If a lender hid fees in your loan, understated your interest rate, or failed to provide the disclosures required by federal law, you may have a claim under the Truth in Lending Act (TILA). Enacted to promote the informed use of consumer credit, TILA requires lenders to clearly disclose the true cost of borrowing before you sign on the dotted line. When lenders fail to make these required disclosures -- or make them inaccurately -- consumers can recover actual damages, statutory damages between $200 and $2,000, and attorney's fees. For certain home-secured loans, TILA also provides a powerful right of rescission that allows you to cancel the transaction entirely, even years after closing. Rausa Russo Law, PLLC represents consumers across New York and nationwide in TILA claims against lenders, mortgage companies, and other creditors.
What This Law Covers
The Truth in Lending Act, codified at 15 U.S.C. §§ 1601-1667f, is one of the foundational federal consumer protection statutes. Enacted in 1968 and implemented by Regulation Z (12 C.F.R. § 1026), TILA's core purpose is to ensure that consumers receive meaningful disclosure of credit terms so they can compare offers and make informed decisions.
TILA applies to most consumer credit transactions, including:
- Mortgages and home equity loans: Purchase-money mortgages, refinances, home equity loans, and home equity lines of credit (HELOCs)
- Auto loans: Financing arrangements for the purchase of motor vehicles
- Personal loans: Unsecured and secured installment loans from banks, credit unions, and online lenders
- Credit cards: All general-purpose and store-branded credit cards (open-end credit)
- Private student loans: Education loans from private lenders (federal student loans are exempt)
- Retail installment contracts: Financing provided by merchants for the purchase of goods and services
TILA generally does not apply to business or commercial credit, transactions with governmental entities, certain agricultural credit, or consumer credit transactions exceeding a specified threshold for non-real-property-secured loans (adjusted annually for inflation).
Required Disclosures
At the heart of TILA is the requirement that creditors provide specific disclosures before the consumer becomes obligated on the transaction. For closed-end credit (such as a mortgage or auto loan), the required disclosures include:
- Annual Percentage Rate (APR): The true cost of the credit expressed as a yearly rate, including interest and certain fees. The APR allows consumers to compare the cost of different loan offers on an apples-to-apples basis.
- Finance charge: The total dollar amount the credit will cost over the life of the loan, including interest, origination fees, discount points, mortgage insurance premiums, and certain other charges
- Amount financed: The amount of credit provided to or on behalf of the consumer, calculated by subtracting prepaid finance charges from the total loan amount
- Total of payments: The total amount the consumer will have paid after making all scheduled payments
- Payment schedule: The number, amount, and timing of all payments
- Security interest: A description of any property taken as security for the loan
- Late payment fees: The amount or method of calculating late payment charges
- Prepayment penalties: Whether the loan includes a penalty for early repayment and, if so, the method of calculation
These disclosures must be provided before the consummation of the transaction -- that is, before the consumer becomes contractually obligated under 15 U.S.C. § 1638(b). For mortgages, additional timing requirements apply under the TILA-RESPA Integrated Disclosure (TRID) rules, which require a Loan Estimate within three business days of application and a Closing Disclosure at least three business days before closing.
Common Violations
TILA violations are widespread in the lending industry. Common violations include:
- Hidden fees: The lender includes fees in the loan that were not disclosed as part of the finance charge, resulting in an understated APR. Common hidden fees include undisclosed origination fees, yield spread premiums, document preparation fees, and mandatory insurance premiums.
- Understated APR: The disclosed APR is lower than the actual APR because the lender excluded certain finance charges from the calculation. Under Regulation Z, the disclosed APR must be accurate within specified tolerances (1/8 of 1% for regular transactions, 1/4 of 1% for irregular transactions).
- Missing disclosures: The lender failed to provide the required disclosures altogether, or provided disclosures that were incomplete, unclear, or not in the required format.
- Bait-and-switch rates: The lender advertised or quoted one interest rate but closed the loan at a higher rate without providing the required revised disclosures.
- Failure to disclose prepayment penalties: The loan includes a prepayment penalty that was not disclosed in the TILA disclosures, trapping the consumer in the loan.
- Inaccurate payment schedules: The disclosed payment schedule does not match the actual payment terms of the loan, causing the consumer to be surprised by balloon payments, rate adjustments, or other changes.
