Whether you’re shopping for a mortgage, home equity loan, personal loan or a credit card, you’re probably benefiting from Regulation Z. Created to protect consumers from predatory lending practices, Regulation Z, also known as the Truth in Lending Act, requires that lenders disclose borrowing costs upfront and in clear terminology so consumers can make informed decisions. Show
For mortgage lending, Regulation Z restricts how loan originators can be paid and prohibits steering borrowers to loans that would result in more compensation for the lender. Credit card issuers, meanwhile, must provide information about interest rates and fees, before a consumer opens a new credit card. The provisions of Regulation Z also protect those taking on a home equity line of credit, home equity loan and even private student loans by ensuring consumers have a cooling-off period to reconsider their decision to borrow money. Regulation Z doesn’t apply to all types of borrowing. Understanding this law can help you know what to look for before borrowing money. What is Regulation Z and how does it work?Regulation Z is part of the Truth in Lending Act (TILA), which Congress passed in 1968. Many people use the two terms interchangeably. It’s designed to protect consumers against misleading lending practices. Regulation Z does not govern actual loan terms, dictate who can apply for credit or direct lenders to offer certain types of loans. However, the law does provide a variety of protections for consumers when it comes to lending practices including:
These are just some examples of the protections provided under Regulation Z. The TILA has evolved and been amended numerous times in the decades since Congress first passed the law. TILA has been expanded over the years to include enhanced protections in specific areas of lending and now includes the Fair Credit Billing Act; the Fair Credit and Charge Card Disclosure Act; the Home Equity Loan Consumer Protection Act, and the Home Ownership and Equity Protection Act. One of the most recent changes came in 2011 when the power to enforce and update the TILA shifted to the Consumer Financial Protection Bureau. What does Regulation Z cover?The legislation applies to mortgages, home equity loans, home equity lines of credit, credit cards, installment loans and private student loans. Currently, the regulation covers details, like annual percentage rates, credit card and mortgage disclosures, mortgage loan appraisal and servicing rules. Regulation Z also sets expectations regarding recurring statements and the type of information that it must clearly communicate to consumers. How does Regulation Z apply to mortgages?A mortgage could be the largest, most complex loan you’ll ever take out — so it’s critical that you understand the terminology before signing for the loan. Regulation Z helps protect homebuyers by requiring lenders to make certain disclosures and eliminating conflicts of interest. Specifically, the law:
How does Regulation Z apply to credit cards?In 2009, Congress passed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act to protect cardholders from unfair credit card industry practices. The CARD Act became part of the Truth in Lending Act, and it compels credit card issuers to:
How does Regulation Z apply to other loans?One of the TILA’s key provisions is the “right of rescission,” which applies to home equity lines of credit, home equity loans, private student loans and mortgage refinances. When a consumer takes out one of these loans, they have a three-day cooling-off period to reconsider their decision. If the borrower calls off the loan within this time frame, they won’t lose money. This part of the law not only protects borrowers who change their minds but also borrowers who felt pressured by the lender. Regulation Z also applies to installment loans, such as personal loans and auto loans. With these types of loans, lenders must provide monthly billing statements, fair and timely responses to billing disputes and clear details about the loan terms. Regulation Z also requires lenders to make certain disclosures to borrowers who take out private student loans:
What loans are exempt from Regulation Z?These credit protections are expressly for consumers who engage in contracts with lenders for installment or open lines of credit. Many types of consumer loans are covered, there are Regulation Z Truth in Lending loan exemptions to know. The following loans aren’t subject to Regulation Z laws:
Some specific mortgage loans might be eligible for a partial exemption if the circumstance meets a series of rigid requirements. How do I take advantage of Regulation Z?While Regulation Z provides consumer protections, it’s up to you to learn about any loan you’re taking out, ask questions and consider how you’ll repay the debt. You should also make sure that you receive any disclosures that you’re entitled to. Reading through this information will help you compare loans and understand the terms and conditions. If you take out a loan and you believe that the lender isn’t following the rules, start by calling its customer service and discussing the issue. The violation may have been a result of a mistake or a misunderstanding. If the lender doesn’t take steps to resolve the case, you can file a complaint with the Consumer Financial Protection Bureau and the Federal Trade Commission. The bottom lineWhether you’re opening a credit card or taking out a home equity loan, you should know your rights under Regulation Z. Borrowing money always comes with risks, so it’s important to do your research first and ensure that your finances are protected. Learn more:
|