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Guide to the TILA – Lexington Law

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

If you’ve recently started to look into applying for loans or credit, you may have seen the term “TILA” come up. But what is the TILA, and how does it help you? Explained simply, the Truth in Lending Act, or TILA, protects consumers from unfair practices by credit lenders.

Having an understanding of what the TILA is can be very beneficial so you can protect yourself when applying for credit. 

What Is the Truth in Lending Act?

The Truth in Lending Act or “TILA”is a federal law that was enacted in 1968. The law aims to protect consumers from unfair and incorrect credit billing and credit card practices and requires lenders to provide the true cost of borrowing credit.

This is where the act gets its name—there must be truth from the creditors when extending lending to consumers. Lenders must disclose the terms and costs related to borrowing credit in an easily understood manner so that consumers can efficiently comparison-shop between lending options. 

The act was initially implemented by the Federal Reserve Board’s Regulation Z. Essentially, Regulation Z is another name for the Truth in Lending Act, and the two terms are often used interchangeably. Since its initial implementation in 1968, the act has been amended many times to keep up with the changing credit industry. The first amendment came in 1970 with the prohibition of unsolicited credit cards. 

One of the most significant changes to the act was when the Consumer Financial Protection Bureau (CFPB) received the authority to make additional rules under the TILA. Since being given this duty, the CFPB has initiated many changes. Some of these changes include:

  • Clarifying rules around loan originator compensation
  • Applying limits on the points and fees that apply to qualified mortgages
  • Creating rules around the ability-to-repay requirements for mortgages

How Does the TILA Work?

Creditors and lenders are aware of the TILA rules they must adhere to. All borrowers must receive a written disclosure that states all the critical terms of borrowing the credit before they’re legally bound to start paying the loan. The details that need to be provided include:

  • annual percentage rate (APR)
  • The finance charge, the total amount of interest and fees the borrower will pay over the full span of the loan term if they make every payment on time
  • The total amount of the loan or credit provided to the borrower (i.e., the amount the consumer is borrowing)
  • The total of payments the borrower will make, including the principal amount, interest and fees 
  • The total numbers of payments for the loan term
  • Any late fees that can apply
  • Restrictions around prepayment of the loan (i.e., if there is a fee for prepayment)
  • Any other important terms

Truth in Lending disclosures are often written into the lending contract, so you must read the entire agreement to find these details. 

TILA Exemptions

There are a few TILA exemptions all borrowers should be aware of. The Truth in Lending Act does not apply to the following situations:

  • Agricultural, business or organizational (business) credit
  • Non-owner-occupied rental property or owner-occupied rental property that the owner will occupy within one year; both of these are considered lending credit for business purposes and therefore not applicable for TILA 
  • Business credit that is later refinanced
  • Credit card renewal
  • Trusts
  • Credit over the applicable threshold amount
  • Public utility credit
  • Commodities or securities accounts
  • Home fuel budget plans
  • Student loan programs
  • Certain types of mortgages

What Other Acts Are Included in the TILA?

There are several other acts included within the TILA. 

CARD Act

In 2009, the TILA implemented a significant amendment known as the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). This act introduced new rules about what a lender has to disclose when issuing a new credit card. After the CARD Act, financial institutions had to disclose:

Besides rules around disclosure, credit card companies had additional rules they had to follow. Some of the most significant changes included:

FCBA

The Fair Credit Billing Act (FCBA) was originally introduced as an amendment to the TILA in 1974. This act looks to provide consumers with a way to address any errors in their bills. This can include mistakes related to charges on the wrong date, math errors, charges for the wrong amount, unauthorized charges, missing payments and statements that were mailed to the incorrect address. 

After a consumer sends a dispute about a billing error, the creditor has 30 days to respond and a maximum of 90 days to investigate the claim. 

FCCCDA

The Fair Credit and Charge Card Disclosure Act (FCCCDA) was passed into law in 1988. This act mandates that all businesses and financial institutions share relevant and important details when they issue a new credit card to a borrower. Some of the information they must reveal includes:

HELCPA

Also in 1988, the Home Equity Loan Consumer Protection Act (HELCPA) was introduced as an amendment to the TILA. This amendment states that all lenders need to share the details and terms of a home equity loan before the loan’s first transaction. The details that need to be disclosed include:

If any of these details change between the time the loan is finalized and the first transaction, the consumer has the right to refuse the loan and receive a full refund of all application fees. 

