When you’re looking to obtain credit, whether for a home or car, or to enjoy the ease of managing your purchases with a credit card, you can easily find yourself at the mercy of the lender. You’ll typically be given a number of complex financial and legal documents, making it difficult to discern exactly what your rights are. There’s good news, though. In an effort to protect consumers from predatory or deceptive lending practices, Congress enacted the Truth in Lending Act in 1968, with the stated goals of ensuring that consumers are fully informed about the terms of any credit extended to them, so that they can understand the actual costs.
The overarching purpose of the disclosure requirements set forth by TILA is to ensure that the information and terms provided to consumers are easily understood, so that persons entering a credit agreement can meaningfully compare interest rates and other conditions of different credit offers. Under TILA, lenders must provide borrowers with a disclosure statement that includes all of the following:
In 2009, Congress passed the Credit CARD (Card Accountability Responsibility and Disclosure Act) Act, an amendment to TILA, which establishes rules related specifically to the extension of credit through a credit card. Under the Credit CARD Act, a lender must inform you of:
Under the Credit CARD Act, a lender may not extend credit or increase an existing credit line without first examining the applicant’s ability to make payments. Lenders must also disclose that those cardholders who make only minimum payments may be charged a different (and higher) interest rate and that doing so means that it will take more time to pay off the balance.
If a borrower pledges their principal residence as collateral for the loan, but the loan is not for the purpose of purchasing the home, the borrower has a right under TILA to rescind and cancel the loan agreement within three business days of signing the contract. That right remains in place until midnight on the third business day following execution of the credit agreement, or until delivery of all required disclosures under the Truth in Lending Act, whichever comes later. If the lender fails to provide required disclosures, or if the disclosures have errors or omissions, the rescission period may be extended up to three years.
When a borrower rightfully exercises the right of rescission, the security interest held by the lender is automatically voided and the borrower has no financial responsibility to the lender. If the lender has already delivered funds or property to the borrower, the borrower must return that money or property in full within 20 calendar days and must remove any indication or claim of a security interest from the public records.
The Truth in Lending Act has been modified a number of times over the past half century:
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