Why Does the Federal Truth in Lending Act Matter?
More of life is now regulated by government than is not regulated by government. The clothes on your body, the watch on your wrist, the band-aid on your finger, schools, cars, pillows....well, you get it. Consumer credit, as well as the loans available to individuals, is no exception to this rule. The government tells you how it will work. In the case of consumer credit, every step of the transaction, from asking someone else for money, to paying (or not paying) him or her back, is mandated by local, state and the federal government.
But I digress. For purposes of this discussion, the Truth in Lending Act, abbreviated "TILA", governs one big chunk of the "Gosh how do I get someone else to give me their money and what will it cost me in the long run?" question. TILA tells certain types of lenders how they must disclose what they charge you. The "what they charge you" component can be called any number of things: fees, interest, finance charges, points, interest charges, etc. But the bottom line is, if you borrow $100 from a lender and are required to pay it back, TILA requires that the lender tell you the cost of obtaining credit – the loan "price tag."
So TILA is about the price of credit. TILA attempts to generalize the method by which lenders disclose the cost of credit. When I buy a house and the lender lends me money at a certain rate for a certain number of years, TILA requires the lender to disclose my cost of obtaining credit (the price tag). TILA requires lenders to each use the same basic format. For a visual explanation, view an example from the Federal Reserve Board. Consequently, using the Federal Reserve Board sample, one lender may disclose a price of 12 percent (called an APR or Annual Percentage Rate) and you could compare this price to another lender who may charge less, i.e. 11.5% APR. This type of disclosure will vary for a credit card or home equity line of credit (a.k.a. HELOC, or open end credit). TILA allows lenders to vary the form of the price tag, but generally loans (auto loans, mortgage loans, or small loans, a.k.a. closed end credit) will appear much the same as in the example.
So the question is, "Will you always get a price tag in the form of an APR?" Answer: "No." Only "creditors" must give TILA disclosures. A creditor is a person who regularly extends consumer credit. As an intuitive reader you will immediately understand the government qualifies the term "creditor" in a thousand different ways. In the big picture, lenders who make more than 25 loans per year or 5 if they're secured by real property (which here means land or a mortgage) must follow the disclosure/price tag rules. It is safe to say, however, that TILA governs the majority of loans you will take out throughout your life, unless they're from your Uncle Vinny, mom, dad, or a bitter sibling.
So if you don't see a price tag, it's a safe question to ask, "Why not?" Now, in all fairness, if you actually read your student loan disclosures, you may notice some of those loans did not have a price tag (gasp!). Do not necessarily run to your nearest plaintiff's lawyer; remain calm. Believe it or not, loans made, insured, or guaranteed pursuant to a program authorized by title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) are also exempt from TILA. Author's Note – every word, with the exception of "of" and "the" and maybe "are" and "also" in the last sentence should mean and hopefully do mean nothing to you. I included them, because, well, I'm a lawyer, and my bosses would have a heart attack if I didn't say something legal. Essentially, it means a student loan from the federal government may not have a price tag disclosed.
Finally, does TILA require you, the borrower, to do, say, or sarcastically mimic anyone? It does not require you, the guy, girl, dog or shetland pony borrowing money, to do or not do anything. TILA does not impose any penalty on you as a borrower. Does it matter to you then? Yes. If the lender doesn't give you a price tag, the lender gives you the wrong price tag, or (and here, even lawyers start to giggle) if they give you the price tag and it's in the wrong size font, the government says, "You can sue 'em!" God Bless America!
In closing, I am required to tell you:
This article is provided with the understanding that the authors are not rendering legal advice or services. Laws are constantly changing, and each federal law, state law, and regulation should be checked by legal counsel for the most current version. We make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the information contained in this presentation. Do not act upon this information without seeking the advice of an attorney. This article is intended to be informational. It does not provide legal advice. Neither your reading it nor our writing it creates an attorney-client relationship.
This means I'm not your lawyer....for that you must pay someone! That's why it is in tiny print.
Beware a new autodialing credit scam:
"There is no problem with your account. We are offering you a reduction to a 6.9 percent interest rate. Press 1 ..."
