Truth-in-lending (TIL) laws are a cornerstone of consumer credit legislation. They promote the growth of the consumer credit industry by making the terms of credit easier to understand. In theory, this allows people to compare loans offered by different lenders, encouraging competition. In general, federal statutes do not regulate the actual terms of a loan, but only the form in which it is presented.

Truth-in-lending laws are a response to the explosion in consumer Consumer creditcredit transactions during the late twentieth century. Lenders offered what appeared to be low interest rates, but added fees or calculated interest according to formulae that increased the actual percentage considerably. This made it difficult for even a financially sophisticated person to compare loans and left many people paying far more than they had anticipated.Truth-in-lending laws[Truth in lending laws]Laws;truth-in-lending

In 1968, under President Lyndon B. Johnson, Congress enacted the first comprehensive truth-in-lending statute, the Consumer Credit Protection Act of 1968Consumer Credit Protection Act. The law required clear and conspicuous disclosure of loan terms, in a prescribed format, and provided legal remedies for consumers for lender noncompliance. A key feature of TIL disclosures is the annual percentage rate (APR), expressing, on an annual basis, the actual cost of borrowing money, including any fees charged by the lender. A powerful legal remedy in home refinancing and home equity loans is rescission, which allows a borrower to cancel a loan secured by his or her principal residence for up to three years if the proper disclosures were not made at the time.

The 1968 act spawned a great many lawsuits. Lenders complained of difficulty with complying with its complex provisions, and consumers complained of information overload. In 1980, under President Jimmy Carter, Congress added TIL simplification provisions to the Depository Institutions Deregulation and Monetary Control Act.

Other additions to TIL laws include the Fair Credit and Charge Card Disclosure Act of 1988 and the Home Ownership and Equity Protection Act of 1994. Some states have their own TIL laws, which may be more favorable to consumers than the federal statute.

Proliferation of home loans with unaffordable terms despite TIL reveals some of the limitations of these acts. Borrowers often receive disclosures too late in the process to make comparisons, or are victims of bait-and-switch tactics by unscrupulous loan brokers. Disclosure requirements on variable-rate mortgages have proven inadequate, and penalties–for example increases in interest rates on a credit card if a payment is late–can be hidden in the fine print. Consumer confusion about loan terms, resulting in poor credit decisions, is still very much a part of the American business scene.

• Renard, Elizabeth, and Kathleen Keest. Truth in Lending. Boston: National Consumer Law Center, 1999.
• Simmons, Pamela. “The Federal Truth in Lending Act: What You Don’t Know Can Hurt You.” Real Property Law Reporter 27, no. 6 (2004).

Advertising industry

Contract law

Credit card buying

Mortgage industry

Truth-in-advertising codes