The Truth in Lending Act, which was part of the Consumer Credit Protection Act, provides protection to consumers by requiring lenders to disclose costs and terms related to a loan. Most of these disclosures are contained in a loan application. Lenders must include several of the following items:
- Terms and costs of loan plans, including annual percentage rates, fees, and points
- The total amount of principal being financed
- Payment due dates, including provisions for late payment fees
- Details of variable-interest loans
- Total amount of finance charges
- Details about whether a loan is assumable
- Application fees
- Pre-payment penalties
The Truth in Lending Act also requires lenders to make certain disclosures regarding advertisements for loan rates and terms. Specific terms of the credit must be disclosed, and if the advertisement indicates a rate, it must be stated in terms of an annual percentage rate, which takes into account additional costs incurred relating to the loan. Other restrictions on advertising loan rates also apply. If a bank or other lending institution fails to adhere to the provision of the Truth in Lending Act, severe penalties apply.
The Federal Reserve Board has been delegated authority to prescribe regulations to enforce the provisions of the Truth in Lending Act. These regulations are contained in Regulation Z of the Board.