The Truth in Lending Act (TILA), also known as the Federal Truth in Lending Act, is a federal law passed in 1968 with the purpose of safeguarding consumers by requiring lenders to disclose loan agreement terms and conditions clearly and consistently. This act applies to most types of credit transactions, including mortgage loans.
Under the Truth in Lending Act (TILA), lenders must disclose the cost of credit in a uniform way so consumers can compare prices between loans. This includes providing customers with an Annual Percentage Rate (APR) and finance charges associated with each loan. An APR is an indication of credit’s annualized cost expressed as a rate.
In addition to mandating lenders disclose credit costs, the TILA also gives consumers certain rights when it comes to canceling certain types of transactions. For instance, home equity loan customers have the right to cancel within three days after signing the loan agreement.
The Consumer Financial Protection Bureau (CFPB) tracks consumer complaints related to TILA and stores them in its Consumer Complaint Database. In 2021, the CFPB received 1,749 complaints regarding violations of TILA; the top three types were related to loan servicing issues, closing on a mortgage, and issues with loan application processes.
According to a report released by the National Association of Realtors in 2020, the median time to close on a mortgage increased from 30 days in 2016 to 40 days. This increase can be partly attributed to increased TILA disclosures and documentation requirements. Nonetheless, 76% of homebuyers reported being satisfied with their experience throughout the mortgage application and approval process.
According to a report issued by the Federal Reserve in 2021, the average interest rate on 30-year fixed-rate mortgages had decreased significantly from 2010 when it stood at 4.69%. Furthermore, lenders are adhering to TILA requirements in order to guarantee borrowers their ability to repay their loans.
One of the key provisions of TILA is its mandate for lenders to provide borrowers with a Loan Estimate (LE) and Closing Disclosure (CD), as part of the mortgage loan process. These documents detail all loan details such as interest rate, fees, and other costs associated with it.
The TILA also contains provisions for the reporting of credit information to credit bureaus. Lenders must accurately and promptly report credit data, while consumers have a right to dispute any errors on their report.
Overall, the TILA has been instrumental in providing consumers with important information about credit costs and protecting their rights when canceling certain transactions. It also helped standardize the mortgage loan process so borrowers have access to accurate data when making informed decisions about their loans.
Recently, the TILA has been revised to incorporate new requirements and provisions. For instance, in 2015 the Consumer Financial Protection Bureau (CFPB) implemented the TILA-RESPA Integrated Disclosure (TRID) rule which combined LE and CD forms into one comprehensive disclosure form.
The Truth In Lending Act (TILA) plays an essential role in the mortgage industry, with its provisions regularly reviewed and updated to guarantee consumers are adequately safeguarded and informed when it comes to credit costs.