The Truth in Lending Act was created in 1968 as a federal law. There were problems with lenders and borrowers and the borrower’s ability to payback loans. Often terms were not laid out clearly and it was pretty much the same as a situation a loan shark might pull on a customer. Excessive fees and random charges added up exponentially making sure the borrower was never able to ever pay back the loan and the lender had a source of income forever. They held your “good name” out as something you could lose if you defaulted on the debt and you, as the consumer had no recourse against the company. This meant the consumer was always at the mercy of the business.
What Does the Truth in Lending Act Require
There are three main rules to the Truth in Lending Act. A creditor is not allowed to advertise a deal which is not really available to most people. If it is only available to a preferred borrower, then it can not be used to rope in a regular customer. Second, all of the terms or none of the terms must be in the advertisements. This keeps companies from advertising a 0 % interest rate without letting you know that it only applies to the first six months or only certain purchases. If any term is listed, all the terms are listed.
If a company is allowing you to pay off goods and services over a particular period of time that equals more than four payments, it must be clearly printed the cost of the credit you are getting. This helped to stop car salesman from jacking up the price after a few months without the person knowing about it. This often happened because the company claimed, “they could have paid it off with no penalty, but they didn’t.” Everything must be spelled out and initialed.
Why Consumers Must Use Caution
While all of these rules were instituted to protect the consumer, that doesn’t mean advertising can’t be tricky. Companies have entire marketing departments out there to try and make sure they reel in the best clients and that they get the best deal for the company, not the person. This means that the 0 % APR is in 56 point font on the front page and the rest of the terms and conditions are in a small paragraph on the back in 4 point font. They are often written in light gray type, harder to spot and harder to read. They are following the letter of the law, though not really the spirit of it. Further complicating the situation are identity thieves who come up with creative ways to fool consumers into divulging their sensitive financial data. They requires more diligence from the general public and creates a need for enhanced identity protection services in the future.
Credit Card Practice Regulations
Another thing the Truth in Lending Act changed things for the good of the consumer is that it laid out a standard for reporting violations. Basically, a company can’t just say you are late or defaulted. There are time frames and gray areas of reason. This means your free credit score should be more direct. You can clearly see what you need to fix and the lenders can clearly see what the problems were. It also called for a fair resolution of billing disputes. While it does not regulate charges you can incur, it does spell out a way for you to file complaints and resolve credit issues.
How Costs are Calculated
While everyone is used to the term “APR” the truth is, it was not so easy to calculate in the past. The act set forth a way of determining how to calculate the interest and if the company wishes to deviate from the policy, it must be clearly stated how fees and interest is incurred. There is a way for everyone borrowing money to know exactly how much they currently owe as well as how much they will owe. It is no longer a gray area.
There are always going to be “tricks of the trade” and ways companies can take advantage of consumers. The consumer must be engaged, concerned and diligent to ensure their own financial security. The Truth in Lending Act does not save everyone, but it at least gives you the tools you need to make informed choices and keep your credit in check. What you do with the information means the difference between successful borrowing and failed borrowing.