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Truth in Lending: 5.6.9.1.4 Finance charges paid in cash

The second circumstance occurs where finance charges are paid in cash at, or before, closing. The total of payments may reflect the sum of all scheduled payments but not the sum of the finance charge plus the amount financed. This happens because prepaid finance charges that are not financed will not appear in the payment schedule.316 Even though paid in cash, however, they must still appear in the finance charge.317

Truth in Lending: 5.6.9.1.6 Irregular first payment period

Creditors may, in some circumstances, ignore the impact of an irregular first payment period in making calculations and disclosures.320 One court, invoking that provision, permitted nearly a $100 understatement of the total of payments where the creditor assumed an even payment schedule despite a higher first payment.321

Truth in Lending: 5.6.9.1.7.1 Calculation formula

In the context of the TILA-RESPA integrated disclosures, described in more detail in § 5.11, infra, the total of payments is the sum of the principal, interest (including per diem interest paid at or before closing), mortgage insurance, and loan costs scheduled to be paid.322 “Mortgage insurance” includes the premiums the consumer will pay until the date on which the credit

Truth in Lending: 5.5.4.1.1 Regular transactions

As a general rule, the annual percentage rate is considered accurate if it is not more than 1/8 of 1 percentage point (.125%) above or below the annual percentage rate determined by the actuarial method or the U.S.

Truth in Lending: 5.5.4.1.3 Tolerance for APRs calculated using the annual percentage rate tables

If the creditor uses the annual percentage rate tables published pursuant to Regulation Z, the creditor may disclose the rate determined by the tables even if not within the tolerance.137 For example, the official interpretations point out that volume I of the tables produces an annual percentage rate for a transaction with a large final balloon payment that is considerably higher than the exact rate determined by the actuarial method described in appendix J of the regulation.

Truth in Lending: 5.5.4.1.4 Where the misdisclosure of the APR is based on an inaccurate finance charge

The 1995 amendments to TILA created some special rules for accuracy of the APR disclosure in closed-end transactions secured by real property or a dwelling when the error is based on miscalculation of the finance charge.140 As a result, when an APR disclosure error is caused by a finance charge error, the finance charge tolerance applies even if the resulting error to the APR is greater than the margin allowed by the applicable APR tolerance.141 The official interpretations also protect disc

Truth in Lending: 5.5.4.2 Overstated APR

While the Act appears to permit any overdisclosure of any numerical disclosure, including the APR,145 the regulation treats over-disclosure and under-disclosure of the APR equally severely,146 at least in the non-mortgage-loan context.147

Truth in Lending: 5.5.4.3.1 Errors attributable to a faulty calculation tool

The regulation excuses an error in the disclosure of the annual percentage rate that results from a corresponding error in a calculation tool used in good faith by the creditor, as long as the creditor promptly discontinues the use of the tool and notifies the Consumer Financial Protection Bureau in writing of the error in the tool.157 For example, if a creditor in good faith purchased an annual percentage rate computer program that calculated inaccurate annual percentage rates, the creditor would be excused from liability if it stopped usi

Truth in Lending: 5.5.4.3.2 Accuracy rules for add-on rates

Creditors that apply a single “add-on” interest rate to all transactions up to sixty months in duration with regular payment amounts and periods have a special accuracy rule. In that situation, the creditor may uniformly disclose the highest possible annual percentage rate in that range of transactions, rather than the exact annual percentage rate for each transaction.160

Truth in Lending: 5.5.4.3.3 Accuracy for fixed dollar finance charges

Another exception is for creditors that impose a fixed dollar finance charge on all balances within a specified range of balances.162 This exception applies to disclosing annual percentage rates for mail or telephone orders163 and for a series of sales.164 In those situations, the creditor has the option of disclosing each time the annual percentage rate computed for the median balance, as long as that annual percentage rate does not understa

Truth in Lending: 5.5.5 Proving the Accurate APR in Litigation

In some instances, the accuracy of APR calculations are disputed in the context of litigation. The issues that arise are similar or identical to those arising for interest rate calculations to establish usury claims.166 The major question is how to put the accurate calculations and the method of calculation before the court.

Truth in Lending: 5.5.6.1 General

These rules are based on the assumption that the creditor has accurately allocated all the components of the transaction as between the amount financed or the finance charge. If any of those costs are misallocated, the APR may be inaccurate.171 For that reason, a check on the accuracy of the APR must always include a check on how the creditor has allocated the loan components.

Truth in Lending: 5.6.9.1.7.2 Total of payments tolerances

As a general rule, TILA sets a zero-tolerance rule for errors in the total of payments disclosure for misdisclosures that are not related to an understatement of the finance charge.346 This standard has applied consistently to all closed-end credit transactions, including unsecured credit and credit secured by personal property, by real property, or by a dwelling.

Truth in Lending: 5.7.1 General

The FRB replaced the existing payment schedule disclosures, discussed above, with an “interest and payment” summary for closed-end mortgages secured by real property or a dwelling for which the creditor received an application on or after January 30, 2011 and until October 3, 2015 for all closed-end mortgages secured by real property or a dwelling other than reverse mortgages.359 A total of payments, schedule of when payments are due, and the date on which payments commence are no longer required.360

Truth in Lending: 5.7.2 Taxes and Insurance

If an escrow account is set up under the mortgage, the estimated taxes and insurance must be disclosed on a separate line.373 Effective October 3, 2015, this rule also applies to any fee that is “functionally equivalent” to taxes and insurance, other than a condominium fee.374 Those amounts are then summed with the principal and interest payment for a total monthly payment disclosure.

Truth in Lending: 5.7.3 Mortgage Insurance Premiums

The Homeowners Protection Act of 1998 limits the amount of private mortgage insurance (PMI) consumers can be required to purchase.378 In addition, creditors must terminate PMI automatically when certain conditions are met.

Truth in Lending: 5.7.4 Construction Loans Secured by Real Property or a Dwelling

Construction loans have slightly different disclosure rules, depending on whether the creditor discloses the construction phase as a separate transaction or discloses the construction and post-construction phase as a single transaction.395 If the construction loan is disclosed as a separate transaction, the creditor must follow the general disclosure rules of Reg. Z § 1026.18(s), and may not omit the interest only payments.

Truth in Lending: 5.8.1 General Disclosure Requirements

The disclosure rules for closed-end mortgage transactions to which the TILA-RESPA integrated regime applies are discussed at § 5.11.2, infra. For all other transactions, the creditor must disclose whether it has or will acquire a security interest in the property being purchased as part of the transaction or in other property, identified by item or type.396 No specific ter

Truth in Lending: 5.8.2.1 General

Probably in hopes of limiting litigation on the meaning of “security interest,” a frequent subject of pre-Simplification litigation, the regulation takes a narrow view of what constitutes a security interest.

Truth in Lending: 5.8.2.2 Exclusions from Security Interest Definition

A security interest does not include “incidental interests,” interests in after-acquired property, and security interests that “arise solely by operation of law.”407 These interests need not be disclosed as security interests in the segregated disclosures regardless of whether they are recognized as such under applicable law.408 However, nothing in the Act or Regulation Z prohibits the creditor from contractually reserving or enforcing these interests.

Truth in Lending: 5.8.2.4 What If the Creditor Is Unsure?

The official interpretations twice give their blessing to creditors who disclose a security interest even if they are unsure of whether an interest is a security interest under applicable law433 or whether it is one of the interests excluded from the definition of “security interest.”434 However, this should be strictly limited to those situations where the creditor is genuinely and in good faith unsure about whether a particular interest is a security interest under state law (e.g., a right