliance with regulations.
The HUD-1 Settlement Statement is a standardized mortgage lending form in use in the United States of America on which creditors or their closing agents itemize all charges imposed on buyers and sellers in consumer credit mortgage transactions. The HUD-1 is used primarily for reverse mortgages and mortgage refinance transactions. The reference to 'HUD' in the form's name refers to the Department of Housing and Urban Development.
The Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB) governs the relationship between mortgage lenders and borrowers in the United Kingdom. They were issued in October 2003 by The Financial Services Authority. They apply to Regulated Mortgage Contracts which are entered into on or after 31 October 2004.The Financial Services Authority became the Financial Conduct Authority in April 2013.
A payday loan is a small, short-term unsecured loan, "regardless of whether repayment of loans is linked to a borrower's payday." The loans are also sometimes referred to as "cash advances," though that term can also refer to cash provided against a prearranged line of credit such as a credit card. Payday advance loans rely on the consumer having previous payroll and employment records. Legislation regarding payday loans varies widely between different countries and, within the United States, between different states.
Closed-end credit is a type of credit that should be repaid in full amount by the end of the term, by a specified date. The repayment includes all the interests and financial charges agreed at the signing of the credit agreement. Closed-end credits include all kinds of mortgage lending and car loans.
The Mortgage Choice Act of 2013 is a bill that would direct the Consumer Financial Protection Bureau (CFPB) to amend its regulations related to qualified mortgages to reflect new exclusions made by this bill. The CFPB released new regulations regarding the definition of a Qualified Mortgage that took effect in January 2014, a definition that this bill would modify.
Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. 259 (2015), was a United States Supreme Court case in which the Court held that the Truth in Lending Act does not require borrowers to file a lawsuit to rescind loans and that sending written notice is sufficient to effectuate rescission. Some commentators described Justice Antonin Scalia's unanimous majority opinion as "terse" and the "shortest opinion of the year". Other analysts have described Jesinoski as a "landmark case" in Truth in Lending Act jurisprudence.
In consumer lending, mortgage origination, a specialized subset of loan origination, is the process by which a lender works with a borrower to complete a mortgage transaction, resulting in a mortgage loan. A mortgage loan is a loan in which property or real estate is used as collateral. During this process, borrowers must submit various types of financial information and documentation to a mortgage lender, including tax returns, payment history, credit card information and bank balances. Mortgage lenders use this information to determine the type of loan and the interest rate for which the borrower is eligible. The process in the United States has become complex due to the proliferation of loan products and consumer protection regulations.
This article details the provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act.