The Truth in Lending Act (TILA) was originally passed in 1968 and focuses on the uniform disclosure of credit terms to facilitate consumers shopping for the best credit terms available to them. Congress enacted TILA because it found that “economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit.” 15 USC § 1601. TILA is generally seen as a set of statutes that protect the consumer.
The main aspect of TILA is the requirement of disclosure. This disclosure to consumers helps consumers compare and shop for loans. The statute is divided into subparts. Subpart B relates to open end credit lines, subpart C relates to closed end credit, subpart D contains rules on oral disclosures, and subpart E contains special rules for mortgage transactions.
Some of the key terms under TILA are APR (Annual Percentage Rate), consumer credit transaction, and finance charge. The APR is a federally defined uniform methodology for calculating and disclosing interest rates. 15 USC § 1606(A); 12 CFR 226.2(A). Consumer credit transaction is a transaction involving credit offered or extended to a consumer for personal, family, or household expenses. 12 CFR § 226.2. Lastly, finance charges are costs associated with the loan.
TILA distinguishes between the amount financed, such as the loan principle, between the finance charge and the interest. It is important to note that under TILA, which mainly focuses on required disclosures for consumers, those same requirements do not apply to business loans, transactions in security or broker/dealer commodities accounts regulated by the SEC, credit transactions over $25,000 that are not secured by a borrower’s home, and other defined credit transactions. 15 USC § 1603.
Damages and Remedies under TILA
If there is a failure to comply with TILA, it can result in liability for actual damages or statutory damages. It is important to note that not all TILA violations trigger a statutory damage. So, in some cases if a person fails to show actual damages, they might also be prevented from bringing a claim under TILA. In addition to showing actual damages, a plaintiff bringing a claim under TILA must also show causation or, as sometimes defined, “detrimental reliance.” TILA also puts a cap on statutory damages depending on what type of claim is brought.
Recision is also available as a remedy under TILA. This would basically mean that the loan transaction is reversed or simply undone and the parties revert back to the position they were in prior to the loan agreement.
Punitive damages are also available under TILA but are very infrequently awarded.