"Discover The Power of
The Truth In Lending Act"
Brought to You By:
Purpose of the truth in lending act
Truth In Lending Early and Final Regulation Z
TRUTH IN LENDING ACT: THREE DAY COOLING OFF PERIOD
What is the right of rescission?
Who is able to rescind a loan?
What does the right of rescission require of lenders?
When does the three-day rescission time clock begin to tick?
When may a borrower waive the right of rescission?
What happens once the rescission period is over?
What are the consequences oF noncompliance?
WAIVER OF THE RIGHT TO RESCIND
PARTICULAR TYPES OF TRANSACTIONS
VIOLATIONS OF TRUTH IN LENDING ACT
CIVIL REMEDIES FOR FAILURE TO COMPLY WITH T.I.L.A. REQUIREMENTS
ENFORCEMENT BY ADMINISTRATIVE AGENCIES
FIRST COUNTY NATIONAL BANK AUDIT
A FEW EXAMPLES OF T.I.L.A. VIOLATIONS THAT CAN BE
FOUND IN MORTGAGE CLOSING DOCUMENTS
15 STEPS TO BRING THE BANK TO THE BARGAINING TABLE
CURRENT TRENDS IN RESIDENTIAL MORTGAGE LITIGATION
THE FAIR DEBT COLLECTION PRACTICES ACT
Cooper v. First Government Mortgage and Investors Corp.
THE HISTORY OF PREDATORY LENDING
PREDATORY MORTGAGE LENDING ABUSES
This report has solely been written for the purpose of providing information only. The author and/or publisher is not giving advice (not advising) on any subject, and is particularly not giving legal, or financial advice to anyone, in any way, shape or form.
This report is presented to make available to those who may need accurate information on the subjects covered within. Even though the information has been carefully researched and assimilated from the best available sources, the author and/or publisher cannot and does not guarantee the accuracy or correctness of the information and or suggestions provided and set forth herein.
We provide assistance and document preparation for consumers seeking to gain control of their assets.
We have several programs that will assist people in regaining their financial freedom.
We do not claim to be legal professionals nor do we give legal advice. We merely help people understand what their options are and assist them with document preparation.
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T.I.L.A. is to be liberally construed in favor of consumers,
with creditors who fail to comply with T.I.L.A. in any respect
becoming liable to consumer regardless of nature of violation
or creditors' intent.
The federal Truth In Lending Act was originally enacted by Congress in 1968 as a part of the Consumer Protection Act. The law is designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs. The law was simplified and reformed as a part the Depository Institutions Deregulations and Monetary Control Act of 1980.
The Truth in Lending Act is important for Banks and Lenders involved in consumer credit transactions or consumer leasing.
The law has been implemented by the Federal Reserve Board through two key regulations:
Regulation Z explains how to comply with the consumer credit parts of the law.
Regulation Z applies to each individual or business that offers or extends consumer credit if four conditions are met:
1. The credit is offered to consumers.
2. Credit is offered on a regular basis.
3. The credit is subject to a finance charge (i.e. interest) or must be paid in more than four installments according to a written agreement.
4. The credit is primarily for personal, family or household purposes.
If credit is extended to business, commercial or agricultural purposes, Regulation Z does not apply.
Regulation M
Includes all the rules for consumer leasing transactions.
Regulation M applies to contracts in the form of a lease where the use of personal property by a person primarily for personal, family or household purposes.
The lease period must exceed four months, and the total contractual obligations must not exceed $25,000, regardless of whether the lessee has the option to purchase the property at the end of the lease term.
Other Agencies
In addition to the Federal Reserve Board, other federal agencies may have regulations for certain special lines of business.
For example, the Department of Transportation has certain Truth In Lending Act regulations applicable to airlines. The Veterans Administration, the Department of Housing and Urban Development, the Federal Home Loan Bank Board and the National Credit Union Administration are also involved in the enforcement of the Truth In Lending Act. The Truth In Lending Act is designed to reduce confusion among consumers resulting from the different methods of computing interest. It does not require creditors to calculate their credit charges in any particular way. However, whatever alternative they use, they must disclose certain basic information so that the consumer can understand exactly what the credit costs.
One of the biggest lending transactions any individual is likely to enter is borrowing to purchase a home. These transactions have become more complicated in recent years. Historically, someone trying to buy a home had very few options. Often, only a traditional thirty year loan was available.
