Regulation Z implements the Truth-in-Lending Act (TILA), the intent of which is to provide consumers with unit pricing information for comparison shopping purposes. This is achieved by standardizing the measurement and labeling of consumer credit accounts. It is similar to unit pricing labels found in supermarkets. Most consumer credit transactions and loan accounts are subject to the regulation as it applies to all consumer credit businesses and some individuals.
Regulatory disclosure terminology includes:
These terms are defined conceptually and mathematically in the regulation: rates are disclosed as APRs, taking into account the finance charge and costs associated with obtaining credit.
TILA applies to credit extended to a consumer primarily for a personal, family, or household purpose, up to $55,800. When credit is secured by real estate or a consumer’s principal residence, the $55,800 limit is not applicable. Regulation Z regulates the advertising of credit and provides for a right of rescission to consumers whose ownership interest in a principal residence is subject to a security interest in an extension of credit subject to the regulation.
TILA and Regulation Z have evolved to include other consumer credit protection matters:
Regulation Z is standardized by joint policy statement issued each federal financial institution supervisory agency. Minimum enforcement standards were codified in the Truth-in-Lending Simplification Act of 1980 which include restitution to consumers resulting from faulty disclosures of the APR, Finance Charge and related items. The Regulation may also be enforced by private litigation, since consumers may sue creditors (individually or by class action) to claim statutory penalties, damages and court costs. Because of its complexity, Regulation Z has the number one position on bank regulators’ lists of most commonly violated regulations.
REGULATION Z (TRUTH IN LENDING) QUICK REFERENCE TO DISCLOSURE INFORMATION
1. Amount financed and brief description (§ 226.18(b))
2. Finance charge and brief description (§ 226.18(d))
3. Annual percentage rate and brief description (§ 226.18(e))
4. Contract references (§ 226.18(p))
The following, if applicable:
5. Variable rate information (§ 226.18(f)), except variable rate examples under § 226.18(f)(4)
6. Payment schedule (§ 226.18(g))
7. Total of payments and brief description (§ 226.18(h))
8. Demand feature and assumed maturity of one year if maturity is not otherwise specifically stated (§ 226.18(i))
9. Total sales price and descriptive explanation (§ 226.18(j))
10. Prepayment penalty (§ 226.18(k)(1))
11. Entitlement to a rebate on prepayment (§ 226.18(k)(2))
12. Late charge may be imposed (§ 226.19(1))
13. Security interest (§ 226.18(m))
14. Option to receive written itemization of amount financed (§ 226.18(c)(2))
15. Whether assumable by subsequent purchaser on original terms, if a residential mortgage transaction (§ 226.18(q))
16. Required deposit not reflected in annual percentage rate (§ 226.18(r))
17. Designation of an estimate as such (§ 226.17(c)(2))
MAY BE INCLUDED IN FEDERAL BOX
1. Creditor’s identity - i.e. name, address and telephone number (§ 226.18(a))
2. Hypothetical variable rate example (§ 226.18(f)(4))
3. Insurance - credit life; accident and health; property insurance premiums (§ 226.18(n))
4. Certain security interest charges - i.e. taxes and fees prescribed by law to public officials, nonfiling insurance (§ 226.18(o))
5. Description of type of security interest taken (§ 226.18(m))
6. Other directly related information including, but not limited to:
a. Explanation of the basis for estimates (§ 226.17(a))
b. Acknowledgment of receipt by consumer(s) (§ 226.17(a) and footnote 37)
c. Consumer’s name, address and account number (§ 226.17(a) and footnote 37)
d. Date of transaction (§ 226.17(a) and footnote 37)
MUST BE EXCLUDED FROM FEDERAL BOX (If furnished)
1. Itemization of amount financed (§ 226.18(c))
2. Itemization of finance charge (§ 226.18(d))
3. After-acquired property interests
4. Explanation of how rebates and prepayment penalties are calculated
5. All other disclosures desired by the bank or required by state law (if inconsistent with Federal disclosures)
Regulation Z: Consumer Loan Disclosures
The following material might be helpful when formulating your bank’s own worksheet for consumer disclosures for loan transactions covered by Regulation Z. This worksheet may be used as part of the consumer lending process or as an internal bank auditing worksheet. You are encouraged to develop your own “working” document (or more “workable” document) that uniquely fits the needs of your bank, and in doing so, you are invited to cut and paste from this material at your pleasure.
