The Truth In Lending Act

Truth In Lending Act

The Truth In Lending Act requires the disclosure of credit terms prior to entry into a consumer credit contract. These disclosures which include the annual percentage rate, amount financed, finance charge, amount and timing of payments, etc. must be in writing in a form the consumer may keep, common violations include:

1. The Two Note Case. The two note case is where the consumer is required to sign a contract which does not give the TILA disclosures, either containing no terms of financing or only partial incomplete disclosures. At a later date, the consumer is required to sign a contract containing the TILA. The TILA information comes too late; the consumer is already bound. Common areas of this violation are car sales and home improvements. The seller will have the consumer sign a contract without the TILA disclosures and later have the consumer sign another contract containing the TILA disclosures.
2. Spiking. A contract which imposes a security interest in the consumer’s residence (other than the first mortgage) must provide a three day right of rescission. Sometimes in home improvement contracts the contractor will begin work before the expiration of the rescission period. This practice is called “spiking” and violates the TILA. Also, the failure to give the proper notice including the correct number of forms also violates the TILA.
3. Hidden Finance Charges. The inflation of the purchase price in a credit transaction in excess of the price in a cash transaction is a hidden finance charge. An example is where the seller charges a lower purchase price when the item is purchased for cash ($100) but charges a greater amount when the item is financed ($120) We have seen this practice in the sale of health club memberships, the sales of motor vehicles, etc..