Truth In Lending

The federal Truth-in-Lending Act (15 USC §§ 1601-1667e) and its implementing regulations, Regulation Z, 12 CFR § 226 and Regulation M, 12 CFR. § 213, are the primary sources of law prescribing the information that must be disclosed in connection with consumer credit transactions. Issued by the Federal Reserve Board, Regulation Z provides how to comply with the law. Regulation M provides the compliance rules for the consumer leasing chapter of the law. The FRB also publishes the Official Staff Commentary that interprets Regulation Z.

Disclosure
The primary focus of disclosure is the finance charge. Broader than interest, the finance charge is the total of all costs that the consumer must pay directly or indirectly for credit. It includes service charges, special loan fees, finder's fees and fees for credit reports and investigations, fees for insurance written in connection with the transaction (unless creditor discloses clearly in writing that the insurance is not mandatory) and some other detailed types of charges. Rules also exist for the actual computation of finance charges.

The disclosure requirements differ somewhat depending on whether the credit is open end (as with a credit card) or closed end as with the purchase of a car or washing machine. These rules apply to both:

• Disclosures must be clear and conspicuous and in meaningful sequence

• Finance charge amount and the annual percentage rate must be printed very

conspicuously so that they pop out and can be located easily by the consumer

• All numerical amounts and percentages must be stated in figures and printed in a minimum sized type or legibly written

Additional rules apply to the nature of the disclosures for particular types of transactions. The rules also differ as to the time of disclosure. With open end credit, the disclosure must be given to the consumer before the account is actually used and on each statement as it is used. On closed end credit, the consumer must receive a single disclosure before she signs the contract.

Regulation Z contains model forms and clauses for the most common transactions. (12 C.F.R. Appendix G and H) Creditors that use the proper forms with little or no variation and fill in the blanks according to FRB instructions are deemed
to have complied with the law. [15 U.S.C. §
1640 (f)]

Enforcement
Although truth in lending can be enforced by several federal agencies, and in rare cases by criminal penalties, the most effective remedy is a civil action for damages. Damages equal the total actual damages, statutory damages of twice the finance charge, but not less than $100 or no more than $1,000 and court costs plus reasonable attorney's fees. Under 1982 amendments, consumers can sue only for major violations of the Act.

Rescission
Under Regulation Z, consumers have a right to rescind certain transactions if the credit is:

• Secured by a security interest or lien arising by operation of law

• In a consumer's principal dwelling, and

• The credit is for consumer purposes (but not for acquiring the property or dwelling)

The right of rescission must be exercised by midnight of the third business day after consummation or the extension of credit, depending on whether the transaction is open or closed end. If certain disclosures are not made, the right to rescind may extend for three years.

State Truth in Lending
A number of states have truth in lending laws in one form or another. These laws relate in general to disclosure and do not usually govern a particular type of transaction such as home repairs. Home repair financing laws often require disclosure of the same general type of information that is required in truth in lending laws and retail installment sales laws.

Disclosure of credit charges in dollars and cents as well as an annual percentage rate is the primary purpose of these laws. Exclusions and exceptions vary from state to state. The items that are required to be disclosed must generally be included on a separate statement or on the evidence of indebtedness, a copy of which is to be given to the consumer. Most laws also impose standards on advertising for credit.

Consumer remedies and civil and criminal penalties are provided for violations. Some states have separate laws embodying these disclosure requirements; others include provisions as part
of other statutes -- interest usury laws, retail installment sales acts or motor vehicle sales acts.