Truth in Lending Act: What Lenders Must Tell You
Written by: Kristy Welsh
Last Updated: November 2, 2017
How can you be expected to open a credit card or take out a loan if you aren’t told all the terms of the agreement? You can’t, which is why we have the Truth in Lending Act. Enacted in 1968, this law requires lenders to make certain disclosures before extending credit to you. It’s a long list of requirements, but we’ve summarized the basics for you here, including what lenders must state in ads and applications, and what must be included in your billing statements.
Open End Credit
This is also known as revolving credit, meaning there is no end date for it. This includes credit cards, home equity lines of credit, and personal lines of credit.
Before you are extended open end credit, the lender must disclose the following:
- How long you have to pay before finance charges will be imposed on charges you make
- How they will determine the balance that you are assessed finance charges on
- How they will determine the amount of the finance charge itself
- Other types of charges that may be assessed
- In the case of secured credit cards, acknowledgement of the deposit received
The lender must also provide you with a statement each billing cycle, which should include:
- Your balance at the beginning of the statement period
- Breakdown of each transaction during the period (date, description)
- Amount credited to your account during the period
- Finance charges imposed during the period
- Balance on which the finance charge is based
- Your balance at the end of the statement period
- When you must pay the end balance in order to avoid finance charges
- Where you can mail inquiries about your bill
- A minimum payment warning that reads something like this: "Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance."
- How long it would take you to pay off the balance if you only make minimum payments on the balance, and how much that would cost you
In ads and applications for credit cards, lenders must disclose:
- Annual percentage rates
- Annual fees and other fees
- Grace periods for avoiding finance charges (or statement that there is no grace period)
- How balances are calculated
- Refer to temporary annual percentage rates as "introductory"
For open end credit secured by a home, lenders must disclose:
- Fixed annual percentage rate
- Variable percentage rate
- Other fees
- Repayment options
- Statements addressing balloon payments, negative amortization (if applicable), and tax deductibility
Closed End Credit
This is also known as non-revolving credit or installment credit — credit that ends once it is paid off. This includes auto loans, student loans, mortgages, and personal loans.
Before you are extended closed end credit, the lender must disclose the following:
- Amount financed
- Finance charge
- Total of payments (amount financed + finance charge)
- Payment schedule
- If secured, acknowledgement of the security received
- Late payment fee
- Additional disclosures specific to mortgages
More on these disclosures
Again, the required disclosures listed here are summarized. To see the specific language of each — as well as more detailed information — you can take a look at the Truth in Lending Act yourself. It’s a lengthy document, but we can at least tell you where to look so you don’t have to weed through the whole thing.
You can scroll through the Act to find the following sections, or you can click the links to go straight to them via Cornell Law School’s website.
For more on:
- Open end credit, see Section 1637
- Open end credit secured by consumer’s principal dwelling, see Section 1637a
- Closed end credit, see Section 1638
Other laws you need to know
Credit reporting agencies and debt collection companies have strict laws to follow, too. Get the facts in our Quick Guide to the Fair Credit Reporting Act and FDCPA Violations: What Debt Collectors Cannot Do.