Additionally, the HELCPA stops creditors from changing or closing a home equity plan after it’s been opened, although there are some exceptions to this rule. 

HOEPA

Almost a decade after the HELCPA was introduced, the Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994. This amendment protects consumers who are in a difficult financial situation from falling victim to predatory lending.

Lenders cannot use predatory lending practices such as lying, manipulation, tricking people with little financial knowledge or coercion. This stops lenders from adding clauses to a home loan that can benefit them unfairly. 

HOEPA hopes to distinguish between valid lenders and those with predatory intentions. For example, it stops the practice of frequently refinancing a home loan to charge and collect additional fees. It also prevents lenders from offering a loan to a person in an amount they don’t think the person can repay. 

What If Your TILA Rights Are Violated?

The TILA is meant to protect consumers, but it does require the consumer to be aware of their rights in the first place. Unfortunately, this is easier said than done, as the TILA has been amended so often and is quite a complicated act now. 

Ultimately, if your TILA rights are violated, you may be entitled to compensation—but you will probably need legal help if speaking to your lender doesn’t fix the problem. You first need to clarify if your rights were actually violated and what you can do about it.

As many lawyers offer a free initial consultation, it may be worth your time to bring your case to an attorney who has experience in the area and can let you know if you have a case worth pursuing. 

Always Read the Fine Print 

When signing for a new financial product, it can be easy to get caught up in the moment and forget to do your due diligence. However, you must always stop and read the fine print. Now that you know what the TILA is, you also have a better understanding of the information your creditor needs to provide you in its documentation. 

Your credit score has a significant impact on what you’re able to do—whether it’s getting a mortgage, being approved for a rental or getting a new car loan. You can protect your credit (and your credit score) by having a comprehensive understanding of the credit details you’re signing up for. Always make payments on time, be aware of fees and try to avoid paying interest when you can. 


Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Does Getting Joint Credit Cards Have an Impact on Both Spouses’ Credit?

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couples credit history

While marriage can help you improve your financial situation, it does not automatically mean that you and your spouse will share a credit report. Your credit records will remain separate, and any joint accounts or joint loans that you open will appear on both of your reports. While this can be advantageous, it’s critical to remember that joint account activity can effect both of your credit scores positively or negatively, just as separate accounts do.

Users Who Are Authorized

An authorized user is a user who has been added to an existing credit account and has been granted the authority to make purchases. Authorized users are typically issued a card bearing their name, and any purchases made by them will appear on your statement. The primary distinction between an authorized user and a shared account owner is that the account’s original owner is solely responsible for debt repayment. Authorized users, on the other hand, can always opt-out of their authorized status, although the principal joint account owner cannot.

If your credit score is better than your spouse’s as an authorized user, he or she may benefit from a credit score raise upon account addition. This is contingent upon your creditor notifying the credit bureaus of permitted user activity. If your lender does report authorized users, the activity on your account may have an effect on both you and your spouse. However, some lenders report only positive authorized user information, which means that late payment or poor usage may not have a negative effect on someone else’s credit. Consult your lender to determine how authorized users on your account are treated.

Joint Credit Cards Have an Impact on Your Credit Score

Opening a joint credit account or obtaining joint financing binds both of you legally to the debt’s repayment. This is critical to remember if you divorce or separate and your spouse refuses to make payments, even if previously agreed upon. It makes no difference who is “responsible,” the shared duty will result in both partners’ credit histories being badly impacted by late payments. Regardless of changes in relationship status or divorce order, the creditor considers both parties to be liable for the debt until the account is paid in full.

Accounts Individuals

Whether you’re happily married or divorced, you and your spouse may decide to open separate credit accounts. Most creditors will enable you to transfer an account that was previously joint to one of your names if both of you agree. However, if there is a debt on the account, your lender may refuse to remove your spouse’s name unless you can qualify for the same credit on your own. Depending on your financial status, qualifying for financing and credit on a single income may be tough.

Considerations

While creating the majority of your accounts jointly with your spouse may make it easier to obtain financing (two salaries are preferable to one), reestablishing credit independently following a divorce or separation is not always straightforward. To make matters worse, your spouse may wind up causing significant damage to your credit rating following the separation, either intentionally or through irresponsibility – making the financial situation much more difficult.

