THE TRUTH IN LENDING ACT AND REG Z

The Truth in Lending Act, 15 U.S.C. Section 1601 et. seq., and the regulations promulgated under it, commonly known as Regulation Z, 12 CFR 226, is a comprehensive federal law regulating consumer lending. It applies to both mortgage loans, credit cards and other types of consumer loans. It does not apply to credit for business, commercial or agricultural purposes. 15 U.S.C. 1603. It does not apply to loans of more than $25,000, not secured by a real property or a dwelling. 12 CFR 226.3. Regulation Z applies to any extension of consumer credit, made by a lender who regularly extends such credit for personal, family or household purposes, when such credit is payable in more than four installments and when a finance charge is involved. 12 CFR 226.1.

The primary focus of the Truth in Lending Act and Regulation Z is to compel accurate, honest disclosure of all costs associated with consumer credit. Lenders are prohibited from creating phony charges of various types; 12 CFR 226.4 requires that all fees that are real fees, for real services, are to be considered “finance charges.” For both mortgage loans and credit cards, there are model disclosure forms, which the lender must use, both in giving an initial disclosure and in periodic statements. The point of these model forms is to make it very obvious to the consumer how much the credit costs, and what he or she is being charged.

In addition to its disclosure requirements, Regulation Z has some other important features. Consumers are given a three day right of rescission on mortgage loans; for three days after signing such a deal, the consumer must be given the right to change his or her mind and to back out. 12 CFR 226.15. The manner in which lenders may advertise credit is also regulated. 12 CFR 226.16.

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