The Truth In Lending Act (TILA) was passed in 1968 to protect borrowers from unscrupulous and predatory lenders who use bait and switch tactics and other under-the-table marketing tactics and downright dishonest business practices to bilk homeowners out of thousands of dollars by selling them mortgage products they don’t need and can’t afford. If you’ve been a victim of this then you understand why TILA is a necessary piece of legislation.
Since 1968, there have been numerous amendments to the act that provide further protection from homeowners and borrowers:
- Fair Credit Billing Act of 1974
- Consumer Leasing Act of 1976
- Truth in Lending Simplification and Reform Act of 1980
- Fair Credit and Charge Card Disclosure Act of 1988
- Home Equity Loan Consumer Protection Act of 1988
- Home Ownership and Equity Protection Act of 1994
- TILA Amendments of 1995
- Economic Growth and Regulatory Paperwork Reduction Act of 1996
Additionally, Regulation Z, the meat of TILA, was amended in 1987 and 1988.
Regulation Z outlines TILAs disclosure requirements for mortgage lenders and is one place where you’ll find many lenders are in violation of their mortgage agreements.
Prior to TILA, it was difficult for consumers to understand mortgage rates and terms because there was no requirement to format them in any certain way. TILA, however, made a standard for formatting mortgage terms so that borrowers could more easily determine the rates and know what they were getting into. If your mortgage company fails to provide you the correct format for your loan terms then they could be subject to fines and may be forced to refund you a part or all of the borrower’s loan.
It’s important to understand these case law nuances when seeking a loan settlement for a homeowner who may have a lender who has violated TILA.
TILA stands for truth in lending. It’s a piece of legislation put in place to protect consumers from predatory lenders who prey on consumer ignorance and borrower innocence.
The part of the Truth in Lending Act that is cited most often and which affords the latest and most protection for borrowers is Part 226, also called Regulation Z. This is the part of the act that requires lenders to provide certain disclosures and gives the time line for those disclosures based on the type of loan.
For instance, Part 226.5b says in part:
(d) Content of disclosures. The creditor shall provide the following disclosures, as applicable:
(1) Retention of information. A statement that the consumer should make or otherwise retain a copy of the disclosures.
(2) Conditions for disclosed terms. (i) A statement of the time by which the consumer must submit an application to obtain specific terms disclosed and an identification of any disclosed term that is subject to change prior to opening the plan.
(ii) A statement that, if a disclosed term changes (other than a change due to fluctuations in the index in a variable-rate plan) prior to opening the plan and the consumer therefore elects not to open the plan, the consumer may receive a refund of all fees paid in connection with the application.
(3) Security interest and risk to home. A statement that the creditor will acquire a security interest in the consumer’s dwelling and that loss of the dwelling may occur in the event of default.
(4) Possible actions by creditor. (i) A statement that, under certain conditions, the creditor may terminate the plan and require payment of the outstanding balance in full in a single payment and impose fees upon termination; prohibit additional extensions of credit or reduce the credit limit; and, as specified in the initial agreement, implement certain changes in the plan.
Subsection d of this part of the code contains 12 specific instructions to lenders that must be complied with or the lender is in violation of the loan agreement. All 12 must be adhered to, if applicable. Other items not mentioned above include:
- Disclosures for variable-rate plans
- Tax implication disclosure
- Transaction requirements
- Negative amortization disclosure
- Third-party fees disclosure
- Creditor fees disclosure
- and APR disclosure
All of this can be found just within one small part of Regulation Z. You can read the entire regulation on the FDIC website.
To learn more about how a loan audit can help you uncover lender violations - either a violation of Regulation Z or one of the many other state, local, and federal laws that apply - visit one of the oldest and most comprehensive loan auditors in the nation.