The Truth in Lending Act

The Truth in Lending Act is a law designed to protect consumers in their attempts to build their credit.  The act, among other things, requires lenders to fully disclose all terms and costs involved with a loan to potential borrowers. 

Prior to the Truth in Lending Act, it was common practice for sellers of credit to advertise false, misleading, or varying credit terms that confused potential borrowers.  Once borrowers were locked into a contract with a lender, the borrower had little choice but to meet the demands of the lender or face the consequences of non-payment.  Today’s act allows borrowers the right to dispute charges.  Today’s act also requires lenders to clearly state a maximum interest rate that can be applied in a variable-rate loan contract.  This prevents lenders from taking advantage of their borrowers through various “bait and switch” tactics. 

Some other affects of the Truth in Lending Act include:

–The use of written materials to disclose information to potential borrowers.

–The use of bold letters and boxes on written material for easy viewing (i.e., no impossible to read fine print)

–Restrictions against issuing credit to those who have not applied for credit.

–Restrictions on the amount of money a person can be charged for the unauthorized use of their credit card.

–Regulates the disclosure of specific information in advertising. 

The Truth in Lending Act is divided into different sub-sections.  Each sub-section covers a specific aspect of consumer protection.  Sub-section C of the act refers to “closed-end credit”, or credit that must be paid off in a pre-specified amount of time, such as car loans, home mortgages, and other fixed loans.  This section goes so far as to explain to lenders how to properly, fairly, and legally calculate a person’s interest charges.  Before the Truth in Lending Act was put in place, a lender could change the way they calculated an interest rate without the knowledge or consent of the borrower.  In many cases this would have drastic effects on the amount of interest a person would be required to pay. 

Sub-section E of the Truth in Lending Act deals specifically with mortgages and the mandatory disclosures that must be made to future homeowners shopping for a loan.  To prevent an abuse of the mortgage closing process, this section of the act requires lenders to provide an estimate in good faith of any and all closing costs to potential borrowers within 3 days of a future homeowner applying for a mortgage.  

The Truth in Lending Act is a complex piece of legislation that contains much more information that what has been presented above.  The information above should be used as an introductory primer to the full Truth in Lending Act.  Anyone with specific questions in regards to the act are urged to contact a local attorney that is qualified to interpret legal jargon.  Basing important credit decisions on the interpretation of law provided non-qualified individuals could leave the borrower paying much more than they are should in high interest rates and sometimes outrageous fees.