Now, loans of various duration and interest rate variations are available to every home buyer. The Federal Reserve Board and the Federal Home Loan Bank Board have published a book entitled "Consumer Handbook on Adjustable Rate Mortgages " to help consumers understand the purpose and uses of adjustable rate mortgage loans. Regulation Z requires that creditors offering adjustable rate mortgage loans make this booklet, or a similar one, available to consumers.
You can get a free copy of "Consumer Handbook on Adjustable Rate Mortgages" at the following website.
(see resources page for the URL to obtain this handbook)
Disclosure is generally required before credit is extended. In certain cases, it must also be made in periodic billing statements. Regulation M includes similar rules for disclosing terms when leasing personal property for personal, family or household purposes, if the obligations total less than $25,000.
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. Disclosure is also required before the first transaction under an open end account, and again at the time the periodic billing statement is sent.
The term "closed end credit transaction" is defined by exclusion. That is, it includes 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 "borrower" (that is 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 term credit sale means a sale in which the seller is the creditor. That is, the amount of the purchase price is financed by the seller. This includes any consumer lease, unless the lease is terminable without penalty at any time by the consumer, or when:
1. The consumer agrees to pay an amount substantially equal to, or more than, the total value of the property or services involved.
2. The consumer has the opportunity to purchase the property for at least nominal consideration.
Under Regulation Z, disclosure must be made of the following important credit terms:
Finance Charge - This is perhaps the most important disclosure made. This is the amount charged to the consumer for the credit.
Annual Percentage Rate - This is the measure of the cost of the credit which must be disclosed on a yearly basis. The method for calculating this rate is determined the underlying transaction.
Amount Financed - This the amount that is being borrowed in a consumer loan transaction, or the amount of the sale price in a credit sale.
Total of Payments - This includes the total amount of the periodic payments by the borrower/buyer.
Total Sales Price - This is the total cost of the purchase on credit, including the down payment and periodic payments.
Evidence of compliance with the Truth In Lending requirements must be retained for at least two years after the date of disclosure. Disclosures must be clear and conspicuous and must appear on a document that the consumer may keep.
The Truth In Lending Act has other important features. If you elect to advertise credit terms, the law requires disclosure of key lending terms. Also, the law entitles the consumer the right to rescind certain credit transactions within a short period, such as home equity loans and Mortgages.
The penalties for failure to comply with the Truth In Lending Act can be substantial. A creditor who violates the disclosure requirements may be sued for twice the amount of the finance charge. Costs and attorney's fees may also be awarded to the consumer.
A lawsuit must be begun by the consumer within a year of the violation. However, if a creditor sues more than a year after their violation date, violations of the Truth In Lending Act can be asserted as a defense.
Purpose of the Truth In Lending Act
Economic stabilization and competition is
strengthened by informed use of credit by consumers.
The Act is in Title I of the Consumer Credit Protection
Act and is implemented by the Federal Reserve Board via
Regulation Z (12 C.F.R. Part 226). The Regulation has effect
and force of federal law.
(see resources page to obtain official regulation)
T.I.L.A. applies to:
Each individual or business that offers or extends credit when four conditions are met:
1. The credit is offered or extended to consumers,
2. The offering or extension of credit is done "regularly" [extends credit more than 25 times (or more than 5 times for transactions secured by dwelling) per year]
3. The credit is subject to a finance charge or is payable by written agreement in more than four installments, and
4. The credit is primarily for personal, family, or household purposes.
Also, certain requirements apply to persons who are not creditors but who provide applications for home equity plans to consumers.
Truth In Lending Early and Final Regulation Z Disclosure Requirements
The Truth in Lending Act Title I of the Consumer Credit Protection Act, is aimed at promoting the informed use of consumer credit by requiring disclosures about its terms and costs.
T.I.L.A. requires lenders to make certain "material disclosures" on loans subject to the Real Estate Settlement Procedures Act (RESPA) within three business days after their receipt of a written application.
This early disclosure statement is partially based on the initial information provided by the consumer.
The term ''material disclosures'' means the disclosure, as required by this subchapter, of the annual percentage rate, the method of determining the finance charge and the balance upon which a finance charge will be imposed, the amount of the finance charge, the amount to be financed, the total of payments, the number and amount of payments, the due dates or periods of payments scheduled to repay the indebtedness, and the disclosures required by section 1639(a) of this title.
