Truth in Lending Act (TILA)
Candlefocus EditorTILA applies to most kinds of consumer credit, from mortgages and home equity loans to auto loans and revolving credit (e.g. credit cards). It regulates the terms of these credits, including the disclosure of certain details such as the loan terms and conditions, the total cost of the loan, and the interest rate.
Under the act, lenders must provide clear, conspicuous, and timely disclosure of important information concerning the financial product, such as the interest rate, the amount of credit being extended, the estimated number of payments, and the period of repayment. It also requires lenders to provide an "Annual Percentage Rate" (APR), which is a measure of the cost of credit expressed as a yearly rate. This allows customers to compare the cost of interest on one loan versus another.
TILA helps ensure that lenders provide important financial information to consumers. This helps to promote market transparency and prevent lenders from taking advantage of consumers. For example, Regulation Z prohibits creditors from compensating loan originators for anything other than the credit extended and for steering clients to unfavorable options for the sake of higher compensation.
The regulation also gives consumers more power when it comes to their financial decisions by allowing them to terminate unfavorable agreements. Consumers may avoid paying interest or fees on terminated agreements and if creditors claim that the agreement has not been terminated, customers may calculate the amount due for the rest of the agreement and pay the amount in full.
Ultimately, the Truth in Lending Act assists consumers by giving them a better understanding of what they are signing up for when it comes to any sort of loan. It is designed to provide information so that customers can make wise financial decisions and protect themselves from deceptive practices.