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Truth in Lending: 5.6.2 Number of Payments

The creditor must disclose the number of payments needed to pay the originally scheduled transaction.231 In a transaction which requires payments of different amounts, the creditor need not disclose the total number of payments for the entire transaction as one sum.232 For example, a creditor need disclose only that a transaction requires 104 payments of $10.00 and 111 payments of $11.00, but would not be required to disclose that there is a total of 215 payments.

Truth in Lending: 5.6.3.1 What Is Included in the Payments?

The entire finance charge, not merely the interest portion, must be reflected in the payment schedule; however, the prepaid finance charge should not be shown as a separate payment in the payment schedule.233 Insurance that is included in the finance charge, including mortgage insurance, must be included in the payment schedule.234 The schedule must also include the entire amount financed.

Truth in Lending: 5.6.4 Timing of Payments

The statutory requirement of disclosing due dates or period of payments is treated in the regulation as disclosure of “timing of payments.”259 The official interpretations state, as a general rule, that creditors may list all of the payment due dates or may disclose the payment intervals, for example, that payments are due “monthly beginning July 1, 2005.”260 Although neither Regulation Z nor the official interpretations is explicit, the sample forms suggest it is not necessary to give the d

Truth in Lending: 5.6.5 Balloon Payments

Balloon payments, large payments of unpaid principal and interest due at the end of the note,272 should ordinarily be disclosed as a dollar amount, with the date on which they are due.273

Truth in Lending: 5.6.6.1 Variable Rate

If the loan contains a variable rate feature, the payment schedule will be calculated based on the assumption that the current prevailing market interest rates will not change for the duration of the loan.279 What this means is that if the initial interest rate is the same as the so-called “fully-indexed” rate, or the margin plus the appropriate index value in effect at origination,280 then the payment schedule will look exactly the same as if it were a payment schedule for a fixed rate note

Truth in Lending: 5.6.6.2 Variable Payments

A similar process happens with payment caps in the loan. Most payment option adjustable-rate mortgages (POARMs) have annual caps on payment increases ranging between 5% and 10%. These payment caps are usually in effect for the first five or sometimes ten years of the mortgage. At the end of that initial time period, the payments become fully amortizing.

Truth in Lending: 5.4.3.3.2 Tolerances for rescission outside of foreclosure

The tolerance for rescission remedies, except after initiation of foreclosure as discussed below, is more complicated. The general rule allows a tolerance for an understatement of $100 or 1/2 of 1% of the total amount of credit extended, whichever is greater.73 The tolerance for these transactions can be quite a large amount. For example, in a $100,000 loan, the tolerance for purposes of rescission would be $500.

Truth in Lending: 5.4.3.3.3 Tolerance for rescission in foreclosure defense

The tolerance is $35 for underdisclosures if the creditor has initiated foreclosure.79 A consumer may rescind a loan in foreclosure if a mortgage broker fee that should have been included in the finance charge was omitted, regardless of the amount.80 The $35 underdisclosure is based upon the total finance charge rather than its component parts; e.g., if three different components of the finance charge are understated by a total of $40, the understatement exceeds the tolerance even if none of

Truth in Lending: 5.4.3.4 Effect of Finance Charge Tolerances on Related Disclosures

Under the statute as amended in 1995, a misdisclosure of non-finance-charge disclosures “affected by the finance charge,” such as the APR, amount financed, or total of payments, is not actionable if the finance charge, though misstated, is within tolerances.82 The official interpretations’ gloss on the tolerance provides that the tolerance is available “[w]hen a finance charge error results in a misstatement” of the related tolerance.83 Thus, failure to correctly disclose any of the related

Truth in Lending: 5.4.3.5.1 General rules on overdisclosure

The statute permits unlimited overdisclosures of the finance charge and related disclosures in mortgage credit, even in foreclosure.88 Overdisclosure in non-mortgage cases may be actionable, because Congress could have chosen to add limiting language but did not do so.

Truth in Lending: 5.4.3.5.3 Fee padding

Another question is whether creditors can simply pad individual fees up to the tolerance, by, for example, marking up a credit report fee from $20 to $50. In general, fees that are not bona fide and reasonable should be included in the finance charge in their entirety,94 and the legislative history is unequivocal that the increased tolerances were not meant to excuse or conceal deliberate padding. The example used in the legislative history is that “if a delivery . . .

Truth in Lending: 5.5.1 The APR and Interest Rate Distinguished

The Truth in Lending APR is a measurement of the total cost of credit, based on both the interest and non-interest finance charges imposed in the transaction.98 As Rohner explains, the Truth in Lending APR is the reverse of the usual way of calculating interest rates.99 The latter “applies” an interest rate to determine the dollar amount of interest due, while the TILA-APR is “derived” from the relationship of the TILA-defined amount financed to the TILA-defined finance charges once those ha

Truth in Lending: 5.5.2 General Disclosure Rules

This subsection discusses the calculation of the annual percentage rate as well as the form of the disclosure. While creditors do err in both the calculation and form of the annual percentage rate disclosure,108 the APR is more often wrong due to an incorrect prepaid finance charge.109 Practitioners thus should review the finance charge calculation before conceding that the lender correctly determined the APR.

Truth in Lending: 5.5.3 More Conspicuous Than Other Disclosures

As a general rule, the disclosure of the annual percentage rate, with the disclosure of the finance charge, must be more conspicuous than any other required disclosure.119 The only required disclosure that may be more conspicuous than the annual percentage rate is the creditor’s identity.120

Truth in Lending: 5.6.6.4 Checking a Variable Rate Payment Schedule

Careful practitioners will always want to review the payment schedule for inaccuracies, particularly because there is no tolerance for payment schedule violations, at least in transactions not covered by the TILA-RESPA integrated disclosure rules.295 Amortization schedules can be used to do this, as can most spreadsheet programs or financial calculators. The basic approach is to check the creditor’s assumptions to make sure that the variable rate contract terms in the loan note and riders were followed.

Truth in Lending: 5.6.7 Demand Obligations

Disclosures in a demand obligation transaction (that is, the debt is payable on demand) must be based on an assumed maturity of one year, unless an alternate maturity date is stated in the legal obligation between the parties.297 If no alternate maturity date is disclosed (that is, other than one year), then only the due dates or payment periods for any scheduled interest payments for the first year must be disclosed.

Truth in Lending: 5.6.8 Alternate Payment Schedules

Creditors may offer the consumer the option of paying a loan on a bi-weekly, rather than a monthly, basis. This has become more common in the mortgage loan context. This offer usually occurs after the loan consummation via a mail solicitation. The creditor touts the interest savings and accelerated payoff rate that result from, in effect, paying one extra monthly payment each year.301 However, some of the savings are offset by periodic administrative fees imposed by the creditor.

Truth in Lending: 5.6.9.1.1 Required disclosure

The accurate “total of payments” must be disclosed in the federal box using that term, and a brief description of the total of payments must also be provided.304 The regulation suggests using the description “the amount you will have paid when you have made all scheduled payments.”305

Truth in Lending: 5.6.9.1.3 Pickup payments

One arises when the consumer agrees to make a “pickup payment,” i.e., a deferred portion of the down payment.314 In this situation, if the creditor discloses a pickup payment as part of the payment schedule, it must be included in the total of payments, even if it is not included in either the finance charge or the amount financed.315