WORKSHEET CONSUMER LOAN DISCLOSURES REGULATION Z [See, “Content of Disclosures” - § 226.18]
Name(s) on Loan: _________________________________________
Current Mailing Address and Telephone: ______________________________________________________
______________________________________________________
Loan Officer: ____________________________________________
Date of Receipt of Application: _________________________________________
Disclosures Completed
1. Disclose identity of creditor to consumer. ___ Yes ___ No
2. Disclose “Amount Financed” with brief description, e.g., “the amount of credit provided to you or on your behalf.”[1] ___ Yes ___ No
3. Disclose ___ separate written itemization of amount financed,[2] including:
___ amount of proceeds distributed directly to consumer;
___ amount credited to consumer’s account with the creditor;
___ any amounts paid to other persons by the creditor on consumer’s behalf and the identity of such persons; and
___ prepaid finance charge.
or disclose ___ in statement provided to consumer that “you have the right to receive a written itemization of the amount financed.”[3] ___ Yes ___ No
4. Disclose “Finance Charge” with brief description, e.g., “the dollar amount the credit will cost you.” ___ Yes ___ No
5. Disclose “Annual Percentage Rate” and brief description, e.g., “the cost of your credit as a yearly rate.” ___ Yes ___ No
6. If variable rate loan, complete the following; if not, go to item 7. ___ Yes ___ No
If variable rate loan ___ not secured by consumer’s principal dwelling or ___ secured by consumer’s principal dwelling with a term of one year or less, disclose:
___ circumstances under which rate may increase;
___ any limitations of the increase;
___ effect of an increase; and
___ example of payment terms resulting from an increase. ___ Yes ___ No
If variable rate loan ___ secured by consumer’s principal dwelling with a term greater than one year, disclose:
___ fact that transaction contains a variable rate feature; and
___ statement that variable rate disclosures have been provided earlier. ___ Yes ___ No
7. Disclose payment schedule, including the number, amounts and time of payments scheduled to repay the obligation, subject to following:
___ for a demand loan with no alternative maturity date, disclose due date or payment period of scheduled interest payments for the first year; and
___ for a transaction where a series of payments varies due to application of a finance charge applied to unpaid principal balance, disclose the dollar amounts of the largest and smallest payments in the series and a reference to the variations in other payments in the series. ___ Yes ___ No
8. Disclose “Total of Payments” and descriptive explanation e.g., “the amount you will have paid when you have made all scheduled payments.”[4] ___ Yes ___ No
9. Obligation has a demand feature. ___ Yes ___ No
If “yes,” then disclose the fact of the demand feature.[5] ___ Yes ___ No
10. Loan includes finance charge computed periodically by application of rate to unpaid principal balance. ___ Yes ___ No
If “yes,” include statement indicating __ whether prepayment penalty applies, or __ whether prepayment penalty does not apply, if loan is prepaid in full. ___ Yes ___ No
If “no,” but loan includes finance charge other than pre-payment penalty, include statement indicating whether __ consumer is entitled to rebate, or __ consumer is not entitled to rebate, if loan is prepaid in full. ___ Yes ___ No
11. Disclose either ¨ dollar, or ¨ percentage charge (late payment charge) that may be imposed before maturity.[6] ___ Yes ___ No
12. Disclose fact that creditor has/will acquire a security interest in property purchased as part of transaction, or in other property identified by item or type. ___ Yes ___ No
13. Insurance issues: Disclose fact that __credit life, __ accident, __ health or __ loss of income security interest insurance offered by creditor is not required. ___ Yes ___ No
Disclose premium for initial term of above-listed insurance coverage. ___ Yes ___ No
Consumer’s __ signature or __ initials requesting above-listed insurance. ___ Yes ___ No
Disclose fact that property damage and liability insurance may be obtained by person of consumer’s choice. ___ Yes ___ No
Disclose premium for initial term of property damage and liability insurance that consumer will obtain through the creditor.[7] ___ Yes ___ No
14. Disclose ¨ taxes (specify: ____________) or ¨ fees (specify: ___________) prescribed in law that are/will be paid to public officials for __searching, __ perfecting, __ releasing, or__ satisfying a security interest. ___ Yes ___ No
In lieu of items listed above,[8] disclose insurance. ___ Yes ___ No
15. Statement that consumer should refer to note for information about nonpayment, default, right to accelerate maturity of the obligation, and prepayment rebates and penalties. ___ Yes ___ No
At creditor’s option:
Statement may include reference to note for further information regarding __ security interests, and ¨ in a residential mortgage transaction, about creditor’s policy regarding loan assumption. ___ Yes ___ No
16. In a residential mortgage transaction, statement whether a subsequent purchaser of dwelling ¨ may ¨ may not assume loan on original terms. ___ Yes ___ No
17. Deposit ¨ is ¨ is not required from consumer as condition of loan. ___ Yes ___ No
If “yes,” disclose in statement “that the annual percentage rate does not reflect the effect of the required deposit.”[9] ___ Yes ___ No
________________________________
[1]“Amount Financed” is calculated by (1) determining principal loan amount of cash price (subtracting any downpayment); (2) adding any other amounts financed by creditor and not party of “Finance Charge”; and (3) subtracting any prepaid finance charge.
[2] Not applicable if the transaction is subject to RESPA and a Good Faith Estimate is properly given to consumer.
[3] Statement must provide a space for consumer to indicate whether itemization is desired and that consumer did not request it Some forms will provide a space to initial if the consumer wants the disclosure and does not initial it.
