If credit is extended to
business, commercial or agricultural purposes, Regulation Z
does not apply.
Home Mortgages
One of the biggest lending transactions any individual is likely
to enter is borrowing to purchase a home. These transactions
have become more complicated
in recent years. Historically, someone trying to buy a home
had very few options. Often, only a traditional thirty year
loan was available. Now, loans
of various duration and interest rate variations are available
to every home buyer. The Federal Reserve Board and the Federal
Home Loan Bank Board have
published a book entitled "Consumer
Handbook on Adjustable Rate Mortgages " to help consumers understand the purpose and uses of adjustable rate mortgage
loans. Regulation Z requires that creditors offering adjustable
rate mortgage loans make a special disclosure booklet available
to consumers.
Disclosure
Disclosure is generally required before credit is extended. In certain cases,
it must also be made in periodic billing statements. The term "closed
end credit transaction" is defined by exclusion. That is, it includes any credit arrangement (either
a consumer loan or credit sale) that does not fall within the definition
of an "open end credit transaction". Open end credit includes credit arrangements like revolving credit cards, where
the "borrower" (that is the credit card holder) is not required to pay off the principal amount
by any particular point in time. Rather, the borrower is simply charged interest
periodically and is usually required only to make some minimum payment.
Under Regulation
Z, disclosure must be made of the following important credit
terms:
Finance Charge - This is perhaps
the most important disclosure made. This is the amount charged
to the consumer for the credit.
Annual Percentage Rate - This is
the measure of the cost of the credit which must be disclosed
on a yearly basis. The method for calculating this rate is
determined the underlying transaction.
Amount Financed - This the amount
that is being borrowed in a consumer loan transaction, or
the amount of the sale price in a credit sale.
Total of Payments - This includes
the total amount of the periodic payments by the borrower/buyer.
Total Sales Price - This is the total
cost of the purchase on credit, including the down payment
and periodic payments.
Evidence of compliance with the Truth
In Lending requirements must be retained for at least two
years after the date of disclosure. Disclosures must be clear
and conspicuous and must appear on a document that the consumer
may keep.
Other Features of
the Truth in Lending Act
The Truth In Lending Act has other important features. If you elect to advertise
credit terms, the law requires disclosure of key lending terms. Also, the law
entitles the consumer the right to rescind certain credit transactions under
certain circumstances, such as home equity loans.
The penalties for failure to comply
with the Truth In Lending Act can be substantial. A creditor
who violates the disclosure requirements may be sued for
twice the amount of the total finance charge on the loan.
In the case of a home mortgage, this can be a very significant
amount. Costs and attorney's fees may also be awarded to
the consumer. A lawsuit must be begun by the consumer within
a year of the violation, but certain tolling provisions apply
giving the consumer more time.
If you want to learn
more about the Federal Truth in Lending Act, contact a lawyer who is familiar with the Federal Truth in Lending Act
