May 29, 1968 - Truth in Lending Act
Policy Name: Truth in Lending Act, (S. 5)
Date: Effective May 29, 1968
The Truth in Lending Act (TILA) sought to protect consumers in their transactions with lenders and creditors in the mortgage, auto loan, and other consumer credit industries. Before TILA was enacted, lenders were able to present loan information in a variety of ways. TILA standardized the manner in which mortgage lenders, and retailers that sold on credit, calculated and disclosed interest rates. This legislation had the goal of ensuring the informed use of consumer credit.
TILA mandates that all consumer lenders must provide a Truth in Lending disclosure statement to borrowers. This statement must include information on the amount of the loan, finance charges, the annual percentage rate, the payment schedule, and the total repayment amount over the lifetime of the loan. TILA grants borrowers the right to rescission – a “cooling off” period that allows consumers to cancel their transaction within three days of loan consummation. The legislation also creates a number of ways for consumers to bring enforcement actions through the courts.
TILA does not tell lenders how much interest they may charge or whether they should grant a consumer a loan. Congress has amended the act numerous times since its enactment in 1968. In 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act transferred rulemaking authority for TILA from the Federal Reserve Board to the Consumer Financial Protection Bureau.