What is the Truth in Lending Act?
The Truth in Lending Act (TILA),was passed by Congress originally in 1968. It provides a uniform manner of calculating and presenting the terms of consumer loans to enable you to compare costs so you can make informed choices about credit. Prior to TILA there were no generally required definitions of loan terms so that consumers were unable compare interest rates and other loan costs. Scams and fraud were pervasive.
TILA can be found at 15 U.S.C. 1600 et. seq. It is implemented by the Federal Reserve Board's Regulation Z at 12 CFR, Part 226 and by the Federal Reserve Board's Official Staff Commentary to Regulations Z to (OSC).
The Act covers both "open ended" and "closed ended" credit transactions. Open ended credit includes credit cards and revolving charge accounts. Under this form of credit you are authorized to purchase items on credit up to a certain limit and you pay interest on the outstanding balance each month. For example, you may have an a department store account where you can charge up to $1,000. You receive a monthly bill with your balance and a minimum payment. Your payment includes interest for one month on the outstanding balance or average daily balance.
Closed ended credit transactions involve borrowing a sum certain (specific amount of money) and paying it back over a certain period of time. Some closed ended credit transactions involve borrowing money directly, such as taking out a bank loan to buy a car. Others involve purchasing goods from a retailer, and paying for them over time. For example, you might buy a car from a dealer for $10,000 plus interest and pay for it in 48 monthly installments over four years.
TILA gives greater protections when you pledge your home as security for a consumer loan. It even gives you the right to rescind (cancel) the loan within three business days. In certain transactions, you cancel up to three years later.
What are some of the more important terms which TILA requires to be disclosed?
There are five terms which are considered to be "material" disclosures required by TILA. While other disclosures are required, these are deemed to be so important that a failure to give any one of them gives rise to the your right to rescind the loan transaction if your home is pledged as security. Regulation Z 226.23. The terms are:
Finance Charge: the "finance charge" is defined as the cost of credit over the life of the loan, expressed as a dollar amount. This includes, not only interest, but any other charge which is required as a condition of receiving credit. Examples include: "points", document preparation fees and other fees which are excessive compared to their purpose (like excessive fees for notaries, appraisals, credit reports, title examinations, etc.). Regulation Z 226.4.
Annual Percentage Rate (APR): the APR is the cost of credit expressed as a percentage. For example, a loan with an interest rate of 17% may have an APR of 25% (all finance charges are rolled into the APR). Regulation Z 226.22.
Amount Financed: the "amount financed" is also expressed as a dollar amount . It is calculated by taking the principal amount of the loan and subtracting those amounts which are financed as part of the principal that are considered part of the finance charge. For example: you take out a $100,000 note and deed of trust on your home. The 5 points ($5,000) charged on this loan are financed and are therefore included in the $100,000 principal on the note. However, since the five points are defined as part of the finance charge, they are subtracted from the $100,000 in determining the amount financed ($100,000-$5,000 = $95,000). Regulation Z 226.18 (b).
Schedule of Payments: the "schedule of payments" tells you the day of the month, timing, number and dollar amount of payments due over the entire course of the loan. Example: 1 payment of $500 on 1-5-96 and 50 payments of $100 on the 5th of each month beginning 2-5-96. Regulation Z 226.18(g).
Total of Payments: the "total of payments" is also expressed as a dollar amount. It represents the total dollar cost of the loan to you, assuming all payments are made on time. The total of payments is calculated by adding up all payments disclosed in the schedule of payments. OSC 226.18 (h).
What disclosures must a bank or other lender make regarding my credit card?
TILA requires that you receive certain disclosures prior to signing up for your credit card. Because the credit is open ended you do not know in the "financed charge", total of payments, schedule of payments or the "amount financed". The lender must disclose the APR. The lender must also disclose whether you have a "free period" or "grace period" which allows you to avoid a finance charge by paying your current balance in full before the "due date" shown on your monthly statement. Knowing whether a credit card has a free period is especially important if you plan to pay your account in full each month.
The lender must also disclose whether there is an annual fee. Most credit card issuers charge annual membership or other participation fees. These fees range from $25 to $50 for most cards and from $75 on up for premium "gold" or "platinum" cards. You may also pay transaction fees and other charges. For example, some card issuers charge a fee when you use the card to obtain a cash advance, when you fail to make a payment on time, or when you go over your credit line. Some charge a flat monthly fee whether or not you use the card at all.
What protections do I have when using my credit card?
Federal law provides a number protections regarding credit card use. They include the following items.
Prompt credit for payment. Your account must be credited on the date your payment is received (unless you make a mistake regarding how to make payments or the delay does not result in a charge to you). 15 U.S.C. 1666c. Payments sent to the wrong location can cause delay in getting credit for your payment for up five days. If you lose your payment envelope look on the billing statement for the address where payment should be sent or call the card issuer.
Refunds of credit balances. When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or requesting a refund. 15 U.S.C. 1666d. To obtain a refund write to the card issuer, who must send you the refund within 7 business days after receiving your request.
Errors on your bill. The card issuer must follow specific rules in correcting billing errors. The issuer must give you a statement describing those rules when you open your credit card account and after that, at least wants a year. Most issuers print a summary of your rights on each bill they send you. Your rights include:
Correction of mistakes - if you discover a mistake on your bill you must notify the card issuer in writing at the address specified for billing errors within 60 days after the first bill containing the mistake was mailed to you. The issuer, in turn, must look into the problem and either: (1) correct the error or (2) explain to you why the bill is correct. This must occur within two billing cycles and not later than 90 days after the issuer receives your billing error notice. During the period that the issuer is investigating the mistake, you do not have to pay the amount in question. 15 U.S.C. 1666 or if it to (a).
