The Truth in Lending Act (TILA) is a federal law in the United States that requires lenders to provide borrowers with certain disclosures before they enter into a loan agreement. These disclosures include the loan's annual percentage rate (APR), finance charges, financed amount, and the total payments required. The goal of TILA is to ensure that borrowers have the information they need to make informed decisions about borrowing money and to protect them from predatory lending practices.
TILA applies to most consumer loans, such as mortgages, car loans, and credit card loans. The law requires lenders to provide borrowers with a three-day right of rescission, which allows borrowers to cancel the loan within three days of signing the agreement. This right of rescission is designed to give borrowers time to review the loan agreement and ensure they are comfortable with the terms before committing to the loan. If a borrower decides to cancel the loan within three days, the lender must refund any fees or charges associated with the loan.
TILA's disclosures are designed to help borrowers understand the true cost of borrowing money. The APR measures the cost of credit expressed as a yearly rate. It includes the interest rate, fees, and charges associated with the loan. Lenders can compare the price of different loans and make informed decisions about which loan is best.
In addition to the disclosures required by TILA, the law also requires lenders to provide borrowers with a statement of their rights as consumers. This statement must include information about the borrower's right to dispute errors on their account, the borrower's right to receive information about their account, and the borrower's right to file a complaint if they believe their lender has violated the law. By providing borrowers with this information, TILA helps ensure that borrowers are aware of their rights and can act if they believe their lender has acted unfairly.