Why the Truth in Lending Act Regulations?Tim Worstall
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The Truth in Lending Act regulations Protect Both You and the Mortgage Companies.The truth about the Truth in Lending Act (Regulation Z) is that in a perfect world they would not be necessary. What they require is that the mortgage companies disclose to you exactly upon what terms you are borrowing the money for your mortgage. What is the interest rate, how might that change (if it does), what are the closing costs, what are the costs associated with late payments. In effect, the Truth in Lending Act regulations simply insists that the mortgage company give you all of the information on closing costs, the interest rate, and terms of the loan, on standard disclosure forms so that borrowers can more easily compare loans between lenders. You of course would want to have all of this information on closing costs and the possible variations in the cost of your mortgage.
So where's the protection if it's in both of our interests anyway?Well here is where the Truth in Lending Act regulations do indeed protect both you and the mortgage lenders. If they did not exist then the less scrupulous mortgage lenders would have an incentive to hide some of the costs, say, the closing costs, in the fine print at the end of the contract. Making them explicit protects you. They also protect the honorable mortgage providers, for everyone has to show their figures in the same way, meaning that competition for your business is fair. Finally, they protect the mortgage companies by making sure that you understand exactly what it is that you're signing.
About the Author
Tim Worstall has a degree in finance and accountancy and writes extensively on matters economic and financial.