The Truth in Lending Act (TILA) was created to ensure accurate disclosure of consumer credit costs. TILA requires standardized rules for calculating costs to provide important information to consumers. TILA generally applies when credit is offered regularly for personal or household use and is subject to a finance charge or multiple installments. Exemptions include business credit. TILA disclosure rules differ for open-end and closed-end credit. Violations of required disclosures can trigger damages and the right to rescind certain loans secures by a consumer's home within 3 days of consummation or up to 3 years for material disclosure violations.

1. A. The Truth-in-Lending Act (TILA) was created to
guarantee the accurate and meaningful disclosure of the
costs of consumer credit. TILA is primarily a disclosure
statute creating disclosure requirements. The disclosure
premise necessitates having standardized rules as to how
the cost is calculated. The amounts calculated as a result of
these rules are the most important information a consumer
receives in any transaction.
B. Generally, TILA applies to everyone that offers or extends
credit when four conditions are met:
 credit is offered or extended to consumers;
 the offer or extension of credit is done regularly (Creditor);
 the credit is subject to a finance charge or is payable by written
agreement in more than four installments; and
 the credit is primarily for personal, family or household purposes.

2. A. Some Credit transactions are exempt
 business/ commercial/ agricultural
 public utility
 securities or commodities accounts
 home fuel budget plans, if no finance charge
 certain student loans

3. A. The rules differ depending on whether credit is “open-
end” or “closed-end.”
B. The required disclosures for closed-end credit are set forth
in 15 U.S.C. § 1638; Reg. Z §§ 226.17 and 226.18

4. A. The failure to disclose specific information correctly
triggers TILA statutory damages remedy;
 Total Finance Charge [charges payable directly or indirectly
by the consumer and imposed directly or indirectly by the
creditor as an incident to or condition of the extension of
credit; Exclusions; Tolerance]
 Amount Financed
 Annual Percentage Rate (APR) [Tolerance is 0.125%]
 Payment Schedule
 Total of Payments
 Payment Schedule
 Security Interests
 Special Formatting Rules (‘clear & conspicuous,’ reflect legal
obligations, and in a form you can keep
 Disclosures must be provided timely, in a form the
consumer may keep before consummation
 Special Disclosures for Variable-Rate Closed-end loans

5. A. The rules for rescission appear in 15 U.S.C. § 1635;
Reg. Z § 226.15 (open-end), § 226.23 (closed-end)
B. Application of Rescission
 transaction is subject to TILA
 a non-purchase money security interest in the consumer’s
principal dwelling
 applies to non-purchase money security interest, whether 1st
or 2nd mortgage, home equity loans, bridge loans, home
improvement contracts, and liens arising by operation of law

6. A. The Legal Implications of TILA Rescission
 the impact of a successful TILA rescission include the
following:
o Voids the security interest
o A complete defense to foreclosure
o Voids all finance charges and closing costs
o Allows the Court to award statutory damages of $2000 to $4000 in a case
where the creditor fails to respond to rescission notice
B. When Rescission Can Be Exercised
 the homeowner has three business days to rescind from
the latest of:
o Consummation of the transaction
o Delivery of proper notice of rescission rights; or
o Delivery of all material disclosures correctly made
 The three days begin to run when all material disclosures
and proper notice of right to rescind is received
 As a result, the continuing right to rescind may be
extended for up to three-years (3) from consummation
 The right of rescission may be terminated sooner upon
transfer of the consumer’s interest in the property
(including involuntary), or sale

7. A. How Rescission Works: Theory and Practice
 Sending a valid cancellation notice triggers a
sequential three-step process
 First, the security interest in the property is
automatically voided and the consumers obligation to
pay finance charges (even if accrued) and other
charges is automatically eliminated
 Second, the creditor or assignee has twenty-days (20)
to refund or credit the account all payments
(including any money or property given to a third
party) and to take steps to void the security interest
 Third, when the creditor performs its “step 2”
obligation, the consumer tenders back the balance of
money or property or the reasonable value of the
property
 Courts have equitable authority to modify steps 2 and
3

8. h Which TILA Violations Give Rise to
Extended Rescission Rights
The violations that trigger this special remedy
include:
 Failure to give the rescission notices at all or to
give two copies to each co-owner
 The rescission notices provided are defective of
certain information
 A violation of a defined “material” disclosure
 Amount Financed
 Finance Charge (tolerance accuracy)
 APR (tolerance accuracy)
 Payment Schedule
 Total of Payments

9. A. The degree of error may fall within the allowable tolerance
and may not result in any liability, e.g., the APR tolerance is
1/8% or 0.125 above or below the disclosed APR; the
Finance Charge tolerance is $100.00 for an understated
disclosed Finance Charge damage claim, and no remedy for
an overstated Finance Charge.
B. However, for an affirmative action Rescission claim, the
Finance Charge tolerance is ½ of 1% of the total credit
extended. If a foreclosure is underway, the Finance Charge
tolerance for Rescission is $35.00 for an understated Finance
Charge disclosure. Rescission is a complete defense to
foreclosure.
C. Once the Consumer rescinds, the security interest arising by
operation of law becomes void automatically. The
promissory note is also voided since it is part of the same
“transaction,” see i.e., 15 U.S.C. § 1635(b) and Reg. Z §
226.23(d)(1).]

10. A. The application of a TILA Audit analysis must be a
forensic nature and is comprised of four (4) levels.
[Forensic: used in or suitable to courts of law or public
debate]
 Level 1: A thorough mathematical check of the TILA
Disclosure Statement or disclosed figures is performed
taking the Creditor’s disclosed amounts at face value,
properly allocated and legitimate
 Level 2: This step is an independent assessment to
determine whether the Creditor properly and accurately
allocated the components this Debt between the Amount
Financed and the Finance Charge figures identified on the
TILA Disclosure Statement. The assessment uses the
disclosed values on the face of all documents retained at
the closing to evaluate how the Creditor arrived at its
figures on the TILA Disclosure Statement.

11.  Level 3: This level of analysis identifies “mystery charges,” requires
a factual investigation, a reasonable look behind the papers, a
determination of charges that may be specifically excluded from the
definition of Finance Charges, and whether charges may be excluded
if bona fide and reasonable. Every effort is made to scrutinize
charges based upon the value of goods, facilities and settlement
services provided, and depend upon the market rate of the service
in your geographic region.
 A Level 3 analysis also examines whether the Creditor put a charge
in the Amount Financed that categorically should be treated as a
Finance Charge. If any discrepancy arises, it must be explored to
be sure the charge is legitimate and is not a hidden Finance Charge
as that term is defined under 15 U.S.C. § 1605(a) and Reg. Z §
226.4(a).
 Level 4: This level is a survey of the Rescission Notices and
material disclosures. The TILA Disclosure Statement and rescission
notices are compared to the Federal Reserve Board model forms for
format, content, and legality as mandated under Reg. Z, clear and
conspicuous.

12. Dale Hollis
3610 Alpine Aster
San Antonio, Texas 78259
210 – 447 – 7765
Email: rhollis1938@att.net
www.consumer-law-advocates.com