What is the Truth in Lending Act?
The Truth in Lending Act (TILA) is a U.S. federal law that requires creditors to provide to consumers accurate and meaningful information concerning how the creditors charge for credit. One of the significant requirements of TILA is a mandate that creditors provide information in a standard format. This allows consumers to compare the rates of different companies and understand how interest is calculated. The U.S. Federal Reserve Board (FRB) is the agency responsible for implementing the Truth in Lending Act. The FRB enacts regulations to further the objectives of the Truth in Lending Act.
TILA applies to any person or company that regularly offers to a consumer credit that is subject to a finance charge or requires a written agreement for payments in more than four installments. The credit must also be for a personal, family or household purpose. This means that TILA does not apply to a business obtaining credit for commercial purposes. A finance charge generally refers to any charge that a consumer must pay to a creditor to get credit. This is a very broad definition to cast a large net over creditors.
Consumers can file a lawsuit for violations of the Truth in Lending Act and recover statutory damages between $100 US Dollars (USD) and $1,000 USD for each violation. Statutory damages are specified awards of money for violations of a law without the need to show an actual injury or loss. This means a court may award monetary damages to a consumer without the consumer having to prove actual injury or loss from the violation of the law. In contrast, a court awards actual damages to a plaintiff when a plaintiff can show an injury or loss directly arising from a defendant’s specific action. The Truth in Lending Act also empowers a court to award consumers actual damages, costs for taking legal action, and reasonable attorney fees.
In addition to money damages, the Truth in Lending Act also provides consumers with the right to rescission. This means a consumer may cancel a contract. Under TILA, the right of rescission applies when a homeowner uses his or her home as collateral in a credit transaction. For example, if a consumer takes out a loan to make home improvements and uses the home as collateral, the contract is subject to cancellation for certain violations of the Truth in Lending Act. Rescission of a contract, however, does not apply to the initial purchase of a home.
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