[4] When transaction involves a single payment, creditor need not disclose total of payments.
[5] When disclosure is based on assumed maturity of one year, such fact must be disclosed.
[6] Late payment disclosure does not apply to a deferral or extension charge.
[7] Include term of such insurance in event it is less than the term of the loan.
[8] Not for a greater charge.
[9] Required deposit need not include, e.g., (1) escrow account for items such as taxes, insurance or repairs; (2) deposit that earns not less than 5% per year; or (3) payments under a Morris Plan.
Regulation Z (Truth in Lending) Coverage Considerations Flow Chart
H-2 – Loan Model Form
ANNUAL PERCENTAGE RATE
The cost of your credit as a yearly rate.
%
FINANCE CHARGE
The dollar amount the credit will cost you.
$
Amount Financed
The amount of credit provided to you or on your behalf.
Total of Payments
The amount you will have paid after you have made all payments as scheduled.
You have the right to receive at this time an itemization of the Amount Financed.
I want an itemization. I do not want an itemization
Number of payments
Amount of Payments
When Payments are due
Insurance
Credit life insurance and credit disability insurance are not required to obtain credit, and will not be provided unless you sign and agree to pay the additional cost.
Type
Premium
Signature
Credit Life
I want credit life insurance _______________________
Credit Disability
I want credit disability insurance _______________________
Credit Life and
Disability
I want credit life and _______________________
disability insurance Signature
You may obtain property insurance from anyone you want that is acceptable to (creditor). If you get the insurance from (creditor) you will pay $____________________.
Security: You are giving a security interest in:
q the goods or property being purchased
q (brief description of other property).
Filing fees $_________________________ Non-filing insurance $__________________
Late Charge: If a payment is late, you will be charged $_________________/_____________% of the payment.
Prepayment: If you pay off early, you
may will not have to pay a penalty.
may will not be entitled to a refund of part of the finance charge.
See your contract documents for any additional information about nonpayment, default, any required repayment in full before the scheduled date, and prepayment refunds and penalties.
____________
e means an estimate
H-3 – AMOUNT FINANCED ITEMIZATION MODEL FORM
Itemization of the Amount Financed of $ __________________
$ ____________ Amount given to you directly
$ ____________ Amount paid on your account
Amount paid to others on your behalf
$ ____________ to [public officials] [credit bureau] [appraiser] [insurance company]
$ ___________ to [name of another creditor]
$ ____________ to (other)
$ ____________ Prepaid finance charge
NOTICE OF RIGHT TO CANCEL
Your Right to Cancel
You are entering into a transaction that will result in a [mortgage/lien/security interest] [on/in] your home. You have a legal right under federal law to cancel this transaction, without cost, within three business days from whichever of the following events occurs last:
(1) the date of the transaction, which is
or
(2) the date you received your Truth in Lending disclosures; or
(3) the date you received this notice of your right to cancel.
If you cancel the transaction, the [mortgage/lien/security interest] is also cancelled. Within 20 calendar days after we receive your notice, we must take the steps necessary to reflect the fact that the [mortgage/lien/ security interest] [on/in] your home has been cancelled, and we must return to you any money or property you have given to us or to anyone else in connection with this transaction.
You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impractical or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation.
How to Cancel
If you decide to cancel this transaction, you may do so by notifying us in writing, at
(Creditor’s name and business address)
You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time.
I WISH TO CANCEL
Consumer’s Signature Date
H-9 – RESCISSION MODEL FORM (REFINANCING WITH ORIGINAL CREDITOR)
You are entering into a new transaction to increase the amount of credit previously provided to you. Your home is the security for this new transaction. You have a legal right under federal law to cancel this new transaction, without cost, within three business days from whichever of the following events occurs last:
(1) the date of this new transaction, which is
; or
(2) the date you received your new Truth in Lending disclosures; or
If you cancel this new transaction, it will not affect any amount that you presently owe. Your home is the security for that amount. Within 20 calendar days after we receive your notice of cancellation of this new transaction, we must take the steps necessary to reflect the fact that your home does not secure the increase of credit. We must also return any money you have given to us or anyone else in connection with this new transaction.
You may keep any money we have given you in this new transaction until we have done the things mentioned above, but you must then offer to return the money at the address below.
If we do not take possession of the money within 20 calendar days of your offer, you may keep it without further obligation.
If you decide to cancel this new transaction, you may do so by notifying us in writing, at
You may use any written statement that is signed and dated by you and state your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no later than midnight of
___________________________ (Date)
(or midnight of the third business day following the latest of the three events listed above).
If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time.
____________________________________ Consumer’s Signature
____________________________________ Date
H-11 - Installment Loan Sample
Click here to link to Installment Loan Sample
H-12 – Refinancing Sample
Click here to link to Refinancing Sample
REGULATION Z – RIGHT OF RESCISSION FLOWCHART