Do Misleading Lease Agreements Violate the Truth in Lending Act?

The Truth in Lending Act and subsequent regulations designed to enforce it seek to ensure consumers know what they’re getting into when they take out loans, open credit card accounts and sign lease agreements. At their core is the idea that consumers should be protected by the law from predatory lending practices.

Why Was the Truth in Lending Act Created?

The origins of the Truth in Lending Act can be traced back to Title I of the U.S. Consumer Credit Protection Act of 1968. It was passed by Congress to create a level playing field for consumers on which the lending industry would be bound by law to treat them fairly. That fairness, according to the law, begins with full disclose to consumers. Lenders must inform their customers of the true cost of taking credit and assuming debt.

The Federal Reserve Board was tasked with implementing the Truth in Lending Act and it created Regulation Z – a set of rules and guidelines – to enforce it.

Regulation Z and the Truth in Lending Act are often referred to interchangeably to describe the same set of regulations.

What Changes Have Been Made to the Truth in Lending Act?

Federal legislators and regulators have made many amendments and changes to the original Consumer Credit Protection Act, the first of which happened in 1970 when unsolicited credit cards were outlawed. In the years that followed, a slew of additional regulations on the credit industry followed. Among those were the Fair Credit Billing Act of 1974, the Consumer Leasing Act of 1976, the Truth in Lending Simplification and Reform Act of 1980, the Fair Credit and Charge Card Disclosure Act of 1988 and the Home Equity Loan Consumer Protection Act of 1988.

Regulation Z itself was also revised. In 1981, the guidelines for enforcing the Truth in Lending Act on consumer leasing was moved from Regulation Z to Regulation M and, in 1988, Regulation Z enforcement was extended to adjustable rate mortgage loans.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created the Consumer Finance Protection Bureau and regulation authority of the Truth in Lending Act was transferred to it.

What Does the Truth in Lending Act Require?

The consumer finance information website CreditKarma explains the Truth in Lending Act as a law that “generally forbids lenders and creditors from being deceptive about mortgage lending practices, credit cards, auto loans, home equity loans and some other types of credit and loans.”

Information is power and the Truth in Lending Act exists to make sure consumers have as much power as lenders and creditors. The act requires creditors to disclose basic information “in a visible, noticeable way” to the consumer before any borrowing takes place. Those disclosures take different forms depending on the type of creditor.

Credit card companies usually disclose the Truth in Lending information in a table referred to as a Schumer box in a credit card agreement. Banks and credit unions list the disclosures in the text of loan agreements and contracts.

The Truth in Lending Act also restricts the changes a lender can make to a loan or credit card account after it has been approved. Changes that are allowed must be disclosed to customers in writing 45 days before they are to take place.

What Should Truth in Lending Act Disclosures Contain?

Truth in Lending Act disclosures must include “information about the amount of your loan, the annual percentage rate, finance charges (including application fees, late charges, prepayment penalties), a payment schedule and the total repayment amount over the lifetime of the loan,” according to the consumer finance website Debt.org.

Does the Act Cover Consumer Leases?

The Consumer Leasing Act was adopted by Congress in 1976 to “assure that meaningful and accurate disclosure of lease terms is provided to consumers before entering into a contract,” according to the Federal Reserve. Specifically, it applies to the lease of personal property.

The aim of the act was to arm consumers with all the information they need to compare leases and to compare the cost of leasing something with the cost of buying it with credit or buying it outright with cash, the National Credit Union Association explains. Also included in the act are restrictions on the payments referred to as balloon payments that are often due at the end of a lease and on lease advertising.

The act was originally part of the Truth in Lending Act and its enforcement fell under the Regulation Z guidelines, but in 1981 it was transferred to Regulation M.

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This article is not legal advice. It is presented
for informational purposes only.