material costs and terms clearly and conspicuously, before the transaction is
consummated, and in a written document that the consumer may retain. Provisions that
specifically address advertising and disclosures allow borrowers to shop around for the
best loan terms. If creditors fail to comply with the statutory requirements, they may be
responsible for actual damages, and statutory damages up to $4,000.
Under the advertising requirements, creditors may advertise only credit terms
that are actually available to the customer, and may advertise terms that are only offered
for a limited time, or will become available on a known future date. For closed-end
credit, or transactions in which credit is advanced for a specific time period and has a set
schedule for payments, such as a mortgage on a home, advertisements with the
following triggering terms must meet additional requirements: amount or percentage of
any down-payment in credit sale transactions; the number of payments or period of
repayments; amount of any payment; amount of any finance charge. If an
advertisement for closed-end credit uses any of these terms, it must include information
on the amount or percentage of the down payment, the terms of repayment, and the
annual percentage rate (APR), which is a measure of the annual cost of credit.
Creditors may also advertise the simple interest rate or the periodic rate for close-ended
transaction as long as these rates are not displayed more prominently than the APR.
Open-ended transactions are transactions where the creditor reasonably
contemplates repeated transaction; may impose a finance charge from time to time for
outstanding unpaid balances; and generally makes additional credit available when any
outstanding balance is repaid. Credit cards are an example of open-ended credit. The
only rates permissible in advertisements for open-ended transactions are the APR rate
and the simple interest rate or periodic rate. As with a close-ended transaction, the
advertisement APR must be displayed at least as prominently as the simple interest or
periodic rates.
Under TILA, the creditor must share specific information with potential borrowers.
It must disclose its identity and the amount of money to be financed, which lenders
determine by adding the loan principal amount to any other amounts that the creditor will
finance, and subtracting any prepaid finance charge. Creditors must also disclose the
total amount of the consumers’ payments, which they calculate by adding the finance
charge to the amount financed, the APR, variable rate, payment schedule, what
happens if there is a late payment, and its security interest in the item it is financing. In
the cases of home equity and most refinance mortgage loans, the borrower has an
absolute right to rescind until midnight of the third business day after they sign the credit
contract, receive a TILA disclosure form, and receive notice explaining the right to
rescind. If a consumer does not receive the TILA disclosure materials, the rescission
right extends to three years.
(2) Discrimination in Credit
The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to prevent
discrimination in credit transactions on the basis of race, color, religion, national origin,
sex, marital status, and age (as long as the applicant has the capacity to contract). The
ECOA requires a creditor to inform an applicant in writing of the specific reasons for
taking adverse action against the applicant, such as denying credit. This provision holds
the creditor accountable to the nondiscrimination standards. Creditors who violate the
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