The Truth About Lending Act

Federal law requires you to be provided with many disclosures by your lender throughout your mortgage process. While it may seem like too much paperwork, these disclosures are there to protect you and provide clarity throughout the loan process. The Truth in Lending Act (TILA), established in 1968, is one of the oldest regulations governing disclosures about mortgage fees. Let's take an in-depth look at this regulation and how it can help you.

What Is The Truth In Lending Act?

TILA, also known as Regulation Z, protects consumers against closing cost abuses. It requires that all lenders calculate and disclose the loan terms and fees in a consistent manner. This applies to mortgages as well as other forms of consumer credit.

TILA's primary goal is not to regulate the number of interest lenders can charge but to regulate how lenders disclose terms and fees.

This is so that consumers can easily compare loan terms and get quotes from different lenders.

Who Enforces These Rules For Lenders?

From 1968 to 2011, the Federal Reserve Board was responsible for TILA rule making and enforcement. In July 2011, this responsibility was transferred over to the Consumer Financial Protection Bureau (CFPB), which was created in response to the 2007-2008 crisis to consolidate all government consumer financial protection agencies.

Since 2011, the Federal Reserve has funded the CFPB. Therefore, the spirit of TILA was preserved and enhanced.

Disclosures You'll Receive Under TILA

Before October 2015, TILA required that a lender send you a Good Faith estimate and an initial Truth in Lending disclosure within three business days of your application for a mortgage. Together, the two forms show your quoted rate, APR, the sum of fees, terms, and costs over the life of the loan.

These forms were deemed too confusing by the CFPB because the fees, calculations, and explanations were spread over two separate disclosures. The bureau, therefore, updated the forms for all loan applications made after October 3, 2015.

Now a lender must send you a Loan Estimate Form within three days of applying for a mortgage, which provides a detailed line-item breakdown of fees, cash needed to close, quoted rate, APR, terms, and costs over the life of the loan. The lender must also obtain your written intent to proceed before it can move forward.

The Good Faith Estimate, Truth in Lending, and Good Faith Estimate disclosures were removed from the beginning of the mortgage process. The Closing Disclosure form is next.