Skip to main content

Search

Truth in Lending: 4.5.1 Disclosures Reflect the Legal Obligation

The disclosures must reflect the terms of the legal obligation between the creditor(s) and the consumer(s).510 As with the definition of consummation, the “legal obligation” is determined by applicable state or other law.511 Informal agreements as to when payments can be made512 or as to how they may be made513 need not be reflected in the disclosures.

Truth in Lending: 4.5.2 Effect of Unenforceable Term or Contract on the “Legal Obligation” Rule

The fact that a term or contract may later be deemed unenforceable by a court does not by itself mean that disclosures based on that term or contract did not reflect the legal obligation.518 For example, the disclosure of a security interest in household goods that was later held by a court to be unenforceable would not be inaccurate, presumably as long as the consumer had signed a facially valid security agreement and the creditor had acted in good faith.519

Truth in Lending: 4.5.3.1 What Is a Change in the Legal Obligation?

The disclosures should reflect the legal obligation in effect at the outset of the transaction.522 Thus, for example, if a contract permits payments of less than the full principal and interest payment for a period of time, these “minimum payments” may be all that need be disclosed (at least for the initial period when only minimum payments are called for).523 However, if the creditor is clearly obligated to reduce the contract interest rate upon the borrower’s making a certain number of consecu

Truth in Lending: 4.5.3.2 Must TILA Disclosures Reflect Subsequent Changes?

As a general rule, subsequent changes to the contract need not be reflected in the TILA disclosures unless the modification “rises to the level of a change in the terms of the legal obligation.”526 This is so even if the changes to the legal obligation after consummation render the TILA disclosures meaningless.

Truth in Lending: 4.5.4 Multiple Transactions and Advances

Some consumers have argued that certain credit transactions were actually multiple transactions, each of which should generate its own disclosures.528 However, a series of advances under an agreement to extend credit up to a certain amount may be considered as one transaction or may be disclosed as separate transaction.529 Construction loans may be treated similarly.530 The official interpretations provide creditors with additional “flexibility in

Truth in Lending: 4.5.6.1 Description

Often, car dealers want to obligate the consumer to the deal but still retain the option to cancel. The ability to cancel gives dealers an out if they are unable to locate a financial institution willing to purchase the credit contract. Additionally, dealers may have an in-house financing department that needs time to verify the credit information submitted by the consumer. In that event, the dealer will want to cancel the sale if the information check reveals some problems.

Truth in Lending: 4.5.6.3.1 Overview

In addition to the timing problems occasioned by the conditional nature of the contract, discussed at § 4.4.6, supra, the conditional contract may result in inaccurate TILA disclosures.553 The TILA inaccuracies may manifest themselves in three ways: an understated APR, an overstated amount financed, or the failure to mark disclosures of conditional terms as estima

Truth in Lending: 4.5.6.3.2 Understated APR

Most often, the APR (and finance charges on which it is based) will have been calculated from the date of the consumer signed the paperwork, instead of from the date the dealer would sign title to the consumer. The same problem may arise when the RISC is backdated.557 The shortened repayment period will cause the actual APR to be higher than disclosed.

Truth in Lending: 4.5.6.3.3 Overstated amount financed

The failure to transfer title to the consumer on the day of sale may result in an overstated amount financed. On the day of sale or consummation, the consumer will have received mere possession of the vehicle and not legal title. The consumer, however, did not agree to borrow the disclosed amount financed and repay this amount with interest in order to obtain the right to rent the car. Rather, the consumer intended to become the owner of the car on the date of the contract.

Truth in Lending: 4.5.6.3.4 Failure to label disclosures as estimates

A third way to characterize the TILA violation that flows from a spot delivery credit sale is that all the TILA disclosures should have been marked as estimates.565 The dealer’s defense will usually be that the disclosures were intended to be accurate, but the deal was not yet final. This defense admits that the TILA disclosures were estimates about the transaction the dealer hoped to complete.

