TILA (Truth in Lending Act)
TILA is a federal law that requires lenders to disclose key loan terms and costs to borrowers in a standardized format, including the APR, finance charges, and total payments, enabling consumers to compare credit offers.
Exam Tip
TILA = Truth in Lending. APR is the key disclosure. 3-day rescission for refinances/HELOCs (NOT purchase loans). Helps consumers compare credit.
What is TILA?
The Truth in Lending Act (TILA), also known as Regulation Z, is a federal consumer protection law enacted in 1968. It requires lenders to provide clear, standardized disclosures about loan terms and costs so consumers can make informed borrowing decisions and compare offers from different lenders.
Key TILA Disclosures
| Disclosure | Description |
|---|---|
| APR (Annual Percentage Rate) | True cost of credit including fees |
| Finance Charge | Total dollar amount of interest and fees |
| Amount Financed | Actual loan amount (principal minus prepaid fees) |
| Total of Payments | Sum of all payments over loan term |
| Payment Schedule | Number, amount, and timing of payments |
APR vs. Interest Rate
| Term | What It Includes |
|---|---|
| Interest Rate | Only the interest charged on principal |
| APR | Interest + points + origination fees + other costs |
Example: 6.5% interest rate might equal 6.8% APR when fees are included.
TILA Coverage
TILA applies to most consumer credit, including:
| Covered | Not Covered |
|---|---|
| Mortgages | Business loans |
| Auto loans | Securities transactions |
| Credit cards | Public utility credit |
| Personal loans | Loans over $50,000 (some exceptions) |
| Home equity lines | Student loans (separate rules) |
Required Timing of Disclosures
| Transaction Type | When Disclosures Due |
|---|---|
| Closed-end credit (mortgage, auto) | Before loan consummation |
| Open-end credit (credit cards) | With first billing statement |
| Loan Estimate | Within 3 business days of application |
| Closing Disclosure | At least 3 days before closing |
Right of Rescission
For certain home-secured loans (HELOCs, refinances):
| Feature | Details |
|---|---|
| Time period | 3 business days after closing |
| Applies to | Home equity loans, refinances with different lender |
| Does NOT apply to | Purchase money mortgages |
| Extended period | Up to 3 years if disclosures not provided |
TILA vs. RESPA Comparison
| Aspect | TILA | RESPA |
|---|---|---|
| Focus | Cost of credit | Settlement procedures |
| Key disclosure | APR | Closing costs |
| Main purpose | Enable credit comparison | Prevent cost inflation |
| Regulator | CFPB | CFPB |
Advertising Rules
TILA has specific rules for loan advertisements:
| If Ad States | Must Also Disclose |
|---|---|
| Interest rate | APR |
| Down payment | Terms of repayment |
| Monthly payment | APR and payment terms |
| Finance charge | APR |
Penalties for TILA Violations
| Violation Type | Penalty |
|---|---|
| Individual lawsuits | Actual damages + statutory damages |
| Class actions | Up to $1 million or 1% of net worth |
| Criminal | Up to $5,000 fine and/or 1 year imprisonment |
| Rescission failure | Extended rescission period |
Exam Alert
TILA = standardized credit disclosures. APR is the key disclosure (includes interest + fees). Right of rescission = 3 business days for refinances and HELOCs (NOT purchase mortgages). TILA helps consumers COMPARE credit offers.
Study This Term In
Related Terms
RESPA (Real Estate Settlement Procedures Act)
Real EstateRESPA is a federal law that requires lenders to provide borrowers with clear disclosures about settlement costs and prohibits certain practices like kickbacks and referral fees that can inflate closing costs.
Closing (Real Estate)
Real EstateClosing is the final step in a real estate transaction where ownership transfers from seller to buyer, documents are signed, funds are exchanged, and the deed is recorded.
Points (Discount Points)
Real EstatePoints are upfront fees paid to a lender at closing to reduce the interest rate on a mortgage, with each point equal to 1% of the loan amount and typically lowering the rate by 0.25%.