Before you rush in and open accounts with your spouse, take some time to discuss the shared responsibility of these accounts and what you and your husband would do in the event of a worst-case situation. These types of financial discussions can be difficult, especially when you rely on items lasting a long time, but a mutual understanding and respect for each other’s credit can go a long way toward keeping your score when sharing an account.

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Should you pay down debt or save for retirement?

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rebuilding credit

While establishing a comprehensive, workable budget is undeniably one of the most important factors in maintaining a healthy financial life, it can also be one of the most difficult. For those who are struggling with personal debt, building a budget can be particularly challenging. When the money coming in has to stretch like a contortionist to cover expenses, it can be hard to determine where to focus — and where to trim.

Sometimes, the battle of the budget can come down to a choice between dealing with the present — and thinking about the future. When your income is running out of stretch, do you pay off your existing debt, or do you start saving for retirement? At the end of the day, the solution to that particular dilemma depends on the type of debt you have and how far you are from retiring.

If you have high-interest debt, pay it down

When considering how to allocate your budget, it’s important to understand the different kinds of debt you may have. Consumer debt can be categorized into two basic types: low-interest debt and high-interest debt, each with its own impact on your credit (and your budget).

In general, low-interest debt consists of long-term or secured loans that carry a single-digit interest rate, such as a mortgage or auto loan. Though no debt is the only real form of good debt, low-interest debt can be useful to carry. For instance, purchasing a home with a low-interest mortgage can actually save you money on housing costs if you do your homework and buy a house well within your price range.

High-interest debt, on the other hand, typically has a hefty double-digit interest rate and shorter loan terms, such as that of a credit card or payday loan. High-interest debt is the most expensive kind of debt to carry from month to month and should always be priority number one when building a budget.

To illustrate why you should focus on high-interest debt above everything else, consider a credit card carrying the average 19% APR and a $10,000 balance. If the balance goes unpaid, that high-interest credit card debt will cost $1,900 a year in interest payments alone. Now, compare that to the stock market’s average annual return of 7%, and it becomes clear that you’ll see significantly more bang for your buck by putting any extra funds into your high-interest debt instead of an investment account.

If you are having trouble paying off your high-interest debt, there may be some steps you can take to make it more manageable. For example, transferring your credit card balances from high-interest cards to ones offering an introductory 0% APR can eliminate interest payments for 12 months or more. While many of the best balance transfer cards won’t charge you an annual fee, they may charge a balance transfer fee, so do your research. You’ll also want to make sure you have a plan to pay off the new card before your introductory period ends.

Most balance transfer offers will require you to have at least fair credit, so if your credit score needs some work, you may not qualify. In this case, refinancing your high-interest debt with a personal loan that has a lower interest rate may be your best bet. Make sure to compare all of the top bad credit loans to find the best interest rate and loan terms.

If you’re nearing retirement, start to save

The closer you get to retirement age, the more important it becomes to ensure you have adequate retirement savings — and the more pressure you may feel to invest every spare penny into your retirement fund. No matter your age, however, paying off your high-interest debt should always remain the priority, as it will always provide the best rate of return (as well as likely provide a credit score boost).

Indeed, no matter how tempting it becomes, you should avoid reallocating money you’ve dedicated to paying off high-interest debt to save for retirement. Instead, the focus should be on re-evaluating your budget to find any additional savings you can. To be successful, you will need to make a strong distinction between want and need — and, perhaps, make some tough lifestyle choices.

Though simply eliminating your daily coffee drink won’t magically provide a solid retirement fund, saving a few bucks by homebrewing while also eliminating a pricey cable bill in favor of an inexpensive streaming service — or, better yet, free library rentals — can add up to big savings over the course of the year. The ideal strategy will involve overhauling every aspect of your lifestyle, combining both large and small cuts to develop a lean budget structured around your long-term goals.

Of course, while you should never allocate debt money to your retirement savings, the reverse is also true. It is almost always a horrible idea to remove money from your retirement account before you hit retirement age — for any reason. Withdrawing early means you will be stuck paying hefty fees for withdrawing money early and, depending on the type of account, you may also have to pay significant taxes.

