Truth In Lending Act Law and Legal Definition

The Truth-In-Lending Act is a federal law that requires that all terms in a consumer credit transaction be fully explained. The Truth In Lending Act is designed to reduce confusion among consumers resulting from the different methods of computing interest. Creditors must disclose certain basic information so that the consumer can understand exactly what the credit costs. The truth-in-lending law requires that a borrower be informed of the total finance charge, in transactions af various property, such as car financing and home loans. For example, the law requires an explanation of how the amount of any finance charge will be determined, including a description of how any finance charge other than the periodic rate will be determined.

In general, disclosure is required before any "closed end credit transaction" is completed. There is an exception where credit is extended over the telephone or by the mails. In those cases, a disclosure may be made after the fact. A "closed end credit transaction" is defined as any credit arrangement (either a consumer loan or credit sale) that does not fall within the definition of an "open end credit transaction". Open end credit includes credit arrangements like revolving credit cards, where the credit card holder is not required to pay off the principal amount by any particular point in time. Rather, the borrower is simply charged interest periodically and is usually required only to make some minimum payment.

The type of information that must be disclosed includes:

* Identity of the creditor.
* Amount financed,
* Itemization of amount financed
* Annual percentage rate, including applicable variable-rate disclosures,
* Finance charge,
* Total of payments,
* Payment schedule,
* Prepayment/late payment penalties,

If applicable to the transaction:

  1. Total sales cost,
  2. Demand feature,
  3. Security interest,
  4. Insurance,
  5. Required deposit, and
  6. Reference to contract.