Fraud or Truth-In Lending

Americans are borrowing more money than ever before.

U.S. households carry approximately $15-$20 trillion in consumer debt, with the average household debt valued at more than $100,000. Most of this debt is tied up in mortgages, home equity loans, auto loans, and credit cards.

When creditors make loans to consumers, they are required by the Truth in Lending Act (TILA) to make certain written disclosures about important credit terms. TILA also imposes advertising requirements on lenders. These provisions are intended to protect borrowers from unfair and predatory lending practices.

Loans Covered Under TILA

• Auto loans
• Credit cards
• Home equity loans
• Home equity lines of credit
• Mortgages

TILA does not apply to student loans, business loans, or public utilities.

How TILA Works

Prior to TILA’s passage, lenders could obscure loan terms such as interest rates and finance charges because no standard disclosure format existed. Differences in what information was listed—and how it was listed—made it difficult for consumers to compare loan terms and understand the true cost of borrowing.

In addition to standardizing credit term disclosures, TILA has been expanded over time to impose a wide range of requirements and restrictions on consumer credit products.

TILA benefits potential borrowers in ways that include:  

• Consumer protections against inaccurate and unfair credit billing and credit card practices
• Consumer rescission rights (options to cancel loans within certain time limits)
• Caps on high-cost mortgages and some types of home equity credit lines
• Limits to the changes a lender can make to loan or credit terms after approval
• Prohibiting unfair or deceptive mortgage lending practices
• Greater transparency in loan terms, fees, and credit costs
• Awareness of credit card options and loan comparisons
• Better understanding of loan details
• Protection against misleading lending practices
• Avoidance of unfair penalties and harsh fees

TILA Amendments

Since taking effect in 1969, the TILA has been amended several times to provide additional consumer protections.

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 places limits on credit card interest rate increases, restricts fees, prohibits double-cycle billing, gives cardholders more time to make payments, and introduces rules for under-21 consumers to open a credit card.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended TILA as well, adding prohibitions on mandatory arbitration, waivers of consumer rights, and ability-to-repay requirements for mortgage loans, among others. Dodd-Frank also transferred TILA rulemaking authority to the Consumer Financial Protection Bureau (CFPB). Since the transfer of authority, CFPB has made dozens of TILA rule changes.

CARD Act and Dodd-Frank FILA amendments were preceded by the 1994 Home Ownership and Equity Protection Act (HOEPA), the 1988 Home Equity Loan Consumer Protection Act (HELPA), the 1988 Fair Credit and Charge Card Disclosure Act, and the 1975 Fair Credit Billing Act (FCBA).

TILA Consumer Protection Rules

Lenders must disclose to borrowers, in clear and simple language, information about loan terms and the services they provide. This information is furnished in a TILA disclosure statement that details:

• Borrowing costs, expressed as a yearly percentage rate (APR)
• Finance charges, or the total amount of interest and fees paid over the life of the loan
• Amount financed, or the total dollar amount borrowed
• Total payments the borrower will have made at the end of the loan, including repayment of the principle, plus all finance charges

A TILA disclosure form, which also lists the number of payments, the monthly payment, late fees, prepayment fees, and other important terms—including the right of recission for some mortgage transactions—is provided with a proposed credit/loan contract.

Even after a borrower signs a loan contract that creates a legal repayment obligation, they may exercise the right or rescission for home equity loans, home equity lines of credit, and mortgage refinances (when the refinancing is through a lender other than the current lender) and cancel the loan for any reason within 3 business days of the transaction.

TILA Enforcement and Consumer Lawsuits

The Consumer Financial Protection Bureau (CFPB) has enforcement authority over the TILA, but the law also has a private right of action that allows consumers to file lawsuits, both individual and class actions, against a creditor. TILA imposes strict liability on creditors, which means they can be assessed money damages for any violation, regardless of their intent.

Examples of when a consumer may be eligible for a TILA lawsuit include:

• Their lender changed the interest rate on the loan without their knowledge and consent
• Their lender did not give an accurate APY calculation on the loan before it was completed
• Their lender charged hidden or illegal fees that were not disclosed in the TILA loan document
• Their lender does not permit them to cancel their contract within the rescission period

According to the FDIC, in 2022, TILA infractions were the most frequently cited consumer regulatory violations by banks. Overall, banks committed nearly 500 TILA violations in 2022, representing 35% of all cited statutory violations.

TRAC Reports, a non-partisan research organization at Syracuse University, notes that parties can bring truth in lending lawsuits under not only the Truth in Lending Act, but also the Fair Credit Reporting Act, the Fair Debt Collection Act, and the Telephone Consumer Protection Act. Suits against banks and other financial companies, such as those financing home mortgages and automobile sales or companies providing medical services, can also raise truth in lending matters.

Milberg’s Truth-In Lending Practice Group attorneys represent borrowers wronged by lenders and creditors who have violated consumer protection rules set forth by TILA.