Posted by: Hank Roberts | May 22, 2009 at 11:21 AM
My wife keeps asking me why, why would the bank president let this happen? Why would they ruin our lives? What on earth do they have to gain? I keep having to reassure her and remind myself that we can't put a name or a face of a bank executive or board member to this injustice. They don't have a clue what's going on, they've turned this matter over to attorneys and the attorneys get swallowed up in their need for billable hours, it's not personal, it's just how they get paid. During my career as a Special Agent with the U.S. Secret Service, I investigated numerous bank frauds and arrested countless criminals, but I never did like attorneys. Let me introduce myself, my name is Arthur E. Wood, in 1986 I was named Law Enforcement Officer of the Year by the Midwest Chapter of the International Association of Credit Card Investigators. Ten years later, along with my FBI counterpart, I was the lead investigator in the successful prosecution of organized crime for the theft of millions of dollars from a prominent Pittsburgh bank. I could not begin to count the number of presentations I made to train your tellers how to protect against bank fraud, counterfeiting, and credit card fraud. I've long since retired, but I still work part time for the FBI as a consultant. My wife Paula and I have five children, 14 grandchildren and one more on the way.
Helping our kids was one of the reasons we wanted to tap into our home's equity, so we set about to borrow money from your bank. Oh, don't worry, I'm not going to name you, if you want to know if your bank is involved just look up Arthur E. and Paula C. Wood vs. your bank. We did, we arranged to borrow $100,000.00 (one hundred thousand dollars) from your bank. The closing was held at our home, on a Saturday, by a title company. I noticed that something had changed, the loan wasn't exactly as promised and the title company couldn't answer my questions. On Monday, I rescinded the loan by notifying you by phone and then faxing the rescission notice to your bank. We then called another bank, who gave us the loan on the terms that were promised. Everything was fine except that two weeks later my wife noticed that we had too much money in our checking account. Uh oh, the rescinded loan must have been funded in error.
Easy to fix, just call the bank, send them a check and everything would be fine. I did, I called, "so sorry Mr. Wood, we made a mistake, no, don't send us a check, please leave the money in your account and we will electronically reverse the transaction." This was two weeks before Christmas 2005. We are halfway thru 2009, I still have your money, or some of it, having spent thousands on attorneys trying to get you to rescind the loan. I'm sure it was a mistake, and I fully expected you to make it right. I called again a couple of weeks later to tell you the money is still in my account," sorry Mr. Wood, with Christmas and all someone just dropped the ball, but not to worry, it is still in the works and we are reversing the transaction." Then you started to call us, trying to collect on a monthly payment, everyday you would call, and everyday I would tell you the loan was rescinded, Please don't call anymore. Then it got nasty. My new bank called and said that "they were going to have to foreclose on our loan, because they went to record the mortgage and they were not in first place." You were!
I don't have any attorney friends having spent most of my life as an investigator, but, my brother a successful businessman in Virginia had several and he put me in touch with one that suggested that we march ourselves into the Circuit Court here in beautiful Marion County, Florida and sue you for rescission under the Truth in Lending Act. (TILA) That set off a chain of events that lead to the rescission. You did release the lien on our home several months into the action, but then your smart attorneys filed a counter suit against us alleging fraud, conversion and a host of made up charges, they then filed a lis pendens and notice of equitable lien on a lawfully rescinded loan and have effectively stolen our equity by preventing us from selling or refinancing our property.
At this point in my letter you're wondering, O.K. so where's the beef, this should all work it's way out in the court and what's this got to do with American Banker? Well Mr. Bank President, here's the beef! This $100.000.00 loan is going to cost the bank thousands and thousands of dollars in legal fees because these attorneys have to keep billing, and nobody at the bank is minding the store. Your inability to rescind a loan within the time alloted under the statute has triggered the forfeiture section of the Truth in Lending Act so your bank is now in danger of losing the original funded money and your imposition of an invalid lis pendens is going to cost your bank over a hundred grand in lost equity. Rescission under the TILA takes the loan from secured to unsecured and the imposition of a lis pendens is an attempt to circumvent the statutory requirements of the TILA. I wrote this letter to point out to you that the TILA has been amended to help banks by not holding them accountable for actions caused by a bona fide error, however, an error with respect to legal judgement regarding the banks' obligation under the TILA is not a bona fide error. This rescinded loan should not have cost anyone a dime! Now you have allowed your attorneys to ruin the lives of a couple of retirees and your bank is going to lose hundreds of thousands of dollars, for what? You just picked on the wrong guy.
Posted by: Art Wood | June 07, 2009 at 08:23 AM