Truth in Lending Act (TILA)
The Truth in Lending Act requires lenders to disclose loan terms and costs. Discover how TILA protects consumers from predatory lending.
Definition
The Truth in Lending Act (TILA) is a federal law enacted in 1968 that promotes informed consumer borrowing by requiring lenders to disclose the true cost of credit. TILA mandates standardized disclosure of key loan terms (such as annual percentage rate (APR), finance charges, total payments, and payment schedules) and provides consumers with the right to rescind certain loans within three days of closing. The law applies to mortgage lenders, credit card issuers, and other consumer creditors, helping borrowers compare offers and avoid hidden fees. Violations of TILA can result in penalties for lenders and rescission rights for borrowers.
Why It Matters
TILA is the reason two loan offers can be compared at all. It forces APR, finance charges and total of payments onto a standard form, and it gives you three business days to unwind a refinance on your own home after you sign. It also controls your calendar: an APR that moves beyond tolerance triggers a new Closing Disclosure and a fresh three day wait, which pushes your funding and recording dates.
Examples
A lender re-discloses two days out because the APR moved from 6.625 to 6.812 percent, resetting the three day clock and shifting recording to the following Monday.
A homeowner refinancing signs Thursday afternoon and has until midnight Monday to rescind, so the lender does not disburse funds until Tuesday.
Two loan estimates both quote 6.5 percent but show APRs of 6.61 and 6.94 percent, and the difference turns out to be $7,100 in origination points buried in the second offer.
Tips
Compare offers on APR and the total of payments box rather than the note rate, because the rate by itself hides points and lender fees.
Remember the three day right of rescission applies to refinances and home equity loans on a primary residence, not to purchases, so do not build a purchase timeline around a cooling off period that does not exist.
If your lender switches loan products, adds a prepayment penalty or raises the APR late in the process, expect redisclosure and keep three business days of slack in your closing date.
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