Truth in Lending: 4.5.6.4 Proving a TILA Violation and Other Claims

Absent careful factual development, TILA claims are likely to fail in this context.569 Practitioners may present evidence of the chain of title, whether the dealer used, properly or not, a power of attorney or assignment form to control the transaction, retention of title through the use of dealer license plates, and continued coverage by the dealer’s insurance to demonstrate that the dealer had not transferred title to the consumer when the car was driven off the lot.

Truth in Lending: 4.5.7.2 Where More Than One Disclosure Is Uncertain

As with many other disclosure rules, creditors are given considerable flexibility in making estimated disclosures. According to the official interpretations, only the particular disclosure for which the exact information is unknown must be labeled as an estimate.583 It is quite possible, however, that the accuracy of other disclosures will also be affected by the estimated disclosure.

Truth in Lending: 4.5.7.4 Estimates in Simple Interest Transactions

The official interpretations specifically allow creditors to treat disclosures as estimates in “simple-interest” (actuarial) transactions.621 The rationale for this position is apparently that actuarial interest can only be precomputed and disclosed by assuming that payments will be made on the dates specified in the credit contract.

Truth in Lending: 4.5.7.5 Estimated Payment Start Date

The official interpretations allow a creditor to estimate when payments will commence in two limited circumstances: first, where the consumer may become obligated on a credit contract that contemplates the delayed disbursement of funds based on a contingent event, such as the completion of home repairs, and, second, where disclosures accompany loan checks that are sent by mail.623

Truth in Lending: 4.5.7.6 Per Diem Interest

A creditor is permitted to disclose per diem interest based on information actually known to the creditor at the time the disclosure documents are prepared.624 Even if the amount of per diem interest charged is understated beyond the tolerances allowed elsewhere, and even if the disclosures are not labeled as estimates, all affected disclosures are considered accurate as long as the creditor used the information available to it at the time of preparation of the disclosure.625 Presumably, this pr

Truth in Lending: 4.5.8 Effects of Minor Variations and Irregularities

In addition to labeling disclosures as estimates, creditors may also disregard what the official interpretations call “minor variations”626 and “irregularities.”627 Most of these variations and irregularities arise in the calculation of the annual percentage rate or payment schedule and are discussed below in those sections.628

Truth in Lending: 4.5.9 When Redisclosures Must Be Made Before Consummation

Sometimes after a creditor has made disclosures, but before consummation, a “subsequent event” will make those disclosures inaccurate.635 For example, the disclosures may have assumed closing costs lower than actually incurred.636 That may affect, inter alia, the amount financed, the itemization of the amount financed, the finance charge, and the total of payments.

Truth in Lending: 4.5.10.1 Special Demand Obligation Disclosures

There are also special disclosure rules for demand obligations.650 Generally, the creditor must make disclosures for a demand obligation based on an assumed maturity of one year.651 If an alternate maturity date is stated in the legal obligation (which is determined by applicable law), then the disclosures should be based on that date.652 The creditor must disclose that the obligation is a demand obligation and, where the disclosures are based on a

Truth in Lending: 8.1.1 Introduction

This chapter discusses TILA’s rules for open-end credit that is secured by a residence, more often called a home equity line of credit or HELOC. HELOCs are governed by the general TILA rules that apply to all consumer credit as well as rules limited to open-end credit, including some rules specific to just open-end credit secured by a consumer’s principal dwelling.

Truth in Lending: 8.1.2 History

HELOCs became increasingly common after Congress passed the Home Equity Loan Consumer Protection Act in 1988,8 covering any agreement to open a HELOC plan or any application to open a HELOC after 1989.9 At that time less than six percent of homeowners had a HELOC. But, by 2007, that number had more than tripled.10

Truth in Lending: 8.1.3 Scope of HELOC Rules

Regulation Z’s HELOC rules apply to open-end credit plans that are secured by the consumer’s dwelling.19 The official interpretations emphasize that section 1026.40, which contains the disclosure rules, “is not limited to plans secured by the consumer’s principal dwelling.”20 The Act contains a special definition of “principal dwelling,” defining it to include any second or vacation home of the consumer, but only for purposes of sections 1647 and 1665b, whic