Consumer Credit Laws

Prior to 1968, because no uniform method of stating interest rates existed, consumers could not shop for credit due to the difficulties in comparing lending charges from one institution to another.

To resolve this problem, Congress passed the Consumer Credit Protection Act. Title I of the act is known as the Consumer Credit Cost Disclosure Act, which is more commonly known as the Truth-in-Lending Act or TILA. The Truth-in-Lending Act deals with deceptive credit practices and requires notice and disclosure to prevent sellers and creditors from taking unfair advantage of consumers.

Disclosure Requirements

Disclosure requirements apply to credit transactions in which a finance charge is imposed or in which payment is made in more than four installments. The most important information that a lender must disclose includes:

1. The cash price
2. The down payment or trade-in allowance, if any
3. The unpaid cash price (the cash price minus the down payment) that is to be financed
4. The finance charge (the total amount of interest and other charges, such as filing fees and insurance premiums)
5. The annual percentage rate

The creditor must also tell the borrower:

1. The date on which the finance charge begins to accumulate
2. The number, amounts, and due dates of payments
3. The late-payment charges
4. Whether a prepayment penalty exists

A creditor who fails to comply with the disclosure requirements may be liable to the consumer for any actual damages plus twice the amount of the finance charge and attorneys' fees. The damages may not exceed $2,000, and the total liability is $500,000 or 1 percent of the creditor's net worth.

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