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Truth in Lending Act1 Regulation Z Truth in Lending Act1 The Truth in Lending Act (TILA), 15 U.S.C. 1601 et In July 2008, Regulation Z was amended to seq., was enacted on May 29, 1968, as title I of the protect consumers in the mortgage market from Consumer Credit Protection Act (Pub. L. 90-321). unfair, abusive, or deceptive lending and servicing The TILA, implemented by Regulation Z (12 CFR practices. Specifically, the change applied protec- 1026), became effective July 1, 1969. tions to a newly defined category of “higher-priced The TILA was first amended in 1970 to prohibit mortgage loans” that includes virtually all closed- unsolicited credit cards. Additional major amend- end subprime loans secured by a consumer’s ments to the TILA and Regulation Z were made by principal dwelling. The revisions also applied new the Fair Credit Billing Act of 1974, the Consumer protections to mortgage loans secured by a Leasing Act of 1976, the Truth in Lending Simplifi- dwelling, regardless of loan price, and required the cation and Reform Act of 1980, the Fair Credit and delivery of early disclosures for more types of Charge Card Disclosure Act of 1988, and the Home transactions. The revisions also banned several Equity Loan Consumer Protection Act of 1988. advertising practices deemed deceptive or mis- leading. The Mortgage Disclosure Improvement Regulation Z also was amended to implement Act of 2008 (MDIA) broadened and added to the section 1204 of the Competitive Equality Banking requirements of the Board’s July 2008 final rule by Act of 1987, and in 1988, to include adjustable rate requiring early Truth in Lending disclosures for mortgage loan disclosure requirements. All con- more types of transactions and by adding a waiting sumer leasing provisions were deleted from Regu- period between the time when disclosures are lation Z in 1981 and transferred to Regulation M (12 given and consummation of the transaction. In CFR 1013). 2009, Regulation Z was amended to address those The Home Ownership and Equity Protection Act provisions. The MDIA also requires disclosure of of 1994 (HOEPA) amended the TILA. The law payment examples if the loan’s interest rate or imposed new disclosure requirements and substan- payments can change, as well as disclosure of a tive limitations on certain closed-end mortgage statement that there is no guarantee the consumer loans bearing rates or fees above a certain will be able to refinance in the future. In 2010, percentage or amount. The law also included new Regulation Z was amended to address these disclosure requirements to assist consumers in provisions, which became effective on January 30, comparing the costs and other material consider- 2011. ations involved in a reverse mortgage transaction In December 2008, the Board adopted two final and authorized the Federal Reserve Board to rules pertaining to open-end (not home-secured) prohibit specific acts and practices in connection credit. The first rule involved Regulation Z revisions with mortgage transactions. and made comprehensive changes applicable to The TILA amendments of 1995 dealt primarily several disclosures required for: applications and with tolerances for real estate secured credit. solicitations, new accounts, periodic statements, Regulation Z was amended on September 14, change in terms notifications, and advertisements. 1996, to incorporate changes to the TILA. Specifi- The second was a rule published under the Federal cally, the revisions limit lenders’ liability for disclo- Trade Commission (FTC) Act and was issued jointly sure errors in real estate secured loans consum- with the Office of Thrift Supervision (OTS) and the mated after September 30, 1995. The Economic National Credit Union Administration (NCUA). It Growth and Regulatory Paperwork Reduction Act sought to protect consumers from unfair acts or of 1996 further amended the TILA. The amend- practices with respect to consumer credit card ments were made to simplify and improve disclo- accounts. Before these rules became effective, sures related to credit transactions. however, the Credit Card Accountability Responsi- bility and Disclosure Act of 2009 (Credit CARD Act) The Electronic Signatures in Global and National amended the TILA and established a number of Commerce Act (the E-Sign Act), 15 U.S.C. 7001 et new requirements for open-end consumer credit seq., was enacted in 2000 and did not require plans. Several provisions of the Credit CARD Act implementing regulations. On November 9, 2007, are similar to provisions in the Board’s December amendments to Regulation Z and the official 2008 TILA revisions and the joint FTC Act rule, but commentary were issued to simplify the regulation other portions of the Credit CARD Act address and provide guidance on the electronic delivery of practices or mandate disclosures that were not disclosures consistent with the E-Sign Act. addressed in these rules. In light of the Credit CARD Act, the Board, NCUA, and OTS withdrew 