Truth In Lending Act: Regulation Z

The Truth in Lending Act is intended to ensure that credit terms are disclosed in a. meaningful way so consumers can compare credit terms more readily and knowledgeably.

The Truth in Lending Act (TILA), 15 USC 1601 et seq., was enacted on May 29, 1968, as title I of the Consumer Credit Protection Act (Pub. L. 90-321). The TILA, implemented by Regulation Z (12 CFR 226), became effective July 1, 1969.

TILA Disclosures are required to be given to the customer when credit is offered but before transaction, and/or when credit is advertised to potential customers. 

TILA Disclosures are required to be kept for a period of two years for most disclosures. Here is a list of TILA Required Disclosures:

• Loan Estimate (kept for 3 years)
• Closing Disclosure (kept for 5 years)
• CHARM Booklet
• Right to Rescission Disclosure
• When Your Home Is On The Line Disclosure 

Triggering terms are specific details about a loan that are used in advertising and must be disclosed under the Truth in Lending Act (TILA).

 Examples of triggering terms 

• The amount of the down payment
• The number of payments
• The period of repayment
• The amount of any payment
• The amount of any finance charge
• The annual percentage rate (APR)

When to disclose triggering terms:

•  If an advertisement uses a triggering term, the advertiser must also disclose the following information: 
• Any minimum fixed, transaction, or activity charge that is a finance charge
• Any periodic rate (expressed as an annual percentage rate)
• Any membership or participation fee
• Whether the APR may increase after closing

Non-Compliance Penalties:

• Fines up to $10,000 per occurance
• Jail time of up to one year per occurance

The Truth in Lending Act's (TILA) ability-to-repay (ATR) rule requires lenders to determine if a borrower can repay a mortgage before closing. This rule protects consumers from predatory mortgage practices. 

ATR considers the following:

• Lenders must consider a borrower's income, employment, credit history, and monthly expenses. 
• Lenders must make a reasonable and good faith determination that the borrower can repay the loan. 
• Lenders cannot rely solely on a teaser rate. 
• Lenders must verify information using reliable third-party records, such as W-2s or payroll statements.
  

Qualified Mortgages qualifications are:

1. The loan is secured by a first lien;

2. The loan has a fixed rate, with regular, substantially equal periodic payments that are fully amortizing and no balloon payments;

3. The loan term does not exceed 30 years; and

4. The loan is not a high-cost mortgage

The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an

amendment to the Truth in Lending Act (TILA) to address abusive practices in refinances and

closed-end home equity loans with high interest rates or high fees. Since HOEPA’s enactment,

refinances or home equity mortgage loans meeting any of HOEPA’s high-cost coverage tests

have been subject to special disclosure requirements and restrictions on loan terms, and

consumers with high-cost mortgages have had enhanced remedies for violations of the law.

SECTION 32 High Cost Loans

TILA HOEPA Section 32 high cost refers to a provision within the Truth in Lending Act (TILA) under the Home Ownership and Equity Protection Act (HOEPA) that defines and regulates "high-cost mortgages," essentially meaning loans with excessively high interest rates and fees, identified by Section 32 of Regulation Z within TILA; these loans are considered predatory and require additional disclosures to borrowers due to their potentially harmful terms. 

SECTION 35 Higher Priced Loans

TILA Section 35, also known as the Higher-Priced Mortgage Loans (HPML) rule, is a regulation that establishes requirements for higher-priced mortgages. It's part of the Home Ownership and Equity Protection Act (HOEPA).