In 1968, there was a federal law that was passed called the Truth and Lending Act. The purpose of the law was to protect consumers from any type of disadvantages that the lender may bring upon them. The act has changed for the better how people think when borrowing money for certain reason. After this act passed people could calm themselves and realize that they aren’t being taken advantage of. A key part to the creation of the act is known as the Annual Percentage Rate. The Annual Percentage rate is an interest rate typically for credit cards that is stated on a yearly basis. The Annual Percentage Rate is one thing that has to be disclosed to the borrower ever since the Truth in Lending Act has come into being.
There are certain people that the Truth and Lending Act applies too such as the consumers. The consumers are the ones that are taking out loans, and they want to know the whole truth about the loan. People were getting taken advantage of because of loaners were not disclosing all of the information that may dealt with interest rates. Closed end accounts, home or auto loans, and accounts that are open ended like credit cards is what the Truth in Lending Act is specifically applying to. This is for a person, not a corporation or for commercial use. The rule is supposed to make sure the consumer knows every little catch in taking out a loan. An example would be dealing with the “right of recession.” This is a three-day grace period that when refinancing residential mortgages, you can cancel it and not lose any money or be charged an extra fee. Small details that could take advantage of a consumer is the purpose for the act being put in place.
The key purpose of the Truth and Lending act is to protect the consumer. The consumer is what drives mortgage business, and without content consumers, certain businesses would close because of loss of business. It made the regulations of the document clear, so that there would be no questions down the road. This helped prevent problems down the road and kept everyone involved in these transactions on the same page. The main problem before the act was not disclosing the financing fees or even any type of credit transactions for that matter. In October of 2015, Loan Estimates and Closing Disclosure became the new fix for the Truth and Lending Act. These are specific documents that state all details for the purpose that no one will claim they were not told about certain details. They present all the details of the document in a user-friendly way so that the consumer can understand exactly what it entails.
Predatory lending has decreased drastically due to the Truth in Lending Act. The catch with predatory lending is even though it isn’t right doesn’t mean that it is illegal. Some people try and barely scam you and others will try and rip you off completely by not disclosing all the information. One of the most common practices of predatory lending are inflated fees. Before, there was no such thing as a loan estimate. That meant that people couldn’t go around and compare which would be cheaper overall. They would just go with what they had presented to them and they wouldn’t know if the prices were inflated or not. Another type of predatory lending is risk-based pricing. Risk based pricing is when consumers that are more than likely to default are charged super high interest rates. Loan packing is also another highly used type of predatory lending. Loan packing is described by products that are sold to consumers that are not even necessary but are still sold. Predatory loans are unjust ideas to practice, but they still happen. Even with the Truth in Lending Act in place, it has been minimized drastically, but it still happens in some cases.
In Closing, the Truth in Lending Act changed the way all mortgage and loan processes take place for the better. People have the confidence to know that they aren’t being cheated out of money. The market now is much more competitive due to loan estimates, which makes sure that no one is getting ripped off. Getting more than one loan estimate can help ensure that the product being loaned is of fair value. The Truth in Lending Act did fulfill its purpose for the most part by protecting the consumers from predatory lending practices, but there are still types of greedy practices that occur. When taking out mortgages, people used to not know they were being taken advantage of, but now they don’t have to worry about it. Without the Truth in Lending Act, people would be getting ripped off left and right, and the market would be so unsteady. People wouldn’t know what the actual fair market value is for the product that they are interested in. It brings everything into proportion and specifically lists the details of the products for the benefit of everyone interested.
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