When Is a Truth-in-Lending Disclosure Required?

Answer

If you have ever taken out a loan to pay for a vehicle, a home, or any other significant purchase, it is quite probable that you have been presented with a copy of your Truth-in-Lending disclosure, even if you were unaware of what the document was called at the time. If you are able to get an understanding of what it is and when your lender is obligated to provide it to you, you will be better able to shield yourself from any illegal financial or commercial dealings in the future.

Tip

Two sets of truth-in-lending disclosures will be sent to you when you apply for a new mortgage. The first one is provided to you at the time that you submit your mortgage application. The second must be delivered no less than three days before your escrow is officially closed. It provides details on the total cost of the loan as well as the interest rate that you will be responsible for paying. You have the ability to cancel the escrow transaction by challenging the information that was disclosed to you.

What Is a Truth-in-Lending Disclosure?

In 1968, Congress passed a law called the Truth-in-Lending Act (TILA). The system was devised by the federal government with the intention of facilitating individuals’ comprehension of the documents they were required to sign. Before it, the paperwork associated with loans was often confusing and full of jargon and paragraphs that required a master’s degree in business administration to comprehend. It put customers in a difficult financial position, as they would subsequently learn that they had committed to obligations that were beyond their means to fulfil. It also produced issues for lenders, who would give loans in good faith, only to have a defaulting consumer subsequently claim they had been misled to about the conditions of their loan, and as a result, they should not have to complete paying it off. This caused the lender a lot of headaches.

The Truth in Lending Act (TILA) not only lays out the terms in plain language before you sign on the dotted line, but it also makes it simple for you to shop around and find the best possible loan by providing the information that is required to make an apples-to-apples comparison of the various options.

What It Will Tell You

According to FindLaw.com, every TILA disclosure must contain four numbers for you to see: the finance charge, the annual percentage rate, the amount of money that is being financed, and the total amount that you will pay, including interest and finance charges, when you finish paying it off. You have the right to see these numbers. You could believe that you are borrowing $5,000, but after you see everything that is being added on, it will become clear to you that you are paying back more, and sometimes even much more. These are critical pieces of information since you might assume that you are borrowing $5,000. It will also tell you whether there is a penalty for paying off the loan early in the event that you want to do so. You will be responsible for deciding what to do. The TILA disclosure provides you with the information you need to make an informed choice.

When Do You Get to See It?

There is a set of very specific and stringent criteria that dictate when you are expected to be presented the TILA disclosure. Before you enter into a contractual agreement to repay the loan, you are required to be provided with a TILA disclosure in writing, as mandated by the Consumer Financial Protection Bureau.

It is impossible to exaggerate the significance of seeing it before you are obliged to do so. Your TILA disclosure will include the fees, instalments, and interest associated with your loan, as well as indicate whether or not there is a penalty for paying off the loan early. Your ability to compare options improves when you have a solid understanding of these aspects of the proposed loan.

You have the chance to look at other options since before to signing the contract, you are required to be provided with a written disclosure. This gives you the opportunity to compare other services. You shouldn’t be hesitant to inform the potential lender that you would need some time to consider your options and compare them with those of other lenders. Be careful to ask for a copy of the disclosure, and then give yourself sufficient time to read it through before you sign the document.

The Exception to the TILA Disclosure

The Truth-in-Lending disclosure form might be replaced with a Loan Estimate form beginning in October of 2015. This change was authorised for the mortgage sector. Many companies use this form for traditional mortgage loans; however, if your mortgage was secured before October 2015 or if you are obtaining a reverse mortgage, a home equity line of credit (HELOC), or a nonsecured manufactured home loan, you will still receive the traditional TILA disclosure. This is because these types of loans are not governed by the Truth in Lending Act (TILA). The same advice applies to you whether you are participating in any of the housing assistance programmes. A copy of the TILA should be provided to you before you sign any of the agreements associated with any of these loans that comply with the TILA.

If you are seeking to secure a loan and have not been provided with the appropriate disclosure, you should ask for it and look through it very carefully to ensure that the firm is not attempting to conceal anything from you.