By Michelle Flores / Updated: Nov 2, 2019

What is Truth in Lending Disclosures and How it Helps?

The Truth in Lending Act (TILA) is a federal law established in 1968. The Federal Reserve Board started this law with the primary aim of protecting consumers in their relationships with creditors and lenders.

Breakdown of Truth in Lending Act

Since its implementation, TILA has been used to guard consumers against illegal practices, or predatory exercises from the lenders.

Its terms apply mostly in different types of credit such as the closed-end credit, and the open-end credit such as the credit card and line of credit.

The laws vary between different industries and states. Although the main feature remains the disclosure of all information relating the lender-borrower transactions.

The Statement Disclosures Reqiured

Usually, TILA requires the following statement disclosures from the lender to the borrower:

  • The borrowed loan amount.
  • The interest rate to be charged on the entire loan balance for the agreed repayment period. This is also commonly referred to as the Annual Percentage Rate (APR).
  • The available balance as well as the interest rates to be charged on it. These charges include all applicable fees and penalties related to the loan.

Consumer Protections Under TILA

The Truth in Lending Act regulates what financial institutions can advertise, or say regarding the benefits associated with their products.

For instance, a borrower who has an adjustable rate mortgage needs must be given all related reading materials to ensure that they understand the basics. The documents they read must be authorized by The Federal Reserve Board.

  • Also, TILA forbids the loan originates from getting any compensation as a result of issuing mortgages. The specific type of compensation refereed here is, however, the one based on the existence of certain conditions and requirements on the loan documents.
  • The Truth in Lending Act also prevents lenders from steering the potential borrowers to apply loans which will not be beneficial to the borrowers. TILA requires lenders to inform, and educate the borrowers about the loan, disclose all terms and conditions but leave the applicant to make the decision their own.
  • TILA offers the right of rescission. This allows the borrowers to have three days to ask questions related to the loan and reconsider their decision of taking or rejecting it. The borrower doesn’t suffer any personal financial loss even when they decide to drop the loan offer.
Keep in Mind
The right of rescission eases the proceedings for the borrowers subjected to high-pressure tactics.

When is the TILA Disclosure Required?

It is required when the lender and the borrower engage in large contract agreements. You have most probably seen your truth in disclosure copy if you have been taken a loan for a large purchase, such as a house or a car loan.

Although you might not have been able to recognize it well by its name, it’s important to understand it. It will protect you against any future inappropriate business transactions.

Items Not Covered by the Truth in Lending Act

The law does not regulate any interest rates which the lender decides to charge on their services. The law does also not dictate the party to get the credit extension beyond the standard laws in case of discrimination.

Works Cited

1 Consumer Financial Protection Bureau “What is a Truth-in-Lending Disclosure? When do I get to see it?”

2 FindLaw “Truth in Lending Disclosure Statements”

3 Office of the Comptroller of the Currency “Truth in Lending”

4 Board of Governors of the Federal Reserve System “Regulation Z Truth in Lending Act1”

5 Consumer Financial Protection Bureau “What is a Truth-in-Lending disclosure for a mortgage loan?”

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