TILA encompasses the majority of consumer credit agreements, such as mortgages, credit cards, and home equity loans, and was formulated to ensure that the information disclosed to consumers is uniform and standardized. This legislation mandates that a lender must furnish specific information in written form concerning the conditions of a credit agreement.

Some of the most important aspects of the TILA concern the information that must be disclosed to a borrower before extending credit, such as the annual percentage rate (APR), the term of the loan, and the total costs to the borrower. This information must be conspicuous on documents presented to the borrower before signing and in some cases on the borrower’s periodic billing statements.

The law requires lenders to be honest in disclosing the details of a loan, and provide consumers with a document known as the Truth in Lending Statement, which allows consumers to make responsible credit decisions and easily compare rates between lenders.

You may be entitled to compensation if your lender has not properly provided you with these disclosures. This may can include actual damages – the financial harm you suffered as a result of the inadequate disclosure – and statutory damages of $100 to $1,000.

Enforced by the Federal Reserve Board’s Regulation Z (12 CFR Part 226), this act has undergone numerous revisions and expansions over the years. It covers a wide range of consumer credit, including closed-end credit like auto loans and mortgages, as well as open-end credit such as credit cards or home equity lines of credit.

The primary objective of the act is to facilitate consumer decision-making by enabling them to compare different credit options effectively. It also aims to protect consumers from deceptive or unjust practices by lenders. While some states have their own versions of TILA, the core principle remains consistent – the disclosure of essential information to ensure the well-being of both consumers and lenders in credit transactions.

Examples of the TILA’s Provisions

The TILA mandates the kind of information lenders must disclose regarding their loans or other services. For example, when would-be borrowers request an application for an adjustable-rate mortgage (ARM), they must be provided with information on how their loan payments could rise in the future under different interest-rate scenarios.

The act also makes numerous practices illegal. For example, loan officers and mortgage brokers are prohibited from steering consumers into a loan that will mean more compensation for them, unless the loan is actually in the consumer’s best interests. Credit card issuers are prohibited from charging unreasonable penalty fees when consumers are late with their payments.

What Is a Real-Life Example of the Truth in Lending Act?

A real-life example of the Truth in Lending Act includes credit card offers from banks, such as Chase. Chase offers borrowers the opportunity to apply for the airline United Gateway Credit Card on its website. Presented are the pricing and terms, APR (16.49%-23.49% based on creditworthiness), and an annual fee ($0+/-). Required by TILA, the card’s pricing and terms disclosure detail the APR for different types of transactions, such as balance transfers and cash advances. It also lists fees of interest to consumers

What Is a TILA Violation?

Truth in Lending Act (TILA) Violations and Foreclosure

There are two primary categories of TILA infractions that can offer recourse to borrowers in cases where a lender fails to comply with the law: violations resulting in damages and violations permitting rescission. Rescission is a legal remedy that could be beneficial if you are confronted with foreclosure, as elaborated below.

Moreover, if a lender engaged in unethical, deceptive, unfair, or fraudulent practices during the loan origination process, it may be deemed as predatory lending. In the event that your mortgage lender utilized predatory lending tactics when you obtained the loan, you may have the opportunity to contest a foreclosure.

Some examples of TILA violations include a creditor failing to accurately disclose the APR and finance charge, the misapplication of the daily interest factor, and the application of penalty fees exceeding TILA limits. A creditor is also in violation if they do not allow the borrower to rescind the contract within the prescribed limit

Material violations that can lead to damages include, but are not limited to, improper disclosure of the amount financed, finance charge, payment schedule, total of payments, annual percentage rate, and security interest disclosures.  Failure to provide proper disclosure renders the creditor responsible for paying damages, which include:

• Actual damages suffered by the individual as a result of the failure.
• Statutory damages, which are limited to twice the finance charge, with a minimum of $400 and a maximum of $4,000 (15 U.S.C. § 1640[a][1],[2]).

According to TILA, a creditor is held strictly liable for any violations, meaning that monetary damages are imposed regardless of the creditor’s intent.

TILA Violations Resulting in Rescission

Did your mortgage lender violate TILA? You might be able to sue for money damages or even void your loan. The primary TILA violation that significantly impacts borrowers, particularly those in foreclosure, is the ability to rescind. By “rescinding” the loan, the borrower has the power to nullify the loan as if it never existed.

The right to rescind can serve as a potent tool against foreclosure. Rescission eliminates the creditor’s lien, removing the creditor’s ability to foreclose and ultimately stripping away their leverage.

Applicability of Rescission

A borrower’s right to rescind is applicable to consumer credit transactions where a non-purchase money lien or security interest is present on the borrower’s primary residence. (15 U.S.C. § 1635[a]). For rescission to be valid, the lien must be on the borrower’s primary residence, and the transaction must involve a non-purchase money loan.

The most common types of rescindable loans include home equity mortgages and refinances.

Rescission Timeframe

A loan can be rescinded within three days of origination and, in certain cases, can be extended up to three years if material TILA disclosures were not provided correctly at the loan’s inception, or if the notice of the right to rescind was not given at all. (15 U.S.C. § 1635[a],[f]).

The right to rescind ends when the creditor rectifies the violation unless the borrower has already sent a rescission notice to the creditor.

Incorrect Disclosures as Basis for Rescission

Incorrect disclosures can also serve as grounds for loan rescission. For instance, a finance charge error exceeding 0.5% to 1% of the total loan amount (or 1% of the total amount in specific refinancing transactions) can justify rescission in most cases. (15 U.S.C. § 1605).

How does Rescission work?

Rescission operates by requiring the lender to reimburse the borrower for closing costs and finance charges, while the borrower must repay the remaining balance of the mortgage. In a thriving real estate market, the borrower may have the option to refinance or sell the property in order to fulfill their obligation to the lender.

However, if the property is underwater (meaning its value is less than the amount owed), this may not be feasible. In such cases, a court may demand that the borrower demonstrate their ability to fulfill a valid tender before allowing the rescission to nullify the security interest in the property.

What is Predatory Lending?

The term “predatory lending” refers to unethical lending practices where a borrower is subjected to an unfair loan. The Office of the Comptroller of the Currency (OCC), which oversees national banks and federal savings associations, defines predatory lending as the disregard for fundamental loan underwriting principles.

Safeguards against predatory lending

There are federal laws in place to safeguard borrowers against predatory lending practices. These include the Truth in Lending Act (TILA), which mandates lenders to disclose the terms and costs associated with a mortgage loan, and the Home Ownership and Equity Protection Act (HOEPA), an amendment to TILA. Additionally, the federal Fair Housing Act (FHA) can be utilized to combat predatory lending, and state laws often impose restrictions on certain loan terms and provisions.

While federal law does not explicitly define “predatory lending,” state laws offer varying descriptions. However, courts generally consider a loan to be predatory if the lender employed aggressive and deceptive sales tactics to coerce a vulnerable or unsophisticated borrower into accepting unfavorable terms, charged exorbitant interest rates to individuals likely to default, misrepresented the true costs, risks, or suitability of the loan terms, or imposed excessive fees or expenses.

If you are a victim of TILA violation by a lender, consult a Legal Access Plan TILA attorney. They can educate you regarding your rights, and get you compensation and damages that you may be entitled to from the creditor who is liable for the violations.