Understanding the Truth In Lending Act and How It Will Protect You, The Consumer
By Ethan Deville
One of the primary methods that the federal government uses to protect consumers is the Consumer Protection Act. This act included the Truth in Lending Act (TILA) as a subsection. The Truth in Lending Act is a great way for current and future homeowners to guard themselves when taking out a new mortgage or refinancing their current mortgage.
The truth in lending act was enacted in May 1968 as Title 1 of the Consumer Protection Act. The TILA, implemented by regulation Z became effective in July of 1969.There have been many amendments and additions made to the TILA since it was implemented in 1969. Two of the more notable amendments included the Home Equity Loan Consumer Protection Act of 1988, and the Home Ownership and Protection Act of 1994.
The reason for creating the TILA and regulation Z were to help protect consumers against less than reputable lending agencies. Most people do not have an education in mortgage loan terms and are easily confused by fast talking lenders that are determined to take advantage of them. Since purchasing a home is one of the biggest decisions that a person can make in his or her life, it is not uncommon for people to be quite nervous and confused about the whole process. These same people look to experts to help them through the process. The TILA and regulation Z help to ensure that the consumer understands the terms and conditions of the mortgage that they are signing.
Since the passage of the TILA and regulation Z, all lenders must present the data in the same manner to consumers. They must also use the same terms and language, so that consumers can easily compare one offer from one lender against a similar offer from another lender. Since all of the terminology used in the mortgage paperwork is the same, there is less confusion for the consumer.
Another benefit of the TILA and regulation Z is that the governement imposes certain limitations on home equity lines of credit and certain closed-end mortgages. The TILA and regulation Z do not dictate to a bank how much interest they can charge or whether or not they have to give the consumer a loan.
To put it simply, the act calls for the lender to make all of the details of the mortgage available and easy-to-understand for the consumer. By disclosing the Annual Percentage Rate (APR), how the APR is calculated, and any finance charges, the lender is allowing the consumer to make an informed decision about the loan offer. There are also requirements that the lender provide the consumer with the details of exactly how much is to be repaid on each payment, so that there are no unexpected expenses for the borrower.
There is also a requirement that the lender must make the consumer aware of the total amount financed, the amount of interest that will be accrued, and any additional finance charges that are to be paid.
If you are considering a new home mortgage, or you are considering refinancing your current loan, it is a good idea to educate yourself as much as possible about your rights as a consumer. The more you know about the loans and the terms, the more likely you are to make a good decision and to save yourself money.
When dealing with a reputable lender, you will most likely get a solid honest deal on your loan. You may want to be cautious of lenders that promise things that sound too good to be true, or those that try to hurry you through the process. A reputable lender does not need to give you a "hard sell" on taking out the loan with them. A reliable lender will understand that it is a big decision, and they will take the time to answer any questions that you have and to fully explain to you all of the terms of the loan they are offering to you.