What is Truth in Lending?

The Truth in Lending Act is a federal law requiring full disclosure of all terms associated with any credit transactions. This includes all costs. The law was first passed in 1968 and was intended to provide consumers with some protection against lenders, especially those acting in a predatory way. This act is also known as Regulation Z, which is where most of the requirements are spelled out.

The main focus of the law deals with fees the lender may charge for extending a line of credit. This includes, but is not limited to, the annual percentage rate. Other fees are also required to be disclosed, all under the term “Finance Charges.”

For ease of access, the Truth in Lending Act is broken down into several subsections generally broken down by loan type. Subpart A contains general rules. Subpart B outlines regulations for open-ended credit. Subpart C discusses close-ended credit. Subpart D is a miscellaneous section. Subpart E details special rules for certain home mortgage transactions.

Since its original passage in 1968, the Truth in Lending Act has undergone a number of changes to provide the consumer with an even greater level of protection. In 1970, the U.S. federal law was amended to prohibit the delivery of unsolicited credit cards to a consumer. More than a half dozen other major changes have been made to the Truth in Lending Act since that time.

Any time there are changes proposed to the Truth in Lending Act, it garners substantial attention from both lenders and consumer protection advocacy groups. Lenders often attempt to make a case the Truth in Lending act is too burdensome and opens up lenders to a number of punitive, baseless class-action lawsuits. Consumer advocates, predictably, take the opposite tack, pushing for even more protections in the law. Cases are often taken to the public through pricey advertising campaigns to try to garner public support for their respective sides.