A final disclosure statement is provided at the time of loan closing. The disclosure is required to be in a specific format and typically include the following information:
1. Name and address of creditor
2. Amount financed
3. Itemization of amount financed (optional, if Good Faith Estimate is provided)
4. Finance charge
5. Annual percentage rate (APR)
6. Variable rate information
7. Payment schedule
8. Total of payments
9. Demand feature
10. Total sales price
11. Prepayment policy
12. Late payment policy
13. Security interest
14. Insurance requirements
15. Certain security interest charges
16. Contract reference
17. Assumption policy
18. Required deposit information
NOTE:
Regulation Z specifically provides that the ''finance charge'' includes any ''interest'' and ''points'' charged in connection with a transaction. Therefore, if the intermediary is in fact acting on behalf of the lender, as is the case where the intermediary accepts secret compensation from the lender or acts in the lender's interest to increase the amount paid by the borrower, all compensation received by the intermediary, including broker's fees charged to the borrower, are finance charges.
Truth In Lending Act: 3-day Cooling Off Period
In addition to remedies described above, consumers who enter home equity loans may also have rescission rights.
Under T.I.L.A., a consumer may rescind a consumer credit transaction involving a non-purchase-money security interest in the consumer's principal dwelling Within 3 business days if all T.I.L.A. disclosure requirements met, or During an extended statutory period for T.I.L.A. disclosure violations such as:
Failure to give adequate notice of right to rescind,
Failure to give adequate T.I.L.A. credit term disclosures.
Rescission voids the security interest in the principal dwelling. Consumer must have ownership interest in dwelling that is encumbered by creditor's security interest.
Consumer need not be a signatory to the credit agreement. T.I.L.A. rescission rights do not apply to business credit transactions, even if secured by consumer's principal dwelling.
What is the Right of Rescission?
The right of rescission is a consumer protection law found within the Truth in Lending Act.
In a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership is or will be subject to the security interest has the right to rescind the transaction.
Lenders are required to deliver two copies of the notice of the right to rescind and one copy of the disclosure statement to each consumer entitled to rescind.
The notice must be on a separate document that identifies the rescission period on the transaction and must clearly and conspicuously disclose the retention or acquisition of a security interest in the consumer's principal dwelling; the consumer's right to rescind the transaction; and how the consumer may exercise the right to rescind with a form for that purpose, designating the address of the lender's place of business.
In order to exercise the right to rescind, the consumer must notify the creditor of the rescission by mail, telegram or other means of communication.
Notice is considered given when mailed, filed for telegraphic transmission or sent by other means, when delivered to the lender's designated place of business.
The consumer may exercise the right to rescind until midnight of the third business day
1. following consummation of the transaction;
2. delivery of the notice of right to rescind;
3. or delivery of all material disclosures, whichever occurs last.
When more than one consumer in a transaction has the right to rescind, the exercise of the right by one consumer shall be effective for all consumers.
When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer will no longer be liable for any amount, including any finance charge.
Within 20 calendar days after receipt of a notice of rescission, the lender is required to return any money or property that was given to anyone in connection with the transaction and must take any action necessary to reflect the termination of the security interest.
If the lender has delivered any money or property, the consumer may retain possession until the lender has complied with the above.
The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency.
To modify or waive the right, the consumer must give the lender a dated written statement that describes the emergency, specifically modifies or waives the right to rescind and bears the signature of all of the consumers entitled to rescind. Printed forms for this purpose are prohibited.
Who is Able to Rescind a Loan?
The right of rescission doesn't apply just to borrowers. All consumers who have an ownership interest in the property have the right to rescind.
While other parts of Regulation Z typically focus on the borrowers, this is one area where it affects those beyond the applicants, in other words all owners of the home being pledged on the transaction.
What does the Right Of Rescission Require of Lenders?
The right of rescission requires lenders to provide certain "material disclosures" and multiple copies of the right of rescission notice to EACH owner of the property.
Following proper disclosures, lenders must wait at least three business days before disbursing loan proceeds.
Rescission Time Clock Begin to Tick?
The three-day right of rescission period begins once the material disclosures and notice have been given, and lasts three full business days. Business days are defined by Reg Z to include all calendar days except Sundays and federal holidays. Saturday IS considered a business day for rescission purposes, regardless of whether your offices are open.
In order to properly complete the Notice of Right to Rescind form, you need to know how to calculate the rescission period. Consider the following example.
Assume a closing is set for Thursday, November 15th, 2001, and that all material disclosures and notices are provided to the parties at that time. The rescission period would run:
Friday, November 16, 2001;
Saturday, November. 17, 2001, and
Monday, November 19, 2001.
