Truth in Lending Act: disclosures you are entitled to
Key takeaways
04 · ideas- TILA requires disclosure of APR, finance charge, and total payment amount
- Right of rescission: 3 business days to cancel certain home equity loans
- Regulation Z implements TILA and specifies disclosure formats
- Loan Estimate and Closing Disclosure replaced the old GFE and HUD-1
Basic level
The essentials · 1 min
The Truth in Lending Act (TILA), enacted in 1968 and implemented through Regulation Z, requires lenders to disclose the costs of consumer credit in standardized form.
Four key TILA disclosures:
- APR: The cost of credit expressed as a yearly rate, including fees
- Finance charge: Total dollar cost of the credit
- Amount financed: Net loan amount after fees are deducted
- Total of payments: How much will be paid when all scheduled payments are made
These must appear in a specific format, allowing consumers to compare offers from different lenders on a consistent basis.
Intermediate level
How it applies · 1 min
Loan Estimate and Closing Disclosure
For residential mortgages, TILA requires:
Loan Estimate (LE): Provided within 3 business days of application. Shows estimated APR, monthly payment, closing costs, and key terms on a standardized 3-page form.
Closing Disclosure (CD): Provided at least 3 business days before closing. Shows final loan terms and actual costs. Significant changes may restart the 3-day waiting period.
Right of rescission
For certain transactions secured by a primary residence (home equity loans and refinances, but NOT purchase mortgages), TILA provides a right of rescission: three business days after signing to cancel the transaction without penalty.
Advanced level
The math, step by step · 1 min
Ability-to-Repay and Qualified Mortgage
Dodd-Frank added Ability-to-Repay (ATR) requirements: lenders must make a good-faith determination of repayment ability based on verified income, assets, employment, debt, and credit history.
Qualified Mortgage (QM): Loans meeting specific criteria (no negative amortization, no balloon payments, points and fees at or below 3% of loan amount, DTI at or below 43% for standard QM) receive a safe harbor from ATR liability. This means: if the lender followed the QM rules, a borrower suing under ATR generally cannot prevail unless specific requirements were violated.