Did you know you have three days to walk away from many loans, even after signing the agreement? Most people don’t, and this is just one of your rights under the Truth In Lending Act. You have a number of others too—check this out.
What Is “The Truth in Lending Act”?
Passed by Congress in 1968, the Truth in Lending Act (TILA) provides consumers with certain protections, while compelling the disclosure of credit terms and how interest rates work. The primary goal is to ensure consumers know the true cost of credit, thus ensuring fair treatment by lenders. Among the requirements TILA imposes is the disclosure of credit terms in everyday, down-to-earth, easily understood language.
The Right of Rescission
Certain loans covered by TILA give consumers three days to reconsider their decisions to accept them. Additionally, lenders must provide Truth in Lending disclosures along with two copies of a notice explaining the right to rescind.
This means you can back out of a financing deal without forfeiting fees or down payments you may have proffered to qualify for the loan. This was put in place to give consumers time to reconsider in case high-pressure sales tactics are employed to coerce people into deals they didn’t really want to make.
According to Investopedia, the right of rescission affords borrowers the ability to cancel home equity loans or lines of credit with a new lender, or to cancel refinance transactions done with lenders other than their current mortgagee within three days of closing.
The right is provided on a no-questions-asked basis. Lenders must surrender claims to properties and refund all fees within 20 days of receiving notice of the exercising of the right of rescission. To cancel a loan, borrowers must do so before midnight of the third day following the completion of the refinancing.
Note the right of rescission applies only to the refinancing of a mortgage. It does not apply to the purchase of a new home.
According to Credit Cards.com, the following disclosures regarding consumer credit must be made under TILA.
- The APR, or the cost of the loan expressed as a yearly percentage rate.
- The total amount of finance charges, or the cost of credit as a dollar amount. This refers to the total fees and interest the consumer will make over the life of the loan if all payments are made on time.
- The financed amount, or the dollar amount of credit extended to the borrower.
- Total of payments, or the sum of all payments made by the end of the loan.
Disclosures must also include how many payments you will make if the loan goes to term, the amount of your agreed-upon your monthly payment, how late fees are calculated, how much they will be and whether the agreement entails prepayment penalties.
TILA and Credit Cards
It’s important to note TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires standardized disclosure of costs and charges so consumers can shop for the best deals before accepting credit card offers.
Speaking of which, too many people accept credit cards solicitations that arrive in the mail without examining them to ensure they’re good ones. As a result, a lot of consumers find themselves locked into terms that can quickly escalate into unaffordability.
If you’re having difficulty making credit card payments and are now suffering from excessive debt, companies like Freedom Debt Relief have a number of solutions that can get your finances back on track. These include negotiating better payment terms and sometimes even getting a portion of the principal amount of the loan forgiven.
Hopefully this article has educated you on your rights under the Truth In Lending Act. Knowledge is power, so use these tips to better your situation.