The Truth In Lending Act (TILA) of 1968 is a United States Federal Law designed to protect consumers in credit transactions, by requiring clear disclosure of key terms of the lending arrangement and all costs.
When you borrow money, lenders are required to disclose what’s going on. The TILA is also referred to as “Regulation Z” or “Reg Z” by the mortgage industry.
The purpose of TILA is to promote the informed use of consumer credit, by requiring disclosures about its terms, cost to standardize the manner in which costs associated with borrowing are calculated and disclosed. TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high-cost mortgage loans, TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires uniform or standardized disclosure of costs and charges so that consumers can shop. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and certain higher-cost mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer’s principal dwelling.
Changes to the Truth in Lending Act:
Regulation Z of The Truth in Lending Act (TILA) has undegone important changes that you need to know about. These changes take effect for all new loan applications taken on July 30th, 2009 and after, appy to ALL types of mortgage loans in ALL 50 states plus the District of Columbia, and could impact the ovverall timeline of the mortgage loan origination process.
These changes will affect how long it takes for you to close escrow on your home. Here are four major key parts of the new regulation that you’ll need to know about:
- Initial Disclosures: Under the new rules, initial disclosures must be provided to the borrower for all loan types within three (3) business days of when an application is taken or received. Initial disclosures include the 1) Good Faith Estimate (GFE), 2) Truth in Lending Statement, and 3) state-specific disclosures.
- Collection of Up-front Fees: The new regulations prohibit lenders from collecting many up-front fees prior to when the borrower receives the initial disclosures.
- Re-disclosures: If there are changes to a borrower’s loan program, loan terms, and/or Annual Percentage Rate (APR), the initial disclosure package must be re-disclosed to the borrower, and it must be received by the borrower at least three (3) business days prior to closing.
- Timing of Loan Closings: Your lender cannot schedule the loan closing until at least seven (7) business days after the initial disclosures are mailed to the borrower. If re-disclosures are needed because of changes to the loan program, terms or APR, the loan closing cannot be scheduled until at least six (6) business days after the re-disclosures are mailed to the borrower.