Know your rights under the Truth in Lending Act
Federal law requires standardizes disclosures, sets billing rules
The Truth in Lending Act, a federal law that regulates the extension of credit in the United States, requires lenders to disclose information in a standardized way to prevent consumers from unknowingly signing bad deals.
Enacted May 29, 1968, TILA falls under the Consumer Credit Protection Act and ensures that lenders disclose terms of credit in a standardized way so consumers can make informed choices when borrowing. Another portion of the disclosure rules governs billing, so consumers may protect themselves from unfair billing practices. The law is implemented through a series of rules called Regulation Z, which requires credit card issuers to disclose certain terms and conditions of credit card agreements periodically to cardholders.
Among the disclosures that card issuers must provide:
- A standardized set of conditions under which finance charges are imposed, as well as information about grace periods – times when no finance charges are accruing.
- The methods issuers use to determine finance charges as well as other assessments such as late fees, annual fees and over-the-limit fees.
- The annual percentage rate on the account.
- A statement describing the cardholder’s right to dispute charges, as well as the procedure that consumers can follow to do so. For example, consumers do not have to pay finance charges on a disputed portion of a credit card bill.
The Truth in Lending Act has been amended many times, as new consumer protections have been added. For example, in 1970, it was amended to include the banning of unsolicited credit cards. Other amendments have had to do with different types of lending. For example, in 1988, new disclosures about adjustable rate mortgage loans were required. (See the law’s full text.)
Changes under the
Credit CARD Act of 2009
Some of the most significant adjustments to TILA came in recent years. “The Truth in Lending Act has been improved dramatically by the Credit CARD Act of 2009,” says Edmund Mierzwinski, consumer program director for U.S. PIRG, a federation of state public interest research groups.
Before the act, card issuers could change interest rates arbitrarily and with little notice. “The biggest banks in the country were making money, in the words of [U.S. Sen.] Elizabeth Warren, through ‘tricks and traps,’” Mierzwinski says. The act “balanced the scale and got rid of some of the worst problems for consumers.”
Among the changes it brought to TILA:
- Credit card companies could not increase interest rates or make significant changes to the fee structure without giving cardholders 45 days’ notice.
- Cardholders were given the right to opt out of significant changes to the account’s terms and pay off balances under the original terms.
- Credit card issuers were ordered to provide statements for credit accounts at least 21 days before payments were due.
- Monthly card statements had to disclose how long it would take consumers to pay off their balance if only minimum payments were made, and how much consumers would have to pay in order to pay the balance off in three years.
While most consumer advocates agree that TILA became stronger after the Credit CARD Act of 2009, consumers still must be vigilant to make sure their rights under the law are not violated.
In September 2014, the Consumer Financial Protection Bureau (CFPB) warned credit card companies they must reveal the true costs of 0 percent promotional offers. “Credit card offers that lure in consumers and then hit them with surprise charges are against the ” said CFPB Director Richard Cordray when issuing the warning. “Today, we are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.”
Credit card offers that lure in consumers and then hit them with surprise charges are against the law.
Director, Consumer Financial Protection Bureau
Another area that has seen many class action suits brought against card issuers for TILA violations centers around disclosures about add-on services such as identity theft protection programs and credit score monitoring, says Kim Ruckdaschel-Haley, a partner with Minneapolis-based law firm Lindquist & Vennum. Such cases, many of which have been settled, Ruckdaschel-Haley says, have focused on whether “the information provided by the credit card issuer is adequate and sufficient such that consumers understand the nature of the product that they’re getting and the fees that are associated with it.”
Cardholders can file a complaint with the CFPB if they believe they have been mistreated or ’t been given sufficient information by their card issuer, says Moira Vahey, a CFPB spokeswoman. Consumers can also file a complaint with their state attorney ’s office.
While consumers may not know all of the ins and outs of the TILA, they should be wary any time financial disclosures surrounding loans or credit cards are confusing, deceptive or unclear, Ruckdaschel-Haley says. Understanding the terms of a loan “before you sign on is ”
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