1. These reflect FFIEC-developed procedures. the substantive requirements of the joint FTC Act Consumer Compliance Handbook Regulation Z—TILA • 1 (11/15) Truth in Lending Act rule. On July 1, 2010, compliance with the provi- ments to the TILA, and in 2013, the CFPB issued sions of the Board’s rule that were not impacted by rules to implement them. Prohibitions on mandatory the Credit CARD Act became effective. arbitration and waivers of consumer rights, as well as requirements that lengthen the time creditors The Credit CARD Act provisions became effec- must maintain an escrow account for higher-priced tive in three stages. The provisions effective first mortgage loans, were generally effective June 1, (August 20, 2009) required creditors to increase 2013. The remaining amendments to Regulation Z the amount of notice consumers receive before the were effective in January 2014.2 These amend- rate on a credit card account is increased or a ments include ability-to-repay requirements for significant change is made to the account’s terms. mortgage loans, appraisal requirements for higher- These amendments also allowed consumers to priced mortgage loans, a revised and expanded reject such increases and changes by informing test for high-cost mortgages, as well as additional the creditor before the increase or change goes restrictions on those loans, expanded requirements into effect. The provisions effective next (February for servicers of mortgage loans, refined loan 22, 2010) involved rules regarding interest rate originator compensation rules and loan origination increases, over-the-limit transactions, and student qualification standards, and a prohibition on financ- cards. Finally, the provisions effective last (August ing credit insurance for mortgage loans. The 22, 2010) addressed the reasonableness and amendments also established new record retention proportionality of penalty fees and charges and requirements for certain provisions of the TILA. On re-evaluation of rate increases. October 22, 2014, the CFPB issued a final rule In 2009, Regulation Z was amended following the providing an alternative small servicer definition for passage of the Higher Education Opportunity Act nonprofit entities and amended ability to repay (HEOA) by adding disclosure and timing require- exemption for nonprofit entities. The final rule also ments that apply to lenders making private educa- provided a cure mechanism for the points and fees tion loans. limit that applies to qualified mortgages. The final rule was effective on November 3, 2014, except for In 2009, the Helping Families Save Their Homes one provision that is effective on October 3, 2015. Act amended the TILA to establish a new require- ment for notifying consumers of the sale or transfer In 2013, the CFPB also revised several open-end of their mortgage loans. The purchaser or assignee credit provisions in Regulation Z. The CFPB revised that acquires the loan must provide the required the general limitation on the total amount of account disclosures no later than 30 days after the date on fees that a credit card issuer may require a which it acquired the loan. consumer to pay. Effective March 28, 2013, the limit is 25 percent of the credit limit in effect when In 2010, the Board further amended Regulation Z the account is opened and applies only during the to prohibit payment to a loan originator that is first year after account opening. The CFPB also based on the terms or conditions of the loan, other amended Regulation Z to remove the requirement than the amount of credit extended. The amend- that card issuers consider the consumer’s indepen- ment applies to mortgage brokers and the compa- dent ability to pay for applicants who are 21 or nies that employ them, as well as to mortgage loan older and to permit issuers to consider income and officers employed by depository institutions and assets to which such consumers have a reason- other lenders. In addition, the amendment prohibits able expectation of access. This change was a loan originator from directing or “steering” a effective May 3, 2013, with a mandatory compli- consumer to a loan that is not in the consumer’s ance date of November 4, 2013. interest to increase the loan originator’s compen- sation. In 2013, the CFPB further amended Regulation Z as well as Regulation X, the regulation implement- The Dodd-Frank Wall Street Reform and Con- ing the Real Estate Settlement Procedures Act sumer Protection Act of 2010 (Dodd-Frank Act) (RESPA), to fulfill the mandate in the Dodd-Frank amended the TILA to include several provisions Act to integrate the mortgage disclosures under that protect the integrity of the appraisal process TILA and RESPA sections 4 and 5. Regulation Z when a consumer’s home is securing the loan. The now contains two new forms required for most rule also requires that appraisers receive custom- closed-end consumer mortgage loans. The Loan ary and reasonable payments for their services.
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