Lending of money is regulated by the Truth in Lending Act. Because of the controversies surrounding the payday industry, U.S. legislators believe that consumers deserve to know the cost of borrowing money from lenders. The Truth in Lending Act forms part of the Consumer Credit Protection Act passed by congress in 1967 and enacted on May 29, 1968.
Basically, the Truth in Lending Act is promulgated to protect borrowers from unfavorable lending practices that often lead to borrowing beyond ones means. It also protects borrowers in their dealings with lenders and other creditors. Through this act, lending and financing companies are mandated to disclose to their consumers all relevant information, including interest rates and fees, before processing loan applications.
The Truth in Lending Act applies to all credit transactions that are financed by private lenders or companies that deal in monetary loans, such as installment loans. The money loaned usually has a finance charge and payment schedule. Consumers that are constantly borrowing money are the beneficiaries of the act, including the credit extended to families, individuals or farms. However, business or commercial interests that apply for credit cannot take advantage of the provisions in the Truth in Lending Act.
Due to the numerous complaints regarding predatory and malicious activities of some lenders, the Truth in Lending Act was created. It protects the consumers from unfair or misleading lenders who do not readily provide all of the details about their credit transactions. Through this Act, any credit institution is obliged to provide the annual percentage rate (APR), credit terms and methods for dispute resolution for any transaction.
Lenders must disclose the cost of lending to customers by including a clear explanation on the finance charges, the total amount of the loan, and the due dates for the repayment of the loan. The role of the borrowing consumer is to study the terms provided by lenders to make appropriate decisions before pursuing the loan or credit.
If a lender or any lending institution violates the Act, they will be responsible for any damages incurred to the borrowing consumer. In additional, any of the borrowers attorney’s fees and costs will be the responsibility of the lender or the lending institution. The Truth in Lending Act takes precedence over all state laws regarding credit and lending.
Though each state may have its own variations on the Truth in Lending Act, the most important feature remains the same, that is, to protect consumers in their dealings with lenders and creditors and to ensure that they are aware of the terms and costs of borrowing and credit. This can only be done by strictly implementing the proper disclosure of all key information to protect both the consumer and the lender in any loan and credit transaction.