Sunday is not counted since it is not considered a business day. The rescission period would end at midnight on November 19, 2001.
When may a borrower waive the right of rescission?
Reg Z allows borrowers to waive their rescission rights, but this exception only applies in very limited circumstances. The law is protective of the right of rescission, and you should be too.
Borrowers may waive their rescission rights and receive their loan proceeds immediately only if they have what is called a "bona fide personal financial emergency." This means a financial emergency of the magnitude that waiting an additional three days will be personally or financially devastating to the borrower. It might include situations involving natural disasters such as flooding, or a medical emergency that requires immediate funds. When this type of situation does arise, the borrower must provide a written explanation of his or her circumstances to the financial institution. This is not a document that you should draft for the borrower.
Waiving the right of rescission is not a common practice, mostly because doing it wrong can backfire and create a rescindable loan, causing all kinds of problems down the road.
What happens once the rescission period is over?
After the right-of-rescission period has expired, the Lender must feel reasonably certain that the consumer has not rescinded before the loan proceeds are disbursed.
There are some risks to the Bank in disbursing after the third day.
The law allows consumers to exercise their rescission rights by mail, and a rescission is effective when mailed.
Thus, a rescission mailed on the third day after closing is effective even though the lender may not receive it until the fourth or fifth day after the closing.
To avoid further delay of the loan proceeds, the bank may want to obtain a confirmation statement from all the owners stating that they have not exercised their rescission rights.
Consumers should not sign this confirmation until after the three day period is over. Otherwise, it may look like they have improperly waived their rescission rights.
What are the consequences of noncompliance?
There are serious consequences for failing to follow the right-of-rescission rules. First, until a lender provides the material disclosures and the proper Notice of Right to Rescind, the three-business day rescission period does not start to run, and the transaction remains rescindable for up to three years.
And once a consumer rescinds a transaction, the security interest in the property becomes void and you must reimburse the consumer for all of the finance charges collected over the life of the loan.
Most rescission errors are alleged in response to collection actions or other litigation initiated by the lender.
Waiver of The Right to Rescind
Consumers may modify or waive right to rescind credit transaction if extension of credit is needed to meet bona fide personal financial emergency before end of rescission period.
Consumer must provide creditor with dated written statement describing emergency,
· Specifically modifying or waiving right, and
· Signed by all consumers entitled to rescind.
Borrower's who want to waiver because foreclosure is imminent is ineffective because under terms of mortgage, foreclosure could not occur before two months at time of waiver and thus, there was no bona fide emergency.
Borrowers may not falsely claim an emergency.
Delay of Performance.
Unless the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded, the creditor must not, either directly or through a third party, Disburse advances to the consumer,
Begin performing services for the consumer, or Deliver materials to the consumer.
DURING THE DELAY PERIOD, A CREDITOR MAY
Prepare cash advance check (or loan check in the case of open-end credit),
Perfect the security interest and/or
Accrue finance charges,
In the case of open-end credit, prepare to discount or assign the contract to a third party.
Delay Beyond Rescission Period.
Creditor must wait until he/she is reasonably satisfied consumer has not rescinded.
May do this by Waiting reasonable time after expiration of period to allow for mail delivery, or
Obtaining written statement from all eligible consumers that right not exercised.
When consumer rescinds, the security interest becomes void and consumer is not liable for any amount, including finance charges.
Within 20 calendar days after receiving notice of rescission, creditor must return any property or money given to anyone in connection with the transaction, and take whatever steps necessary to reflect termination for the security interest.
When creditor meets its obligations, consumer must tender the money or property to creditor, or if tender not practicable, its reasonable value.
If creditor fails to take possession of tendered money or property within 20 days, consumer may keep it without further obligation.
Court has power to exercise equitable discretion and condition rescission of a loan upon the return of the loan proceeds.
Particular Types of Transactions
Refinancing and Consolidation.
Rescission rights do not apply to refinancing or consolidation by same creditor of an extension of credit already secured by consumer's principal dwelling.
Rescission rights do apply to extent new amount exceeds unpaid balance, any earned unpaid finance charges on existing debt, and amounts attributed solely to costs of refinancing or consolidation.
Open-end line of credit secured by home used to pay off loan not originally secured by home requires complete rescission rights.
Door-to-door sales.
When home solicitation sale is financed with second mortgage loan, consumer may be entitled to two separate rights to cancel when the transactions are independent.
