What is a truth in lending disclosure?
According to the Consumer Financial Protection Bureau, a truth in lending disclosure is a statement issued when credit is offered to a consumer disclosing the terms, fees and cost associated with the credit. This allows the consumer to compare offers and make an informed decision. Since there are many costs associated with consumer credit the truth in lending disclosure gives the consumer an upfront overview of what the loan is going to cost over the course of its term. The disclosure lays out the amount of money including principle, interest and fees that the loan will cost in clear terms for the consumer.
How can a consumer use the truth in lending disclosure?
Consumers should use the truth in lending disclosure to evaluate the actual cost of the debt and determine if the cost is within their budget. It also discloses the APR, or annual percentage rate, of the loan. The truth in lending disclosure accounts for the cost if the loan is paid for the full term. It does not disclose the cost if additional principle payments are made, or if the loan is paid off early.
What determines if a truth in lending disclosure is required?
Truth in Lending, also known as Regulation Z, applies when four conditions are met:
- The credit is offered or extended to consumers.
- The offering or extension of credit is done regularly.
- The credit is payable by a written agreement in more than four installments or subject to a finance charge.
- The primary purpose of the credit is for personal, family, or household.
Are banks required to issue a truth in lending disclosure?
Banks are required to comply with issuing a truth in lending disclosure statement under the Federal Truth in Lending Act of 1968. TILA has been amended many times in order to include open-ended credit, such as credit cards and lines of credit, closed-ended credit, such as an auto and personal loans, and mortgage loans. Regulation Z requires that lending institutions, including banks, provide the consumer with a truth in lending disclosure statement prior to the loan being finalized. This allows consumers to decide whether or not borrow without being bound by a contract.
The TILA was passed in order to protect consumers from unfair lending practices. Part of this act, Regulation Z, requires that a truth in lending disclosure be issued to consumers before a loan is finalized. The truth in lending disclosure lays out the terms, fees and APR in an easy to understand format to inform the consumer of the actual cost of the loan. This allows the consumer to compare offers and make an informed decision when it comes to their credit. The truth in lending disclosure is required for consumer credit that is subject to a finance charge or payable in more than four installments and is being used for personal or household purposes. This includes open-ended credit, closed-ended credit, and mortgage loans. All lending institutions, including banks, are required to comply with Regulation Z under the TILA.
Consumers can learn more about the Truth in Lending Act at www.fdic.gov/regulations/laws or by visiting with their loan officer.