What is the Truth in Lending Act?

Congress passed the Truth in Lending Act in 1968 in an attempt to help consumers by requiring lenders in credit transactions to disclose important terms. In the past, the government’s philosophy was that it was up to the buyer to be sure what he or she was getting into, but this act marks the first shift into the government requiring more disclosure in order to protect the consumer.

The most important parts of the Act are the new disclosure rules. Creditors must be clear in their disclosures and must write them in a form that the buyer can keep. It must tell information like the total amount owed, how frequently the consumer pays, the annual percentage rate, and late penalties. Creditors must disclose this information on a regular basis and are liable for any mistakes they make; in which case a suit may be brought against them within a year if there have been damages because of a mistake or violation of the Act.

The next part of the Act describes the times where a consumer can rescind their credit transaction. Depending on the situation, a consumer may be able to rescind a home loan within three days of making the loan.

The main purpose of the Truth in Lending Act is not to regulate credit card companies; instead, it is to protect consumers who enter credit transactions. The law does not set limitations on what the credit card companies can charge, but instead just forces them to make it clear so that consumers can shop around for the best deal. Similarly, it gives more rights to the consumer in the case of a violation by a credit card company so that the consumer can collect on the damages. It also protects consumers who finance with a home loan and disallows certain practices by companies in these situations. Although the law does not regulate the costs of credit transactions, it does a good job of helping consumers make informed credit transactions.

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Graham Billings

Graham Billings is a senior at the University of North Carolina at Chapel Hill with a double major in Economics and Political Science. He plans to graduate in December of 2009 and then attend law school in the fall of 2010. He is a member of the Economics Club at Carolina, which brings in speakers and hosts events in order to discuss current economic issues and help those who do not have a background in economics become more familiar with it. He is a National Merit Scholar and Dean’s List recipient. He is originally from Greensboro, North Carolina and attended the Early College at Guilford for high school, taking classes at Guilford College. In addition to economics, his academic interests include the legal and political system. He headed the only student-run, high school-level Honor Court in high school and participated in a national model Congress in San Francisco, run by Harvard students, and won awards of excellence for his work on the mock Supreme Court. Additionally, he tutors Carolina students in economics on a volunteer basis.

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