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1 1 (September 19, 2024)

handle is hein.crs/goveqrj0001 and id is 1 raw text is: Overview of the Truth in Lending Act September 19, 2024 The Truth in Lending Act (TLA; 15 U.S.C. §§1601 et seq.) requires creditors to disclose standardized information for various financing products and offers additional consumer protections. TILA applies to most forms of consumer lending, including mortgages, auto loans, credit cards, and payday lending. The Consumer Financial Protection Bureau (CFPB) has rulemaking authority over TILA and its implementing regulation, Regulation Z. The CFPB shares supervisory and enforcement authorities with the Federal Trade Commission (FTC). In the 118th Congress, legislation has been introduced relevant to TILA that would clarify the types of products that should be covered, modify or impose new pricing caps, offer regulatory relief for financial institutions, and modify disclosure requirements. Overi ew of T ILA TILA was first enacted in 1968 as part of the Consumer Credit Protection Act (P.L. 90-321). TILA requires creditors to disclose terms and costs of consumer credit. It has been amended multiple times to revise these disclosures and provide additional consumer protections. Most prominently, TLA was modified around the Global Financial Crisis, including by the Dodd-Frank Act (P.L. 11 1-203)-which moved rulemaking authority from the Federal Reserve to the CFPB-and the Credit CARD Act of 2009 (P.L. 111-24), which, among other things, imposed new restrictions on credit cards. Products Covered by TILA TILA applies to open-end credit, such as credit cards, with repeat transactions and unspecified end dates for repayment. It also applies to closed-end credit, such as auto loans, with set terms and payment structures if the closed-end product has a finance charge and at least four transactions. TLA generally applies to consumer loans under $69,500. However, loans made for housing, such as mortgages, are excluded from this size limit. TILA does not generally apply to business loans, with some exceptions. TILA protections vary by product type. Disclosures TILA requires lenders to provide a number of different disclosures to borrowers, including disclosures at origination, periodic statements, and application disclosures for some products. The specific disclosure requirements vary for closed-end and open-end credit transactions and, in some instances, for specific product types, including mortgages and private student loans. Special origination disclosures are required for reverse mortgages, costlier- than-normal mortgages, and certain variable-rate mortgages. TILA origination disclosures are offered to borrowers to compare lending options. These disclosures provide a standard set of data points (as seen in Table 1) to compare pricing options and potentially reduce information asymmetries, although their usefulness is debated. Model mortgage disclosures are codified in Appendices G and H of Regulation Z. Table I. Selected Information Included in TILA Origination Disclosures Data Point Description Finance charges The total cost of credit to a borrower, assuming on-time payments, calculated by adding interest and covered fees. Annual percentage A yearly percentage rate that a rate (APR) consumer is charged for a loan, taking into account the finance charges. This calculation excludes some unavoidable fees such as application or membership fees. Payment This includes the payment schedule, information term, and amount. Fees Fees that a borrower could be charged, such as for late payments. Credit card and charge card issuers must also provide disclosures at application on the costs and terms of the product. For products such as open-end credit and mortgages, creditors must also provide periodic-generally monthly-statements associated with the product. The timing of the statement relative to due date depends on the product. Other Prov sions in TLA In addition to disclosures, TILA provides a number of substantive consumer protections that vary based on product type. A selection of these substantive consumer protections is discussed below: * Creditors must assess consumers' ability to repay for open-end credit and mortgages. For mortgages, this is referred to as the Qualified Mortgage (QM) rule, which has requirements for mortgage pricing that reflects the credit quality of borrowers. For more on the QM rule, see CRS In Focus IF1 1761, The Qualified Mortgage (QM) Rule and Recent Revisions, by Darryl E. Getter. * Mortgage loan offerors are prohibited from steering consumers to higher-commission products without consumer benefit.

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