Truth in Lending Disclosure Statements
By Olivia Wathne, Esq. | Legally reviewed by Melissa Bender, Esq. | Last reviewed January 25, 2024
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The Truth in Lending Act of 1968 (TILA) is a federal law created to make it easier for people using credit, like credit cards, to understand and compare different lenders. One important part of this law is the written disclosure requirements. They make financial institutions provide clear and easy-to-understand information about consumer credit transactions. This includes details like the loan amount, loan terms, the repayment amount, interest rates, payment schedules, due dates, and late payment penalties.
This article will discuss TILA and what financial institutions must disclose in their Truth in Lending Disclosure statements.
History of TILA
TILA originally was Title I of the Consumer Credit Protection Act. It introduced regulations within the Code of Federal Regulations (CFR) known as "Regulation Z" to enhance transparency in consumer credit transactions. Over time, amendments have changed TILA. For example, TILA now allows some flexibility in real estate-secured credit transactions, recognizing the complexities involved in mortgages.
In 2011, the rulemaking authority for TILA, now found in Title 15 of the U.S. Code (U.S.C.), shifted from the Federal Reserve Board to the Consumer Financial Protection Bureau (CFPB). This transition aimed to centralize and streamline the oversight of consumer protection laws. It also consolidated regulatory responsibilities under a single agency. The CFPB now ensures that financial institutions follow TILA's provisions.
What Does the TILA Do?
Financial products are often quite confusing for people without a finance background. TILA ensures borrowers have the necessary information to make informed decisions before opening a credit card account or taking out a loan. The act covers various forms of consumer credit. It covers closed-end credit like auto loans, student loans, and home mortgage loans. It also covers open-end credit such as credit cards or home equity lines of credit.
The law also made a "right of rescission" for certain home loans, allowing consumers a three-day period to cancel their loans without any extra charges. TILA doesn't force lenders or card issuers to approve loans or credit cards for specific people or control the interest rates they can ask for. It just mandates banks, credit unions, mortgage brokers, and other lenders to clearly explain the terms of the loan to borrowers.
What Does a Truth in Lending Disclosure Look Like?
Consumers not familiar with TILA may recognize the sample Truth in Lending Disclosure Statement below. The law requires the following information be included with any loan or credit offering before you sign on the dotted line:
| Annual Percentage Rate | Finance Charge |
Amount Financed |
Total of Payments |
|---|---|---|---|
The cost of your credit as a yearly rate. A% |
The dollar amount the credit will cost you. $B |
The amount of credit provided to you. $C |
The amount you will have paid after you have made all payments as scheduled. $D |
TILA disclosures are typically more detailed. But the sample above highlights the most useful information for comparison shopping. Other information disclosed in the statement includes the number of payments required, filing fees, late charges, whether the loan has a variable rate, and whether you will get a penalty if you pay off your balance early.
How Are the Four Main Components of the Disclosure Defined?
- Annual Percentage Rate: The APR is the interest rate for an entire year (or "annualized"), as opposed to just the monthly rate; generally speaking, this is the cost of your credit expressed as a yearly rate,
- Finance Charge: The finance charge is the sum of all charges payable by the debtor, including monthly fees and a percentage of the balance carried forward.
- Amount Financed: This is the amount of credit provided by the creditor; for example, the amount financed for a $5,000 loan is $5,000.
- Total of Payments: This is the total of all payments you will have made by the time you have paid off your balance, including all fees and finance charges.
Check out the CFPB site for the complete text of the Truth in Lending Act. To learn more about the TILA and other consumer credit laws, visit FindLaw's Federal Consumer Credit Laws Checklist article or speak with a consumer protection attorney.
Next Steps
Contact a qualified consumer attorney to assist with any credit, banking, or finance issues you face.