When consumer offers to obtain his/her own financing independent of assistance or referral from seller, sale and financing are separate transactions.
When there are separate transactions,
FTC Rule (Cooling Off Period for Door-to-Door Sales) - Requires sellers to give buyers three days in which to cancel a home solicitation sale, and notice of this cancellation right.
T.I.L.A. requires a three-day rescission period (unless extended for T.I.L.A. violation).
Seller bound by consumer's timely cancellation regardless of which party receives notice of cancellation.
For single transactions (seller arranged financing), look to state home solicitation law to determine whether transaction still covered by state's home solicitations statute three-day cooling off period.
When seller finances or arranges financing with second mortgage, this is considered a single transaction.
When there is a single transaction, T.I.L.A. rescission rights apply, but not FTC Rule three-day cooling off period.
FTC Rule does not apply to transactions in which there is a T.I.L.A. right to rescind (i.e., second home mortgage transactions).
Therefore, consumer has only T.I.L.A. right to rescind and not the additional three-day cooling off period rights under FTC Rule.
But, state cooling off periods may apply even when T.I.L.A. rescission rights are available.
State home solicitation law may not have exemption like FTC Rule does.
Three-day right to cancel begins on date contract is signed (when validity of contract is dependent of obtaining independent, acceptable financing) and consumer is given T.I.L.A. disclosures
which includes rescission rights notice.
Seller must give notice of the transaction date, and, of the deadline for exercising right to cancel.
Violations of Truth In Lending Act
Creditors are liable for violation of the disclosure requirements, regardless of whether the consumer was harmed by the nondisclosure, UNLESS:
The creditor corrects the error within 60 days of discovery and prior to written suit or written notice from the consumer, or
The error is the result of bona fide error. The creditor bears the burden of proving by a preponderance of the evidence that:
The violation was unintentional.
The error occurred notwithstanding compliance with procedures reasonably adapted to avoid such error. (Error of legal judgment with respect to creditor's T.I.L.A. obligations not a bona fide error.)
Civil Remedies for Failure to Comply With T.I.L.A. Requirements:
Action may be brought in any U.S. district court or in any other competent court within one year from the date on which the violation occurred. This limitation does not apply when T.I.L.A. violations are asserted as a defense, set-off, or counterclaim, except as otherwise provided by state law.
Private remedies - applicable to violations of provisions regarding credit transactions, credit billing, and consumer leases.
ACTUAL DAMAGES IN ALL CASES:
Attorneys' fees and court costs for successful enforcement and rescission actions
Statutory damages:
1. For individual actions, double the correctly calculated finance charge but not less than $200 or more than $2,000 for individual actions.
2. For class actions, an amount allowed by the court with no required minimum recovery per class member to a maximum of $500,000 or 1% of the creditor's net worth, whichever is less.
3. Can be imposed on creditors who fail to comply with specified T.I.L.A. disclosure requirements, with the right of rescission, with the provisions concerning credit cards, or with the fair credit billing requirements.
Enforcement By Administrative Agencies
The enforcement scheme for banks includes the Federal Reserve System, the Federal Deposit Insurance Corporation, and other agencies. The enforcement agency responsible for creditors not subject to the authority of any specific enforcement agency is the Federal Trade Commission.
Nine separate agencies currently have enforcement responsibilities.
Enforcement agencies can:
Issue cease and desist orders or hold hearings pursuant to which creditors are required to adjust debtors' accounts to ensure that the debtor is not required to pay a finance charge in excess of the finance charge actually disclosed or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower.
If the FTC determines in a cease and desist proceeding against a particular individual or firm that a given practice is "unfair or deceptive," it may proceed against any other individual or firm for knowingly engaging in the forbidden practice, even if that entity was not involved in the previous proceeding.
Criminal penalties - Willful and knowing violations of T.I.L.A. permit imposition of a fine of $5,000, imprisonment for up to one year, or both.
First County National Bank Audit
A review of the First County National Bank's consumer compliance program was conducted October 2, 1995, and included the period between July 1994 (the date of the most recent regulatory compliance examination) and October 2, 1995. An assessment of the bank's compliance with the following laws and their respective implementing of these regulations was performed:
· Community Reinvestment Act (CRA)
· Equal Credit Opportunity Act (ECOA)
· Fair Credit Reporting Act (FCRA)
· Fair Housing Act (FHA)
· Truth-in-Lending Act (T.I.L.A.)
· Real Est