When consumers borrow money, they do so based on the information available from the lender. This information includes terms of how to repay a loan, and how much it will cost. Federal truth in lending laws, including the Truth in Lending Act and the Board of Governors of the Federal Reserve System's Regulation Z, place requirements on lenders to protect consumers who take out mortgages, credit cards, auto loans and other types of personal debt.
Many aspects of truth in lending laws deal with adjustable interest rates, which can be confusing even with a full array of information available. Lenders must describe not only the introductory rate, but also the formula for calculating rate adjustments and the schedule of how often the rate can change. If a loan with an adjustable rate has a maximum or minimum limit, this must also appear in the disclosure documents. Because it includes so many pieces of information, it's relatively easy for lenders to omit some information about rate adjustments.
The annual percentage rate is one of the key numbers in any loan. It refers to the annual interest rate, which is divided by the number of pay periods in a year to determine each interest charge. For example, a loan with a 12 percent APR that charges interest monthly results in a finance charge that is equal to 1 percent of the loan balance each month. Federal truth in lending laws require lenders to list APRs before other rate information, But when a loan's APR is high, the lender may violate this law by listing a different, lower figure first.
Truth in lending laws require lenders to provide certain information within a given amount of time. This can be a problem for lenders, particularly when the information must be made available immediately. For lenders who post offers online, this means that the only way to comply is by including the information on every page of the website or installing a popup application that makes the information available on demand for site users. Lenders who don't make this information available instantly are technically in violation of truth in lending laws.
Lenders must include extensive rate information with each solicitation they provide to consumers. This means that when a credit card issues an advertisement or sends out a mailing promoting one of its products, the marketing must include rate tables, APR information and fee disclosures. Email marketing and television commercials are not exempt, even though they may provide less time or space to include the required documentation.