Guide to the TILA

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

If you’ve recently started to look into applying for loans or credit, you may have seen TILA mentioned. But what is TILA, and how does it help you? Put simply, the Truth in Lending Act (TILA) protects consumers from unfair practices by credit lenders.

Understanding what TILA is can help you protect yourself when applying for credit. 

What is the Truth in Lending Act (TILA)?

The Truth in Lending Act is a federal law that was enacted in 1968. The law aims to protect consumers from unfair and incorrect credit billing and credit card practices and requires lenders to provide the true cost of borrowing credit.

This is where the act gets its name—there must be truth from the creditors when extending lending to consumers. Lenders must disclose the terms and costs related to borrowing credit in an easily understood manner so consumers can efficiently compare their lending options. 

The act was initially implemented by the Federal Reserve Board’s Regulation Z. Essentially, Regulation Z is another name for the Truth in Lending Act, and the two terms are often used interchangeably. Since its implementation in 1968, the act has been amended many times to keep up with the changing credit industry. The first amendment came in 1970 with the prohibition of unsolicited credit cards. 

One of the most significant changes to the act was when the Consumer Financial Protection Bureau (CFPB) received the authority to make additional rules under TILA. Since being given this duty, the CFPB has initiated many changes. Some of them include:

• Clarifying rules around loan originator compensation
• Applying limits on the points and fees that apply to qualified mortgages
• Creating rules around the ability-to-repay requirements for mortgages

How does TILA work?

Creditors and lenders are aware of TILA rules they must adhere to. All borrowers must receive a written disclosure that states all the critical terms of borrowing the credit before they’re legally bound to start paying the loan. The details that need to be provided include:

• The annual percentage rate (APR)
• The finance charge—the total amount of interest and fees the borrower will pay over the entire span of the loan term if they make every payment on time
• The total amount of the loan or credit provided to the borrower (i.e., the amount the consumer is borrowing)
• The total of payments the borrower will make, including the principal amount, interest and fees
• The total number of payments for the loan term
• Any late fees that can apply
• Restrictions around prepayment of the loan (i.e., if there’s a fee for prepayment)
• Any other important terms

TILA disclosures are often written into the lending contract, so you must read the entire agreement to find these details. 

TILA exemptions

There are a few TILA exemptions that borrowers should be aware of. The Truth in Lending Act does not apply to the following situations:

• Agricultural, business or organizational (business) credit
• Non-owner-occupied rental property or owner-occupied rental property that the owner will occupy within one year; both of these are considered lending credit for business purposes and, therefore, not applicable for TILA
• Business credit that’s later refinanced
• Credit card renewal
• Trusts
• Credit over the applicable threshold amount
• Public utility credit
• Commodities or securities accounts
• Home fuel budget plans
• Some student loan programs
• Certain types of mortgages

What other acts are included in TILA?

There are several other acts included within TILA. 

CARD Act

In 2009, TILA implemented a significant amendment known as the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). Consumers had begun to feel their terms of service were filled with fine print that hid many details. The CARD Act aimed to fix this and implemented the following rules, and others not included here, for lenders:

• Lenders must give consumers at least 45 days’ notice of an upcoming interest rate hike.
• Limitations are placed on over-limit fees.
• Lenders can charge consumers over-limit fees if they opt into this fine in their credit card agreement. If someone chooses to opt out, it means their card will decline any time they try to go over the limit.
• Lenders can’t give a credit card to anyone under the age of 21 unless they have a cosigner or can show consistent income.

FCBA

The Fair Credit Billing Act (FCBA) was originally introduced as an amendment to TILA in 1974. This act allows consumers to address any errors in their bills. This can include mistakes related to charges on the wrong date, math errors, charges for the wrong amount, unauthorized charges, missing payments and statements that were mailed to an incorrect address. 

After a consumer sends a dispute about a billing error, the creditor has 30 days to respond and a maximum of 90 days to investigate the claim. 

If you don’t catch an error on your bill, it can sometimes lead to a negative item being added to your credit report, adversely impacting your credit score. If you suspect your credit report has mistakes but you don’t know where to start, consider using Lexington Law Firm. Our credit repair services can help you address errors on your credit reports. 

FCCCDA

The Fair Credit and Charge Card Disclosure Act (FCCCDA) was enacted in 1988. This act mandates that all businesses and financial institutions share relevant and important details when they issue a new credit card to a borrower.

• They must reveal details about the card’s interest rate, grace period and annual fees.
• Credit cards with an annual fee must provide the consumer with a reminder of the annual fee.
• If the lender offers credit insurance, it must inform consumers of any rate increases or decreases in coverage.

HELCPA

Also in 1988, the Home Equity Loan Consumer Protection Act (HELCPA) was introduced as an amendment to TILA. This amendment states that all lenders must share the details and terms of a home equity loan before the loan’s first transaction. The details that need to be disclosed include all information about the loan’s interest rates, payment terms and any fees and penalties within the loan application.

If any of these details change between the time the loan is finalized and the first transaction, the consumer can refuse the loan and receive a full refund of all application fees. 

Lastly, the HELCPA stops creditors from changing or closing a home equity plan after it’s been opened, but there are some exceptions to this rule. 

HOEPA

Almost a decade after the HELCPA was introduced, the Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994. This amendment protects consumers in a difficult financial situation from falling victim to predatory lending.

Lenders can’t use predatory lending practices such as lying, manipulation, coercion or tricking people with little financial knowledge. Additionally, lenders can’t add clauses to a home loan that can benefit them unfairly. 

HOEPA hopes to distinguish between valid lenders and those with predatory intentions. For example, it stops lenders from frequently offering to refinance a home loan for borrowers as a way to collect additional fees. It also prevents lenders from providing a loan to a person for an amount they don’t think the person can repay. 

What if your TILA rights are violated?

TILA exists to protect consumers, but it does require the consumer to be aware of their rights in the first place. Unfortunately, this is easier said than done as TILA has been amended so often and is quite a complicated act now. 

If your TILA rights are violated, you may be entitled to compensation—but you’ll probably need legal help if speaking to your lender doesn’t fix the problem. 

As many lawyers offer a free initial consultation, it may be worth your time to bring your case to an attorney with experience in the area who can let you know if you have a case worth pursuing. 

Always read the fine print

When signing up for a new financial product, it can be easy to get caught up in the moment and forget to do your due diligence. However, you must always stop and read the fine print. Now that you know what TILA is, you also better understand the information your creditor needs to provide you in its documentation. 

Your credit score  significantly impact what you can do—whether it’s getting a mortgage, being approved for a rental or getting a new car loan. You can protect your credit (and your credit score) by understanding the credit details you’re signing up for. Always make payments on time, be aware of fees and avoid paying interest when possible. 

If you’re ready for credit education and credit repair, Lexington Law Firm can help. Our free credit assessment can be a great place to start—you’ll get a credit score, credit report summary and credit repair recommendations. 

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