- Failure to provide right of rescission notice: For covered transactions, the lender failed to provide two copies of the notice of the right to rescind, as required by 15 U.S.C. § 1635(a).
For certain credit transactions secured by the consumer's principal dwelling -- including refinances, home equity loans, and HELOCs (but not purchase-money mortgages) -- TILA provides a powerful right of rescission under 15 U.S.C. § 1635. The standard rescission period is three business days after consummation, delivery of the required disclosures, or delivery of the notice of the right to rescind, whichever occurs last. If the lender failed to provide the required disclosures or the rescission notice, the right to rescind extends to three years from the date of consummation. Exercising the right of rescission effectively unwinds the entire transaction.
Your Rights
TILA provides consumers with a robust set of rights in credit transactions:
- Right to clear disclosures: You have the right to receive accurate, clear, and conspicuous disclosures of all material credit terms before becoming obligated on the transaction.
- Right to compare: The standardized disclosure format, particularly the APR, allows you to make meaningful comparisons between competing credit offers.
- Right of rescission: For covered home-secured transactions, you have the right to cancel within three business days of closing. If disclosures were deficient, this right extends to three years under 15 U.S.C. § 1635.
- Right to sue: If a creditor violates TILA's disclosure requirements, you have a private right of action to recover damages under 15 U.S.C. § 1640.
- Right to raise TILA as a defense: TILA violations may be raised as a defense or counterclaim in any action brought by the creditor to collect the debt, without regard to the one-year statute of limitations for affirmative damages claims.
- Right to accurate advertising: TILA's advertising provisions prohibit lenders from advertising credit terms in a misleading manner. If specific terms are advertised (such as the monthly payment), additional disclosures are required under 15 U.S.C. § 1664.
Damages Available
TILA's damages provision at 15 U.S.C. § 1640 provides meaningful remedies for consumers:
Individual Actions
- Actual damages: All losses suffered as a result of the violation, including higher interest payments, fees paid that should have been disclosed, credit damage, and consequential losses
- Statutory damages: For closed-end credit violations, between $200 and $2,000 per violation. For open-end credit violations, twice the finance charge, with a minimum of $200 and a maximum of $2,000. Statutory damages are available even when the consumer cannot prove specific monetary harm.
- Attorney's fees and costs: The prevailing consumer is entitled to reasonable attorney's fees and court costs
Class Actions
- Statutory damages: Up to the lesser of $1,000,000 or 1% of the creditor's net worth for the class as a whole
- Actual damages: Each class member may recover their individual actual damages
- Attorney's fees and costs: Recoverable for the class
Rescission
When a consumer exercises the right of rescission under 15 U.S.C. § 1635, the security interest in the home becomes void and the creditor must return any money or property given by the consumer, including all payments, finance charges, and fees. The consumer then tenders the loan proceeds. In practice, rescission often results in a significant financial recovery because the consumer is restored to the position they were in before the transaction.
The statute of limitations for TILA damages claims is one year from the date of the violation under 15 U.S.C. § 1640(e). However, the right of rescission extends to three years if disclosures were deficient. Additionally, TILA violations may be raised as a defense or setoff in any collection action by the creditor without regard to the one-year limit. If you believe you have a TILA claim, act promptly.
How We Can Help
Rausa Russo Law, PLLC represents consumers who have been harmed by lending practices that violate the Truth in Lending Act. Our attorneys understand the technical disclosure requirements of TILA and Regulation Z and know how to identify violations that other attorneys may miss.
When you contact our firm, we will:
- Review your loan documents and disclosures to identify every TILA violation, including understated APRs, undisclosed fees, missing disclosures, and deficient rescission notices
- Calculate the correct APR to determine whether the disclosed APR exceeds the applicable tolerance, which is the threshold for a TILA violation
- Evaluate your rescission rights if your loan is secured by your principal dwelling, including whether the extended three-year rescission period applies
- Identify all liable parties, including the originating lender, the current holder of the loan, mortgage brokers, and settlement agents
- Pursue litigation under TILA to recover actual damages, statutory damages, and attorney's fees, or to exercise your right of rescission
- Coordinate related claims under state lending laws, the Real Estate Settlement Procedures Act (RESPA), and other applicable statutes
Because TILA includes a fee-shifting provision for attorney's fees, most of our clients pay nothing out of pocket for our representation in TILA damages claims.