By John Flynn, CEO, Open Lending
The Truth in Lending Act, codified in Reg Z, came about in 1968 to protect consumers from unfair credit practices. The regulation has been amended numerous times to adapt to changing markets, modern credit product and political leanings, but the core requirements of Regulation Z remain.
As a lender, compliance is of utmost importance, not only to meet the requirements of the law, but also to help ensure borrowers are making informed decisions. With the information provided under the regulation, credit unions can continually educate members on how their payment history affects the loan rates they receive, their credit score and the overall impact on their financial well-being.
With regard to auto lending, it’s relatively straight forward as to what must be presented to the borrower prior to their acceptance of the loan. It’s important that the consumer is given highly accurate and complete information that applies to them.
Here’s a summary of the information that must be provided to your credit union’s borrowers:
Annual Percentage Rate: Borrowers must be told the annual rate of their loan
Finance charges: How much the borrower will pay in interest over the life of the loan
Amount financed: An exact dollar amount of the loan the borrower is securing
Total of all payments: Including principal plus interest payments
Number of payments and payment terms: Simply put, the number of payments and the minimum payment expected at what time interval
Additional disclosures include information, such as fees associated with the loan, late fees and when late fees will be applied, potential pre-payment penalties and any other important terms that apply to the loans.
These disclosures should be delivered prior to the contract, and your credit union member should be given time to discuss them with you. Advise them on any questions and concerns they might have. It is important they understand these structures, but it also allows your credit union to present itself as a trusted adviser and build a relationship.
Additional regulations have been added over the last five decades, particularly after the Great Recession of 2007-08, such as Dodd-Frank, the Consumer Leasing Act, Fair Debt Collection Practices Act and the Fair Credit Reporting Act to name a few.
Of course, the letter of the law must be followed. All consumers deserve to be treated fairly and with respect. It’s not about following the law. It’s about the credit union philosophy of one member-one vote. Everyone’s interests in the institution are equal, no matter their race, gender or every other way in which human beings can be different.
TILA is more than just a check box for a regulation at the origination of a car loan. It’s good member service and useful information for your continued service to them. Providing notifications of when fees are charged, billing and the ability to dispute a charge, is just the right thing to do. Offering these services to your members is much more than government compliance: It’s providing valuable service to your borrowers.