• subject to a finance charge  
• a written contract payable in more than 4 installments
• intended for personal, family, or household use
• $25,000 or greater loan balance
• secured by an interest in real property or a borrowers' dwelling

Regulation Z  (TIL) enables a borrower to compare cash versus credit costs among different lenders when shopping for a loan.  In variable rate transactions, the regulation requires the contract to disclose the following:

• A "maximum" interest rate in variable rate contracts secured by the borrower's dwelling
• Certain limitations on home equity plans that are subject to sections of the TIL Act and require a maximum interest that may apply over the term of a mortgage loan.

In addition to financial disclosure, a borrower's substantive rights in connection with certain types of credit include a "right of rescission" when the credit is secured by the borrower's primary residence.   Other provisions relative to Regulation Z compliance are addressed below.  Non real estate related provisions of Regulation Z are not covered here.

Real Estate Settlement Procedures Act  (RESPA)

The Real Estate Settlement Procedures Act (RESPA) was enacted to require lenders to make certain disclosures on real estate loans within three business days after receipt of a written application.  An initial disclosure (Good Faith Estimate) is prepared based on information supplied by the consumer with a final disclosure provided at loan closing or settlement.  RESPA requires the following: 

• Name and address of creditor
• Amount to be financed
• Good Faith Estimate or itemization of the amount financed 
• Finance charges
• Annual percentage rate (APR)
• Variable rate information
• Payment schedule including total number of payments
• Demand feature
• Total sales price
• Prepayment and late payment policy
• Security interest and related charges 
• Insurance requirements
• Contract reference
• Any assumption policy information
• Required deposit information

 Additional Disclosure Requirements For ARM Loans 

For Adjustable Rate Mortgages (ARMs), TIL requires additional disclosures if  1) the annual percentage rate (APR) can increase 2) the term of the loan exceeds one year and 3) the loan is secured by the owner's primary dwelling.  

Regulation Z also requires the following be provided:  

• A booklet entitled Consumer Handbook on Adjustable Rate Mortgages  published by the Federal Home Loan Bank Board or a suitable substitute. 
• Similarly required disclosure containing all the necessary information prescribed by Regulation Z,  for any variable-rate program in which a consumer expresses interest.
• Subsequent TIL disclosure for each month an interest rate adjustment in a variable rate transaction,  takes place.

Any credit transaction secured by the owner's primary dwelling must allow the borrower the "right to rescind" the transaction.   The borrower usually has until midnight of the 3rd business day following the latter of  1) the signing of  the transaction,  2) the providing of all material disclosures by the lender, or 3) the providing of the actual notice of the right to rescind by the lender.   Lenders are required to deliver to the consumer:

•  two copies of the "notice of the right to rescind" 
• one copy of the disclosure statement to each consumer entitled to rescind  

The "notice"  must be on a separate document that identifies the rescission period and must clearly disclose:

• the retention of a security interest in the borrower's primary dwelling
• the consumer's right to rescind the transaction
• how the consumer may exercise his/her  right to rescind 
• a form for the actual rescission of the contract
• address of the lender's place of business

To rescind, the consumer must notify the creditor either by mail, telegram, or other means of communication but preferably in writing.  Notice is considered "given" when mailed, filed for telegraphic transmission or sent by other means, or when physically delivered to the lender's place of business.  If more than one consumer has the right to rescind a transaction, the exercise of the right by any one borrower shall be effective for all borrowers.

When a borrower "rescinds" a transaction, the security interest essentially becomes "void" and the consumer is no longer liable for any amount or charges.  Additionally, the lender is required to return any monies received within 20 calendar days after receipt of a "notice" of rescission.   If the lender has already delivered any monies or property, the consumer may retain possession of same until the lender has complied with the above and terminated the transaction. 

A borrower may, under some circumstances,  modify or "waive" the right to rescind if  the borrower determines that the immediate extension of credit is necessary  to meet a bona fide personal financial emergency.   In this case, the borrower must provide the lender with a dated written statement that describes the emergency and specifically modifies or waives his/her right to rescind which bears the signatures of all borrowers entitled to rescind the contract.  Pre-printed forms for this purpose are prohibited.

Advertising Disclosure Requirements

Truth-in-lending requirements also impact the advertising of credit by a lender.  If a lender advertises directly to a consumer, TIL requires the advertisement to disclose the following:

• Credit terms and rate
• If specific credit terms are stated, only those terms that will actually be offered may be advertised.
• If an advertisement states a rate of finance charge, it must state the rate as an "annual percentage rate" (APR) using the disclosed term.
• If the APR may be increased after consummation of the loan transaction,  the advertisement must state that fact.
• An advertisement may not state any rate other than a simple annual rate or periodic rate that will be applied to an unpaid balance.  The rate is usually stated in conjunction with, but not more conspicuously than, the annual percentage rate (APR).

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