Truth in Lending Act Overview

A federal law requiring lenders to disclose loan terms clearly, so consumers can compare them.

Another name for the Truth in Lending Act (TILA).

To protect consumers by requiring lenders to clearly disclose loan terms.

A residential structure (1-4 units) used as a residence, including condos, co-ops, mobile homes, and trailers.

A day when a lender's office is open for normal business.

The right to cancel a loan transaction.

Loans to consumers, made by lenders, with charges, and >4 installments for personal use are covered.

Lenders must use the same terms and calculation methods to present loan costs.

Advertisements for loans secured by a dwelling must prominently display the simple annual interest rate along with the annual percentage rate (APR).

Specific terms in loan ads that require additional disclosures about the loan.

Loan ads must include details about down payment amounts/percentages, repayment terms (including balloon payments), APR, and potential rate increases (for adjustable-rate loans).

Loan ads for adjustable-rate loans must clearly state that the interest rate may change after the loan is finalized.

Loans that meet specific criteria regarding APR, points/fees, or prepayment penalties are considered high-cost and are covered by HOEPA.

A key factor determining if a loan is subject to HOEPA which analyzes if the loan's APR exceed the applicable average prime offer rate (APOR).

Loan points and fees can trigger HOEPA coverage if they exceed a certain percentage of the total loan amount.

Prepayment penalties applied to certain HOEPA covered loans must have specific parameters.

A loan that falls under the scope of the home ownership protection act (HOEPA).

TILA prohibits misleading and deceptive acts or practices in mortgage loan advertisements.

Payments of adjustable-rate loans must be disclosed based on recent indices and margins.

Multi-page or multi-format ads can fulfill requirements by placing the required specifics conspicuously.

Radio & TV ads can satisfy requirements by either providing every detail explicitly or by specifying APR, a reference number, and a toll-free phone number for more information.

Ads detailing payment amounts must show all payment details, including balloon payments, and the period during which each payment is in effect.

Certain loan types are exempt from the Truth in Lending Act (TILA) requirements, mostly business, commercial, or agricultural loans, and loans to non-natural persons (like corporations or government entities).

Loans for non-owner-occupied residential properties are exempt from TILA, but only if the loan is for a business, commercial, or agricultural purpose. Personal use of proceeds voids the exemption.

A standardized measure of the true cost of credit, calculated to include all relevant loan factors. Expressed as a yearly rate.

Fixed-rate mortgages must be within 1/8th of a percent of the actual APR, while adjustable-rate mortgages must be within 1/4 for accuracy.

The total cost of consumer credit. It includes all lender charges but excludes expenses covered in the equivalent cash transaction.

A finance charge paid separately before or at closing, or withheld from the loan.

Seller contributions (seller's points) towards borrower costs are excluded from the finance charge calculation, even if they increase the purchase price.

Adjustable Rate Mortgages require two special disclosures: a consumer handbook on adjustable-rate mortgages and a loan program disclosure.

A borrower has specific timeframe to cancel debt in some secured credit transactions.

Certain loan types, like refinancing an existing mortgage (with no new funds) or advance for construction with a disclosed transaction , are exempt from the rescission right.

The moment when a borrower becomes legally bound and obligated by the credit agreement.

Borrowers have three business days after consummation, disclosure delivery, or notice receipt to rescind.

Loan ads must accurately reflect the terms offered, and rates must be clearly presented as APR. Must state if APR may change.

A transaction that creates a mortgage, deed of trust, or a security interest in a consumer's principal residence for acquiring or initially constructing it.

Loans to finance the initial building of a dwelling are exempt from HOEPA regulations.

Reverse mortgages, where homeowners receive payments from their home's equity, are exempt from HOEPA.

Loans originated and financed by Housing Finance Agencies are exempt from HOEPA.

Loans originated through the USDA's Rural Housing Service section 502 Direct Loan are exempt from HOEPA.

HOEPA loans generally prohibit balloon payments, which are significantly larger than regular payments.

HOEPA loans cannot have negative amortization, where the loan balance increases instead of decreasing.

HOEPA loans cannot have prepayment penalties for paying off the loan early.

HOEPA loans have strict limitations on points and fees.

HOEPA limits late fees to a maximum of 4% of the late payment.

HOEPA restricts fees for providing loan payoff statements.

HOEPA prohibits fees for loan modifications or payment deferrals.

HOEPA requires lenders to assess borrowers' ability to repay for Home Equity Lines of Credit.

Lenders and brokers cannot encourage HOEPA borrowers to default on loans for refinancing.

A closed-end mortgage loan with an interest rate significantly higher than the average prime offer rate.

Escrow for taxes and insurance is usually required for HPMLs, regardless of the loan-to-value ratio.

Lenders must provide a disclosure within 3 business days of loan application stating they may order an appraisal and charge the borrower. They must also provide a copy of the appraisal to the borrower within 3 business days before closing or within 30 days if the loan doesn't close.

The timing requirement for providing an appraisal to the borrower cannot be waived for high-priced mortgage loans (HPMLs).

Lenders are required to verify the borrower's income and assets to confirm their ability to repay the loan.

HPMLs cannot include a prepayment penalty in the first two years of the loan, unless permitted by law. The penalty won't apply if the prepayment source is a refinancing by the same lender or an affiliate.

High-priced mortgage loans must have a fixed interest rate and payment for at least the first four years of the loan.

Dodd-Frank Act limits how loan originators can be compensated, preventing them from being rewarded based on loan terms or factors they can influence.

Loan originator compensation cannot be reduced to lower the cost of changing loan terms, except for unexpected increases in estimated closing costs.

Loan originators cannot be compensated based on the profitability of a loan or a group of loans. This prevents incentives to 'up-charge' borrowers.