Truth in Lending Definition
The Truth in Lending Act sets forth requirements for lenders to provide standard terms for loan products, such as interest rates and loan costs. This standard presentation allows you to compare rates and fees among lenders before signing any loan documents.
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Coverage
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The Truth in Lending Act covers both open and closed-end lending products. An open-end credit product is a credit card, credit line or home equity line of credit with "open" usage. A closed-end product is a loan with a fixed term and time period, such as a car loan, boat loan or mortgage loan.
Disclosures
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The act requires a lender to accurately disclose the cost of credit, that is the amount of money the loan will cost you by the end of the term, as well as the APR, or annual percentage rate, which is the percentage cost of credit on an annual basis. In addition, the lender is required to show you the total amount financed, in dollars, meaning the total cost of the loan when it is finally paid off, as well as the schedule of payments.
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Consumer Protection
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Under the Truth in Lending Act, a lender must post your payment to your loan or line account on the day it is received. Also, if you have a credit balance on your account, such as a credit card, the lender is required to either leave it on your account or provide you with a refund for the credit amount. Finally, the lender must follow special rules to resolve an error on your bill, provided that you notify the lender of the error.
Right to Cancellation
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If you use your home as collateral for a loan or credit line, such as for a home equity loan or line or a mortgage, the Truth in Lending Act gives you three days to cancel the loan after you sign the papers.
Violation
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If you feel that a lender has violated your rights under the Truth in Lending Act, you can file a legal action in state or federal courts. Because of the complexity of the act, you should consult an attorney if you feel your rights have been violated.
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References
Resources
- Photo Credit Image by Flickr.com, courtesy of Andres Rueda