Aim for both goals by improving income

As you take the necessary steps to pay off debt and save for retirement, you may have already stretched the budget so thin it’s practically transparent. In this case, it is time to consider ways to improve your overall income. Increasing the amount you have coming in not only provides extra savings to put toward your retirement, but may also speed up your journey to becoming debt-free.

The easiest solution may be to look for ways to increase your income through your current job; think about taking on additional shifts or overtime hours to earn some extra cash. Depending on your position — and the time you’ve been with the company — consider asking for a pay raise or promotion, as well.

If you do not have options to make more money at your day job, it may be time to find a second job. Look for opportunities that provide flexible schedules that will accommodate your regular job; many work-from-home positions, for example, can easily fit into most work schedules. Doing neighborhood odd jobs, such as babysitting and dog walking, may also provide a solid income boost without interfering with your existing job.

For some, the need to pay off debt and improve retirement savings can be more than just a source of stress — but a hidden opportunity to begin a new career adventure. Instead of being weighed down by yet more work, use the desire to better your budget as a reason to explore the profit potential of a passion or hobby. Starting a small online store, part-time consulting service, or other small business can be a great way to improve your income and your overall happiness.

While it may sound intimidating, starting a side business can be as simple as putting together a professional looking website and doing a little marketing legwork to spread the word. And no, building a website isn’t as scary — or expensive — as it seems, either. A number of the top website builders now offer simple drag-and-drop interfaces perfect for putting together a professional-looking web page in minutes (without breaking the bank).

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.



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How does a loan default affect my credit?

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loan default

Nobody takes out a loan expecting to default on it. Despite their best intentions, people sometimes find themselves struggling to pay off their loans. These types of struggles happen for many reasons, including job loss, significant debt, or a medical or personal crisis.

Making late payments or having a loan fall into default can add pressure to other personal struggles. Before finding yourself in a desperate situation, understanding how a loan default can impact your credit is necessary to avoid negative consequences.

30 days late

Missing one payment can further lower your credit score. If you can pay the past due amount plus applicable late fees, you may be able to mitigate the damage to your credit, if you make all other payments as expected.

The trouble starts when you (1) miss a payment, (2) do not pay it at all, and (3) continue to miss subsequent payments. If those actions happen, the loan falls into default.

More than 30 days late

Payments that are more than 30 days past due can trigger increasingly serious consequences:

  • The loan default may appear on your credit reports. It will likely lower your credit score, which most creditors and lenders use to review credit applications.
  • You may receive phone calls and letters from creditors demanding payment.
  • If you still do not pay, the account could be sent to collections. The debt collector seeks payment from you, sometimes using aggressive measures.

Then, the collection account can remain on your credit report for up to seven years. This action can damage your creditworthiness for future loan or credit card applications. Also, it may be a deciding factor when obtaining basic necessities, such as utilities or a mobile phone.

Other ways a default can hurt you

Hurting your credit score is reason enough to avoid a loan default. Some of the other actions creditors can take to collect payment or claim collateral are also quite serious:

  • If you default on a car loan, the creditor can repossess your car.
  • If you default on a mortgage, you could be forced to foreclose on your home.
  • In some cases, you could be sued for payment and have a court judgment entered against you.
  • You could face bankruptcy.

Any of these additional consequences can plague your credit score for years and hinder your efforts to secure your financial future.

How to avoid a loan default

Your options to avoid a loan default depend upon the type of loan you have and the nature of your personal circumstances. For example:

  • For student loans, research deferment or forbearance options. Both options permit you to temporarily stop making payments or pay a lesser amount per month.
  • For a mortgage, ask the lender if a loan modification is available. Changing the loan from an adjustable rate to a fixed rate, or extend the life of the loan so your monthly payments are smaller.

Generally, you can avoid a loan default by exercising common sense: buy only what you need and can afford, keep a steady job that earns enough income to cover your expenses, and keep the rest of your debts low.

Clean up your credit

The hard reality is that defaulting on a loan is unpleasant. It can negatively affect your credit profile for years. Through patience and perseverance, you can repair the damage to your credit and improve your standing over time.

Consulting with a credit repair law firm can help you address these issues and get your credit back on track. At Lexington Law, we offer a free credit report summary and consultation. Call us today at 1-855-255-0139.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.



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