Unauthorized charges - if your credit card is used without your authorization, you can be held liable for up to $50 per card. If you report the loss before the card is used, the card issuer cannot hold you responsible for any unauthorized charges. If the thief makes use of your card before you report it missing, the most that you owe for unauthorized charges is $50.00. 15 U.S.C. 1643. Report losses as soon as possible. Use the toll-free number on your statement and follow up with a letter.
Returned merchandise - when a seller takes setups or allows a return of merchandise which you purchased with your credit card, the seller must promptly inform the credit card issuer that you are entitled to a credit the amount of the transaction. 15 U.S.C. 1666e.
Disputes regarding merchandise or services - if you have a problem with merchandise or services charged your credit card, you must first make a good faith effort to work out the problem with the seller. If your good faith effort fails, you have the right to withhold payment from the credit card issuer. 15 U.S.C. 1666i(a). You can withhold up to the amount of credit outstanding for the purchase, plus finance or related charges.
CAUTION: If the card used was a bank card, a travel and entertainment card, or a card not issued by the seller of merchandise, you may withhold payment only if the purchase was over $50.00 and occurred in your home state or within 100 miles of your billing address. 15 U.S.C. 1666i(a). If the purchase occurred more than 100 miles from your billing address owe the credit card charges. To recover your money you must sue the seller.
Are there any acts or practices which TILA forbids by high rate mortgage lenders?
Yes. Regulation Z 226.32 (e) forbids certain acts and practices in connection with high rate mortgages. It isn't clear, however, whether any remedies, other than damages, are available to consumer. The forbidden acts and practices are:
- Engaging in a pattern or practice of extending credit to consumers based on the value of the consumer's equity ("equity skimming") where the consumer's income is insufficient to repay the loan.Paying a home improvement contract directly from the loan proceeds (the lender is permitted to issue a check payable jointly to the consumer and contractor or the consumer alone or to a third party escrow agent).
- Selling or assigning a high rate mortgage without furnishing the following statement to the purchaser/assignee:
- "Notice: This is a mortgage subject to special rules under the federal Truth in Lending Act. Purchasers or assignees of this mortgage could be liable for all claims and defenses with respect to the mortgage that the borrower could assert against creditor.
What can I do if my TILA rights are violated?
If your TILA rights are violated, you may enforce them in either state or federal court. You have the following possibilities:
Suits for damages: you may file a civil lawsuit either as an individual or a class-action for damages if the lender has failed to provide you with proper TILA disclosures. 15 U.S.C.1640. You may also file a TILA counterclaim if you are sued on the debt. In an individual action you may recover any actual damages that you have suffered plus :
- an amount equal to twice the finance charge,
- for consumer lease violations, 25% of the total of monthly payments under the lease ( but not less than $100 nor more than $1000),or
- for individual actions related to credit transactions, not under an open end credit plan that is secured by real property or a dwelling, not less than $200 or more than $2,000.
- for failure to comply with the disclosure requirements related to high interest mortgages, an amount equal to the sum of all finance charges and fees paid by the consumer (unless the lender demonstrates that they are to comply is not material).
For class-action lawsuits there is no minimum recovery for each member. The total recovery to the class is limited to not more then $500,000 or 1% of the net worth of the creditor.
Rescission rights. You may also sue or counterclaim to enforce your right to rescind a loan transaction secured by your home. 15 U.S.C. 1635 & 1640 (a)(3). You also have the right to enforce your rescission rights in the context of state court foreclosure proceedings. 15 U.S.C. 1635(I). The allowed tolerance for an inaccurately disclosed finance charge raised as a basis for rescission in foreclosure proceedings is only $35.00 [much higher tolerances are allowed to consumer files and affirmative action. 15 U.S.C. 1605 (f)].
Attorneys fees and court costs. If you are successful in a suit for either damages and/or enforcement of rescission rights the court should require that the lender pay your attorneys fees and court costs.
Suits by state Attorney Generals. A state Attorney General may also sue to enforce the requirements under 15 U.S.C. 1639 regarding high rate mortgages.
What can lenders due to keep from paying me damages once they have violated TILA?
Even if a lender fails to accurately make all disclosures required by TILA, a lender may avoid liability. First the lender is allowed to correct errors within sixty days after discovering them, unless you have already filed a lawsuit or notified the lender in writing of the error. 15 U.S.C. 1640 (b). Next the lender may avoid liability by showing that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid the error. Such mistakes as miscalculations, clerical errors, computer malfunctions, printing errors, etc. may be held to be bona fide good faith errors. 15 U.S.C. 1640(b).
If the lender has made multiple errors in the same transaction, you may recover damages for only one error. 15 U.S.C. 1640 (g). You must generally bring your lawsuit within one year of the occurrence of the TILA violation. 15 U.S.C.1640 (e).
Should I contact an attorney if I believe that my TILA rights have been a violated?
Yes. The Truth in Lending Act is highly technical. It is best to seek the assistance of an attorney. If you do not known an attorney or cannot afford one, you may contact:
Washoe Legal Services
299 South Arlington Avenue
Reno, Nevada 89501
FAX: (775) 324-5509
or file a complaint with the: