Predatory lending laws are to protect consumers. The Federal Truth in Lending Act (TILA) was originally enacted by Congress in 1968 as a part of the Consumer Protection Act. This law is designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and the cost of the loan. This law has been implemented by the Federal Reserve Board through two key regulations, Regulation Z and M.
Regulation Z explains how to comply with the consumer credit parts of the law. Regulation Z applies to each individual or business that offers or extends consumer credit if four conditions are met:
- The credit is offered to consumers.
- Credit is offered on a regular basis.
- Credit is subject to a finance charge (i.e. interest) or must be paid in more than four installments according to a written agreement.
- The credit is primarily for personal, family or household purposes.
Predatory lending law, Regulation M includes all the rules for consumer leasing transactions, applying to contracts in the form of a lease where the use of personal property by a person primarily for personal, family or household purposes is present. The lease period must exceed four months to be subject to Regulation M, ad the total contractual obligations under the lease must not exceed $25,000 regardless of whether the lessee has the option to purchase the property at the end of the lease term.
Disclosures under TILA:
Under regulation Z, important credit terms must be disclosed by a lender to a borrower to be in compliance with TILA. These include:
- 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 of calculating this rate is determined by the underlying transaction.
- Amount financed: This is the amount that is being borrowed in a consumer loan transaction, or the amount of the sale price in the 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 payment.
TILA requires lenders to make these material disclosures on loans within three business days after their receipt of a written application. Further, a final disclosure statement must be provided at the time of the loan closing. This disclosure is required to being in a specific format and includes the information above as well as other information important to the transaction, including a loan’s prepayment policy, any insurance requirements, and any required deposit information.
In addition, under TILA a consumer may cancel a consumer credit transaction involving a non-purchase money interest in property within three days if all TILA disclosure requirements are met, or during an extended period for TILA disclosure violations when the lender failed to give the adequate TILA disclosures. In some cases, a consumer may even cancel the entire loan transaction because of TILA violations.
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Under TILA , a consumer may file an action in court for violation of TILA requirements. Damages in these types of cases include attorneys fees and court costs for successful enforcement, rescission actions, as well as statutory damages to the consumer. If you feel that you have been the victim of violations related to the laws of TILA, please give our office a call for a free consultation about TILA and other predatory lending laws to determine your rights.