Understanding the Truth in Lending Act and how it impacts you
If you’ve ever worked with a lender or creditor, you may not have known it at the time, but you were being protected by the Truth in Lending Act. The TILA is a Federal law that’s been on the books for more than 50 years and is continually amended to ensure that today’s consumers can safely compare loans and credit cards.
What is the Truth in Lending Act?
As Credit Karma contributor Sarah Brady notes, the passage of the Truth in Lending Act was the result of consumers not being empowered to make the most informed financial decisions possible. Brady suggests that prior to the TILA’s enactment in 1968, it was not unusual for deceptive lenders and creditors to try and overwhelm borrowers in an effort to trick them into an unfair agreement.
TILA put an end to that and put the power into the hands of consumers. According to the Office of the Comptroller of the Currency, the objective of the Truth in Lending Act is to mandate that lenders provide accurate and more easily digestible information on loans and lines of credit. This gives consumers what they need to compare rates and make the smartest decision possible.
The scope of the TILA has continued to evolve over the course of 55 years and will likely only continue to do so. The Federal Trade Commission notes that amendments over the years include anti-steering stipulations, which prevent mortgage originators from steering consumers into riskier and higher-cost loans.
What does the TILA do?
Will Kenton, a contributor with Investopedia, writes that the Truth in Lending Act requires the disclosure of key information to consumers. This includes but isn't limited to the annual percentage rate, life of the loan, and the total costs a consumer can expect to incur. It also requires that certain disclosures are made in advertising. With this information, consumers will have an accurate and fair view of what they’re signing up for.
The TILA also prevents lenders from making unfair changes to credit agreements without providing due notice. Brady offers up the example of the act requiring creditors to give cardholders 45 days’ notice before increasing fees. And the TILA protects against creditors making unreasonable demands, which Brady notes can include being asked to pay off a loan in full any time prior to its stated end date.
Kenton points out that the TILA extends to a wide range of loans and lines of credit, including open- and closed-end credit lines. That means your car loan, mortgage, and credit cards are all covered under the scope of the Truth in Lending Act. Exceptions not covered by the TILA include business lines of credit and some student loan programs.
The Truth in Lending Act may not be one of the better-known federal laws on the books, but it’s one of the most critical for protecting consumers. Thanks to the TILA, you can safely and reliably shop for a mortgage, auto loan, or credit card without fear of being locked into an unfair deal.
The information in this article was obtained from various sources not associated with Adirondack Bank. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. Adirondack Bank is not responsible for, and does not endorse or approve, either implicitly or explicitly, the information provided or the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. Adirondack Bank makes no guarantees of results from use of this information.
Source: IMakeNews, Inc.