Understanding the Truth in Lending Act (TILA) and Regulation Z

Allie Grace Garnett is a content marketing professional with a lifelong passion for the written word. She is a Harvard Business School graduate with a professional background in investment finance and engineering.

As a 30+ year member of the AICPA, Nancy has experienced all facets of finance, including tax, auditing, payroll, plan benefits, and small business accounting. Her résumé includes years at KPMG International and McDonald’s Corporation. She now runs her own accounting business, serving several small clients in industries ranging from law and education to the arts.

• Introduction
• What are TILA and Regulation Z?
• TILA disclosure requirements
• A brief history of TILA and Reg Z
• Your rights under TILA
• The bottom line
• References

Table Of Contents

If you’ve ever implicitly trusted that the terms you receive from a lender are accurate and legally binding, then you may have the Truth in Lending Act (TILA) and Regulation Z to thank for that. TILA and Reg Z sound like TikTok slang, but are actually highly specific rules that govern consumer lending practices.

Here’s how TILA and Reg Z provide U.S. borrowers with important financial protections.

Key Points

• The Truth in Lending Act aims to comprehensively regulate consumer credit.
• Regulation Z sets forth procedures for TILA to be implemented.
• Both TILA and Reg Z continue to be amended and improved over time.

What are TILA and Regulation Z?

TILA and Reg Z are like two peas in a pod when it comes to creating a lending environment that’s fair for consumers. The Truth in Lending Act takes center stage as a 1968 law originally aimed at ensuring the proper disclosure of credit and lending terms. Regulation Z supports TILA by providing detailed rules and guidelines for how the information disclosures must be made. The Consumer Financial Protection Bureau (CFPB) is the federal agency tasked with monitoring and enforcing the act.

The Truth in Lending Act is hundreds of pages long and establishes comprehensive rules for various types of lending to regular people. According to the CFPB, TILA:

• Protects against inaccurate and unfair credit billing and credit card practices
• Provides consumers with limited rights to rescind a loan agreement
• Provides for interest rate caps on certain mortgage loans
• Imposes limitations on home equity lines of credit and certain home mortgages
• Provides minimum standards for most mortgage loans
• Delineates and prohibits unfair or deceptive mortgage lending practices

“Before [TILA’s] enactment, consumers were faced with a bewildering array of credit terms and rates. It was difficult to compare loans because they were seldom presented in the same format,” according to the CFPB. “Now, all creditors must use the same credit terminology and expressions of rates.”

TILA disclosure requirements

The core of TILA is its disclosure requirements. Here are the types of information the act defines as “material” and therefore must be disclosed:

• Finance charges, including interest, service charges, transaction charges, late payment fees, and other premiums
• Annual percentage rates (APR) for interest
• Totals for both the amount financed and sum of all expected payments
• Required repayment schedule
• Any penalties for early repayment

TILA establishes additional disclosure requirements that vary by the type of debt. Lenders offering credit cards, mortgages, home equity lines of credit, and private student loans are all subject to additional custom disclosure requirements.

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A brief history of TILA and Reg Z

One of the most noticeable features of TILA is how many times it’s been amended or otherwise evolved since it was passed in 1968. The act’s evolution has enabled it to stay relevant as the landscape of consumer financial products has changed to include new, innovative, and sometimes risky offerings.

Here are some highlights from the long history of TILA:

• 1968: TILA is enacted by federal lawmakers as Title I of the Consumer Credit Protection Act.
• 1969: TILA, as implemented by Regulation Z, takes effect.
• 1980: Congress passes the Truth in Lending Simplification and Reform Act to simplify and clarify many TILA provisions.
• 1988: The Home Equity Loan Consumer Protection Act amends TILA to require specific disclosures for home equity lending.
• 1994: The Home Ownership and Equity Protection Act is enacted as an amendment to TILA to address abusive mortgage lending practices.
• 2009: The Credit Card Accountability Responsibility and Disclosure Act amends TILA to improve the regulation of consumer protection for credit cards.
• 2010: The Dodd-Frank Wall Street Reform and Consumer Protection Act amends TILA to include additional mortgage-related lending provisions. The Dodd-Frank Act additionally establishes the Consumer Financial Protection Bureau and grants enforcement authority for TILA and Reg Z.

Regulation Z has also continued to evolve as TILA rules have changed. Many amendments to TILA have impacted Reg Z by modifying the requirements for how the act is implemented.

Your rights under TILA

The Truth in Lending Act establishes many, many rules to protect the rights of individuals participating in the credit markets. Here are 10 of the most important rights and protections that the Act establishes:

• Material disclosures. You have the right to receive all material disclosures (such as the annual percentage rate of interest, the amount financed, the payment schedule, the total of payments, and the finance charge) before entering into a lending agreement.
• Periodic statements. Your lender must periodically issue clear statements summarizing your debt account.
• APR calculations. Lenders must use consistent and transparent interest rate calculations.
• Fee limits. There are limits to the credit card fees that you’re required to pay.
• Error resolution. You’re entitled to participate in a fair process to resolve credit billing errors.
• Loan rescission. You have limited and defined rights to rescind from entering into a loan agreement.
• High-cost mortgages. Protections prohibit predatory mortgage lending practices such as negative amortization, interest rate increases after default, and prepayment penalties.
• Private education loans. Your consumer rights generally prevent any changes in the lending terms to a student loan after you receive approval.
• Marketing. College students have specific rights that limit how credit cards can be marketed to them.
• Advertising. You’re legally protected from deceptive and misleading advertising practices on the part of lenders.

Key Points

The Truth in Lending Act and Reg Z generally don’t apply to business lending. Loans with mixed purposes—like an auto loan for a car to be used for business and family—require lenders to consider the primary purpose of the loan.

The bottom line

Would you feel comfortable borrowing money if the terms and conditions aren’t clear, or are subject to bait-and-switch style changes? Probably not. The U.S. credit markets must be well regulated to operate fairly, transparently, and for the benefit of borrowers. The Truth in Lending Act, supported by Regulation Z, is foundational legislation that’s been guiding lenders to act responsibly since Lyndon Johnson signed the act back in 1968.

References

• [PDF] CFPB Laws and Regulations: TILA | consumerfinance.gov