Know The Truth Of The Lending Act Before You Take A Loan

The Truth in Lending Act or TILA is a federal law that was formulated way back in 1968 but is still in practice to protect consumers when they deal with different lenders and creditors. In fact, all lenders and creditors must follow this Act implemented by the Federal Reserve Board. This Act contains a series of rules and regulations that defines a lot of things such as:

  • The information to be disclosed mandatorily to the consumers and
  • All such information must be provided irrespective of the type of loan applied for.

As per the TILA, the lender is required to disclose a few specific facts such as:

  • The Annual Percentage Rate or APR
  • The finance charges including all types of fees such as application fee, late fee, and even prepayment penalties
  • The actual amount financed
  • The repayment schedule and
  • The total repayment amount over the entire tenure of the loan.

All these details must be presented to the consumer prior to the signing of the loan agreement. At the same time the lender whether it is a bank or any private money lending sources such as or any other must ensure that all these details appear clearly and plainly on all billing statements as well.

Amendments in the truth

As it is, TILA does not confine the measure of interest that a lender can charge from the customer. It also does not specify anything about whether a creditor must grant a loan to the prospective client. Ideally, the Act is all about the lending policy and the need of the lenders to be upfront, transparent and honest about the quantum of cost credit to a consumer.

However, over the years, there have been a lot of amendments made to the TILA. This is done with intent to protect consumers throughout. For example in 2009, the government made significant changes in the Credit Card Act and now requires all credit card issuers to disclose their pricing information to the consumers regarding all their credit products without which they cannot issue any new credit cards.

There were also a few other amendments made in the Credit Card Act such as:

  • All credit card companies will now have to consider the ability of a consumer to repay any transaction made through it before they issue a new credit card
  • The same is also required when they want to raise the credit limit of any existing credit card
  • They must also give a notice at least 45 days in advance before making any increase in the rate of interest in a particular credit card
  • Credit card companies must send the billing statements at least 21 days before the due date
  • They must disclose the cost of making minimum payments
  • They must also mention the time it may take to repay off the entire balance amount with only minimum payments made each moth
  • They must charge only the over-the-limit fee if a cardholder wishes to have such over-the-limit transactions processed and
  • The card issuing company should never offer any tangible incentives such as T-shirts or gifts so that more customers sign up for a credit card.

The government has also a separate Fair Credit Billing Act in place that protects the consumers from any unfair billing practices by the credit card companies. If there is any such thing noted by the consumer in their billing statements, then the law allows the consumer to dispute it in writing.

The credit card issuing company will have to take immediate actions and start investigating on it. While such investigation is on the law allows the consumer to stop paying the disputed amount. The law prohibits the credit card companies to penalize the consumer for such actions for the amounts in dispute.

Implementation of CROA or The Credit Repair Organizations Act is also another significant change made in the law. This Act is specifically designed for those consumers who are wishing to take money for improving their credit.

Under this Act:

  • The credit repair companies cannot lie to the creditors about your credit history. Apart from that, the credit card companies are also prohibited from making any alterations to your identity so that they can get a new credit history.
  • The Act also wants the credit card companies to be fully honest about their services provided to their customers and not misrepresent or misguide them.
  • They must not ask for any type of payment as well before any particular service is provided.

It is also required that all credit repair companies provide you with a proper disclosure about the details to obtain a credit report or to know about the process to dispute any inaccurate information by your own.

There must be a proper contract signed by the credit repair companies before they perform any services for you. They must also allow a 3-day "cooling off" period when such a contract between you and the credit repair company is signed. You can contact them within this period with no cancellation fee.

According to CROA, no company can ask you to waive your rights and any waiver you may sign so will be taken as void and violation of the law.

Dealing with violators

Any financial company that breaks the law will be dealt strictly if you complain to the Consumer Financial Protection Bureau. The CFPB may impose a penalty or fine against such companies and may also ask for a complete or partial refund.

You can also file your complaint with the Federal Trade Commission or your state Attorney General about such companies that break the law.

To wrap it up

As creditors often deny settling debts for a lower amount, it can result in several implications and legal obligations. A few of these obligations are:

  • Harming your credit
  • Possibility of a lawsuit
  • Putting liens
  • Wage garnishment
  • Late fees and high interest rates and
  • Collection calls.

With these laws in place it is ensure that there are no unfair practices that may put your credit as well as your financial situation in jeopardy when you take out any loan.

More to Read: