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Truth in Lending Act (TILA) Explanation
The Truth in Lending Act was originally Title I of the Consumer Credit Protection Act, Pub.L. 90-321, 82 Stat. 146, enacted June 29, 1968. The regulations implementing the statute, which are known as “Regulation Z”, are codified at 12 CFR Part 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. 1
What is Truth in Lending? 15 U.S.C.A. § 1601 et seq - CONSUMER CREDIT PROTECTION ACT 2
Truth-in-Lending disclosures were established to create a standard method of how loan information was to be documented and presented to prospective borrower/homeowners. However, the information presented to the prospective borrower/homeowner is not fully explained in layman’s terms so the average borrower/homeowner can fully understand all the financial implications of getting the loan especially when it comes to the amount that is owed over the life of the loan (15 years, 20 years, or 30 years).
Why do you need a TILA statement?
It is the law that when you apply for credit to secure a mortgage, prior to initiating any loan, the prospective lender must supply the information this enables you to shop for the best possible rate prior to initiating any transactions with any lender. This method should be used to help the borrower receive favorable terms based on their current financial situation.
What to look for on a TILA Statement?
- Annual Percentage Rate – The cost of borrowing based on your credit over a yearly period. The APR can differ among different financial institutions. The most important factor is not the interest rate presented to you, but the APR over a period of time – the higher the APR, the more fees and charges you will be paying.
- Finance Charges – Regulation Z of Federal Truth in Lending Act – The amount that you will pay for interest charges and other fees pertaining to the loan. Regulation Z outlines what charges and fees may apply and be eligible to qualify as finance charges.
- Other Charges – Not fully explained on TILA statements by lender or broker.
Do you know the final Amount you will have paid for your home at the end of the loan?
The total amount financed should include the following:
- Principal loan amount (how much you plan to purchase the home)
- Other Fees that your lender charges (these are not finance charges)
- Finance Charges for the loan
- FINAL AMOUNT YOU OWE $$
What are the penalties if there is missing information or incorrect information on the TILA?4
Civil remedies for failure to comply with TILA requirements: Action may be brought in any U.S. district court or in any other competent court within one year from the date on which the violation occurred. This limitation does not apply when TILA violations are asserted as a defense, set-off, or counterclaim, except as otherwise provided by state law.
Private remedies – applicable to violations of provisions regarding credit transactions, credit billing, and consumer leases.
- Actual damages in all cases.
- Attorneys’ fees and court costs for successful enforcement and rescission actions.
- Statutory damages.
- For individual actions, double the correctly calculated finance charge but not less than $100 or more than $1,000 for individual actions.
- For class actions, an amount allowed by the court with no required minimum recovery per class member to a maximum of $500,000 or 1% of the creditor’s net worth, whichever is less.
- Can be imposed on creditors who fail to comply with specified TILA disclosure requirements, with the right of rescission, with the provisions concerning credit cards, or with the fair credit billing requirements.
Enforcement by administrative agencies: The enforcement scheme for banks includes the Federal Reserve System, the Federal Deposit Insurance Corporation, and other agencies. The enforcement agency responsible for creditors not subject to the authority of any specific enforcement agency is the Federal Trade Commission. Nine separate agencies currently have enforcement responsibilities.
Enforcement agencies can: Issue cease and desist orders or hold hearings pursuant to which creditors are required to adjust debtors’ accounts to ensure that the debtor is not required to pay a finance charge in excess of the finance charge actually disclosed or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower. If the FTC determines in a cease and desist proceeding against a particular individual or firm that a given practice is “unfair or deceptive,” it may proceed against any other individual or firm for knowingly engaging in the forbidden practice, even if that entity was not involved in the previous proceeding.
Criminal penalties – Willful and knowing violations of TILA permit imposition of a fine of $5,000, imprisonment for up to one year, or both.
Section 131(g) of the Truth in Lending Act (15 USC § 1641) (TILA)
This section was amended on May 19, 2009, to include a new provision requiring the assignee of a mortgage loan to notify a consumer borrower that the loan has been transferred. Section 131(g) requires the new owner or assignee of a mortgage loan must notify the borrower in writing within 30 days after the mortgage loan is sold or otherwise transferred. This notification must include the following:
- The assignee’s identity, address and phone number;
- The date of transfer;
- Contact information for an agent or party having authority to act on behalf of the assignee;
- The location or the place where transfer of ownership of the debt is recorded; and,
- Any other relevant information regarding the assignee.
An Assignee that violates this notice requirement is subject to civil penalties under Section 130(a) of TILA. Further, effective July 31, 2009, the maximum penalty increased from $2000.00 to $4000.00 that an individual consumer may recover for each TILA violation in connection with a closed-end loan secured by real property or a dwelling increased. Additionally, TlLA’s Section 108 provides that “a violation of any requirement imposed under TILA shall be deemed a violation of a requirement imposed under [the FTC's Act],” regardless of whether a person committing a violation otherwise comes sunder the FTC’s jurisdiction. For willful or knowing violations, a person may be fined up to $5,000 and/or imprisoned for up to one year, in accordance with Section 112 of TILA.
Verification and proof is needed to show that you have been the victim of TILA violations. Homeowners must do their due diligence and proceed through legal channels to get the necessary help as outlined under 15 U.S.C.A. § 112.
- Truth in Lending Act http://en.wikipedia.org/wiki/Truth_in_Lending_Act
- 15 U.S.C.A. § 1601 et seq http://www.fdic.gov/regulations/laws/rules/6500-200.html
- Regulation Z http://www.fdic.gov/regulations/laws/rules/6500-1400.html
- Violations of TILA http://www.citizen.org/documents/TILA.pdf