Preventing Discriminatory Lending: The Truth in Lending Act of 1968

The nineteen sixties was a very controversial time for the United States, with one of the most important issues being equality among race and gender. Racism was visible in almost all areas of life, including the financial industry. To help address this issue, congress passed a series of laws intended to help prevent discriminatory lending practices.

One of the major problems in the lending and credit industries was that the terms of a loan was often not completely obvious to borrowers. This meant there were often hidden terms and costs, which would not be disclosed to the borrower until they violated these terms. To help protect against this, Congress passed the Truth in Lending Act in 1968.

What is the Truth in Lending Act?

The main purpose of the Truth in Lending Act was to ensure that prospective borrowers were made fully aware of all terms and costs associated with a loan, before they actually signed the loan agreement. This may sound like common sense advice that should be used before entering any contract, but many lenders purposely hid information from borrowers.

In most cases the Truth in Lending Act does not attempt to regulate the types of charges that can be applied to a consumer credit line, but instead is aimed at requiring a standardized disclosure of the charges and terms, without requiring the consumer to first sign the contract. The exception to this is subprime mortgages and high cost mortgages, whose charges may be regulated by the Truth in Lending Act.

What Consumer Protections Does the Truth in Lending Act Offer?

The Truth in Lending Act also allows the borrower more freedom in canceling credit transactions that require a lien to be placed on the borrowers primary dwelling.

The Truth in Lending Act contains several sections, which require that:

• The consumer must be made aware of the annual interest rate of the loan(APR,) as well as other charges and rates.
• Oral disclosures are also more regulated, with specific attention paid to Spanish language disclosures.
• Creditors and Lenders must adhere to regulations when advertising that are intended to promote more truth in advertising.
• Creditors and Lenders must answer complaints and questions in a timely manner.

Does the Truth in Lending Act do Enough?

While the Truth in Lending Act was a step in the right direction, a true change in the lending industry would take many years and still has a long way to go.

With as complicated as most mortgages are, even with the information fully disclosed, many borrowers do not fully read or understand closing documents, which can lead to many problems.