The importance of the Truth in Lending Act
The Truth in Lending Act is a federal law in the United States that is designed to protect consumers when it comes to credit transactions. This is done by giving every consumer full disclosure of the terms and the cost of credit. The act is there to ensure that credit terms are disclosed in a meaningful way. This will make it easier for the consumers to compare credit terms. The act is contained in Title 1 of the Consumer Credit Protection Act. The act is designed in such a way that it gives every customer who needs credit, meaningful information concerning the cost of such credit.
The main purpose of the Truth in Lending Act is to promote the informed use of consumer credit. The act helps the consumer understand what he or she is getting into. It provides full disclosure for all the financial transactions that involve consumers. This means that the consumer, that is you, must be presented with all the facts upfront, in writing when you are signing a financial document, such as loan or credit card agreement. The lenders have to tell you exactly what they will be charging you before they charge you.
A few disclosures that the lender should provide you with are as follows.
1. The Truth in Lending Act statement: As per the act lenders are supposed to disclose in writing the terms and conditions of a mortgage. They are also to provide you with the Annual Percentage Rate and also the extra fee and charges involved. You may ask your lender to break down your Truth in Lending Act statement.
2. Servicing disclosure statement: The law states that your lender will disclose to you if he or she believes, that someone else will ultimately be your mortgage servicer. A mortgage servicer could be someone who collects payments, handles disputes and performs such other functions after a loan has been closed.
3. Affiliated business arrangement disclosure: In case you apply for a loan from a mortgage company that is operated by a builder or a real estate agent, then you are to receive an affiliated business arrangement disclosure. This disclosure is to be received at the time the builder or the agent refers you to that company. The form should clearly state that you are not supposed to use the services of the company. The form also states that you can shop for a mortgage anywhere else.