Regulation Z
Sec. 226.1 Authority, purpose, coverage, organization, enforcement and liability.
(a) Authority. This regulation, known as Regulation Z, is issued by the Board of Governors of the Federal Reserve System to implement the Federal Truth in Lending Act, which is contained in title I of the Consumer Credit Protection Act, as amended (15 U.S.C. 1601 et seq.). This regulation also implements title XII, section 1204 of the Competitive Equality Banking Act of 1987 (Pub. L. 100-86, 101 Stat. 552). Information-collection requirements contained in this regulation have been approved by the Office of Management and Budget under the provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB number 7100-0199.
(b) Purpose. The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. The regulation does not govern charges for consumer credit. The regulation requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer's dwelling. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer's principal dwelling.
Note: Effective 9/14/2009, ยง 226.1(b) is amended to read as follows:
(b) Purpose. The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. The regulation does not govern charges for consumer credit. The regulation requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer's dwelling. It also imposes limitations on home-equity plans that are subject to the requirements of Sec. 226.5b and mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer's principal dwelling. The regulation also regulates certain practices of creditors who extend private education loans as defined in Sec. 226.46(b)(5).
(c) Coverage.
(1) In general, this regulation applies to each individual or business that offers or extends credit when four conditions are met: (i) The credit is offered or extended to consumers; (ii) the offering or extension of credit is done regularly;1 (iii) the credit is subject to a finance charge or is payable by a written agreement in more than 4 installments; and (iv) the credit is primarily for personal, family, or household purposes.
(2) If a credit card is involved, however, certain provisions apply even if the credit is not subject to a finance charge, or is not payable by a written agreement in more than 4 installments, or if the credit card is to be used for business purposes.
(3) In addition, certain requirements of Sec. 226.5b apply to persons who are not creditors but who provide applications for home equity plans to consumers.
(d) Organization. The regulation is divided into subparts and appendices as follows:
(1) Subpart A contains general information. It sets forth: (i) The authority, purpose, coverage, and organization of the regulation; (ii) the definitions of basic terms; (iii) the transactions that are exempt from coverage; and (iv) the method of determining the finance charge.
(2) Subpart B contains the rules for open-end credit. It requires that initial disclosures and periodic statements be provided, as well as additional disclosures for credit and charge card applications and solicitations and for home equity plans subject to the requirements of Secs. 226.5a and 226.5b, respectively.
(3) Subpart C relates to closed-end credit. It contains rules on disclosures, treatment of credit balances, annual percentage rate calculations, rescission requirements, and advertising.
(4) Subpart D contains rules on oral disclosures, Spanish language disclosure in Puerto Rico, record retention, effect on state laws, state exemptions, and rate limitations.
(5) Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Section 226.33 requires disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 226.34 prohibits specific acts and practices in connection with mortgage transactions.
Effective 10/1/2009, paragraph (d)(5) is amended to read as follows:
(5) Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Section 226.33 requires disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 226.34 prohibits specific acts and practices in connection with mortgage transactions that are subject to Sec. 226.32. Section 226.35 prohibits specific acts and practices in connection with higher-priced mortgage loans, as defined in Sec. 226.35(a). Section 226.36 prohibits specific acts and practices in connection with credit secured by a consumer's principal dwelling.
(6) Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, and the rules for computing annual percentage rates in closed-end credit transactions and total annual loan cost rates for reverse mortgage transactions.
Note: Effective 9/14/2009, paragraph (6) above is replaced with the following:
(6) Subpart F relates to private education loans. It contains rules on disclosures, limitations on changes in terms after approval, the right to cancel the loan, and limitations on co-branding in the marketing of private education loans.
(7) Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, and the rules for computing annual percentage rates in closed-end credit transactions and total annual loan cost rates for reverse mortgage transactions.
(e) Enforcement and liability. Section 108 of the act contains the administrative enforcement provisions. Sections 112, 113, 130, 131, and 134 contain provisions relating to liability for failure to comply with the requirements of the act and the regulation. Section 1204(c) of title XII of the Competitive Equality Banking Act of 1987, Pub. L. 100-86, 101 Stat. 552, incorporates by reference administrative enforcement and civil liability provisions of sections 108 and 130 of the act.
What can a borrower do when there is a TILA violation?
Within three years following loan consummation, a borrower may rescind such loan if the TILA disclosure requirements were not properly made. A borrower who successfully exercises the right to rescind is entitled to a refund of all amounts paid to the mortgagee (including points, interest, insurance premiums and paydowns on the loan principal) and release of the mortgagee's security interest on the mortgaged property within twenty days. Moreover, if a borrower's action to rescind a loan is successful, the loan originator or its assignee may be liable for the mortgagor's costs and attorney's fees.
Within one year of a TILA disclosure violation, a borrower may assert a claim for damages against the loan originator or an assignee of the loan originator. A borrower may be awarded actual damages, statutory damages equal to twice the amount of the finance charge (but not less than $200 or more than $2000), and costs and attorney's fees. In a class action, liability reflecting actual damages plus penalties of the lesser of $500,000 or 1% of net worth, plus costs and attorney's fees may be imposed upon the loan originator or assignee. Claims for damages must be asserted by the borrower within one year, and by state attorneys general within three years, following the date of the TILA violation.
At any time following a TILA violation, a borrower may assert the violation as a defense in an action to collect the debt. Thus, a lender's recovery in an action to enforce the loan may be limited if the borrower successfully relies upon a TILA violation to limit or preclude collection of the debt. Courts may extend the limitations period for monetary damages for reasons of equity, which must typically involve some type of fraudulent concealment on the part of the creditor. The statute of limitations for rescission actions, however, may not be prolonged beyond the three year statutory term. Finally, borrowers may assert TILA violations as a defense to an enforcement action (e.g., foreclosure) after the expiration of the one year period without judicial permission.
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