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Truth in Lending Act: Protecting Consumers in Credit Transactions
The Truth in Lending Act (TILA) of 1968, also called the Consumer Credit Protection Act, is a U.S. federal law designed to protect con- sumers in credit transactions by requiring money lenders to be clear and explicit about the true costs of credit transactions. The TILA outlaws the use of threatened or actual violence to collect debts and restricts the amount of garnishments. The act also established a National Commission on Consumer Finance. The purpose of TILA is to promote the informed use of consumer credit by requiring disclo- sures about its terms and cost. 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, the TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer’s home. It also imposes limita- tions on home equity plans that are subject to the requirements of Sec. 226.5b and certain higher-cost mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer’s principal residence.
The TILA requires vendors to disclose the method of computing finance charges, the conditions under which a finance charge may be imposed, and the finance charge expressed as an Annual Percentage Rate. These credit terms must be disclosed clearly and conspicuously in consumer credit applications. The act also requires that borrowers who sign credit agreements giving the lender a security interest in the borrower’s home have the right to rescind the contract within three business days. This is known as the borrower’s Right of Rescission. The
Important Laws and Regulations Designed to Protect Consumers 11