Consumer Law

More on How the Fed's TILA Disclosures Misled the Subprime Borrowers

By Jeff Sovern

by Jeff Sovern

Yesterday I blogged about how the Fed's Commentary directs lenders making Truth in Lending disclosures for adjustable loans to assume that interest rates will remain the same as they are at the date of closing.  Unfortunately, this direction infects many of the TILA disclosures.  Thus, the two most significant closed end disclosures--the ones that are required to be more conspicuous than any other under 12 C.F.R. § 226.17(a)(2)--are the finance charge and APR.  But because these disclosures are based on an imaginary interest rate, there is no reason to think that they are accurately stated on TILA disclosure forms. Indeed, any number which depends on the interest rate after the time of the first adjustment is likely to be wrong.  That means that the total of payments is also wrong, and of course, as I blogged about yesterday, the monthly payments.  The irony is that, according to the survey we conducted, it appears few borrowers pay attention to the disclosures, as I report in Preventing Future Economic Crises Through Consumer Protection Law or How the Truth in Lending Act Failed the Subprime Borrowers.  So maybe it doesn't matter that the numbers are wrong.  But then, if TILA doesn't protect consumers, what will?

Full post as published by CL&P Blog on January 25, 2010 (boomark / email).