Truth in Lending: Laws, Regulations, and Related Acts

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January 27, 2012

When making a car purchase, truth in lending laws are something with which you should be familiar. This law makes certain requirements of anyone offering a loan, and helps you protect yourself from unscrupulous lenders.

However, if you don’t understand the documents presented by the loaning institution, then the truth in lending requirements aren’t a great deal of help to you. You should understand the rights you have under the truth in lending law, and know how it protects you. You should also know what it doesn’t do and how you need to protect yourself.

The Law
The federal Truth in Lending Act was first passed in 1968, although there have been updates and revisions.

This law is designed to protect you as a consumer when you borrow money from any lender. The idea behind the law is that the lenders should make a full disclosure to a borrower of all loan terms.

The lenders are required to fully state any charges that are being imposed on the borrower, and fully disclose who gets what fees.

One of the most important aspects of the act is that it requires the lender to let you know exactly how much it is going to cost you to borrow the amount of money that you are borrowing, including all interest and fees.

In most cases, it doesn’t tell lenders they can or can’t charge particular fees, it just requires them to let you, the borrower, know what the fees are so you are fully aware of all the costs associated with borrowing.

Your Rights

One of the primary purposes of the act is to allow you as the consumer to have a standardized format of fees and credit costs so that you can shop around and find the best credit opportunities.

Any lender you approach about a loan is required to give you all information about the terms of the loan and fees for borrowing. This includes such things as origination fees, filing fees, and broker fees.

You are entitled to know the annual percentage rate of the loan and all finance charges associated with the loan.

You can get this information from several lenders in order to compare terms, and you should review the Truth in Lending documents, as well as other documents, before signing a contract.

Your Responsibilities

Although the Truth in Lending Act allows consumers three business days to cancel mortgage transactions, it does not contain a similar provision for auto transactions. Therefore, it is up to you to carefully examine loan documents and be sure you understand their terms.

You should bring up any concerns or unclear items with the lender, and if they can’t answer your questions, take them to the federal banking agency responsible for regulating the institution. There are different regulators for banks, dealers, and finance companies.

Check out several different lenders before you decide on the one for you, and be sure to carefully review all the terms of your proposed loan and understand them completely before you sign on the dotted line.

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