TILA — Truth in Lending Act
Truth in Lending Act of 1968 (15 U.S.C. § 1601 et seq.)
Overview
TILA is the foundational federal consumer credit protection law. It requires lenders to disclose the true cost of credit — including the annual percentage rate (APR), finance charges, payment schedule, and total cost of the loan — in a standardized, understandable format. TILA's most powerful tool for homeowners is the right of rescission: the right to cancel certain mortgage transactions within 3 business days (or 3 years if required disclosures were never provided or were materially inaccurate). TILA violations can serve as powerful affirmative defenses and counterclaims in foreclosure cases.
Enacted: 1968 (Regulation Z, 12 CFR Part 1026)
Enforcing Agency: Consumer Financial Protection Bureau (CFPB)
Key Provisions
Right of Rescission (15 U.S.C. § 1635 / Reg Z § 1026.23)
For most non-purchase-money mortgage loans (refinances, HELOCs, home equity loans) on a primary residence, you have a 3-business-day right to cancel. If the lender failed to provide the required TILA disclosures or provided materially inaccurate ones, the rescission period extends to 3 YEARS from closing. Exercising rescission requires the lender to return all fees and terminate the security interest — a powerful defense.
Finance Charge and APR Disclosure (Reg Z § 1026.18)
Lenders must accurately disclose the finance charge (total dollar cost of credit) and APR. Tolerances are narrow — if the disclosed APR is off by more than 0.125% (for regular loans) or 0.25% (for irregular loans), the disclosure is inaccurate and triggers extended rescission rights.
Loan Originator Compensation Rules (Reg Z § 1026.36)
Prohibits compensation based on loan terms (steering borrowers into higher-cost loans), dual compensation (borrower paying and lender paying the originator), and mandatory arbitration clauses in mortgage loans.
Ability-to-Repay / Qualified Mortgage Rules (Reg Z § 1026.43)
Lenders must make a reasonable, good-faith determination of the borrower's ability to repay before making a mortgage loan. Qualified Mortgages (QM) receive a safe harbor or rebuttable presumption of compliance. Non-QM loans lack this protection, making them vulnerable to challenge.
High-Cost Mortgage Protections (HOEPA) (Reg Z § 1026.32)
Special protections for high-cost mortgages, including required pre-loan counseling, restrictions on loan terms (no balloon payments, no negative amortization), and enhanced damages for violations.
Periodic Statement Requirements (Reg Z § 1026.41)
Servicers must send detailed periodic statements for each billing cycle, including amount due, payment breakdown, past payment history, and delinquency information.
How This Law Protects Homeowners
TILA ensures you receive clear, accurate information about the cost of your mortgage before you sign. If the lender failed to disclose the true cost — whether through error, negligence, or deliberate deception — TILA gives you powerful remedies, including the right to rescind the loan entirely. The extended 3-year rescission right is one of the strongest tools in foreclosure defense: if you can show TILA disclosure violations, you can potentially unwind the entire loan transaction.
Why This Matters in a Foreclosure
TILA is directly relevant in foreclosure defense when: (1) the lender failed to provide accurate TILA disclosures at closing and the 3-year extended rescission period hasn't expired, (2) the loan is a non-QM loan and the borrower lacked the ability to repay, (3) the loan is a high-cost mortgage with HOEPA violations, or (4) the lender engaged in predatory lending practices. TILA rescission can be raised as an affirmative defense and counterclaim — if successful, the foreclosure must be dismissed because the lien itself is void.
Common Violations
- •Failure to provide accurate TILA disclosures at closing (APR, finance charge, payment schedule)
- •Material understatement of finance charge or APR beyond statutory tolerances
- •Failure to provide notice of right to rescind with required copies for each borrower
- •Making a loan without determining the borrower's ability to repay (ATR/QM violation)
- •Loan originator compensation based on loan terms (steering)
- •High-cost mortgage (HOEPA) violations — balloon payments, negative amortization, prepayment penalties
Available Remedies
- •Rescission: cancel the loan — lender must return all finance charges and fees, and release the lien. This is the most powerful remedy
- •Actual damages: compensation for financial harm caused by the violation
- •Statutory damages: up to $4,000 for certain disclosure violations (15 U.S.C. § 1640(a)(2)(A))
- •Finance charge damages: up to twice the finance charge for certain violations (HOEPA)
- •Attorney's fees and costs: recoverable if you prevail
- •Enhanced HOEPA damages: all finance charges and fees paid by the borrower
Recent Developments
The CFPB has focused on ability-to-repay violations, particularly in the non-QM market. In 2025, the Bureau issued guidance clarifying that lenders must verify all income sources and document the verification — 'stated income' lending without verification is a TILA violation. The CFPB also continues to examine for TILA disclosure accuracy in loan origination systems, finding errors in automated APR calculation software.
Frequently Asked Questions
How do I exercise the TILA right of rescission?+
Send a written notice of rescission to the lender by mail (certified, return receipt). The notice must be mailed within 3 business days of closing (for the standard right) or within 3 years (for the extended right due to disclosure failures). The notice should identify you, the property address, the loan, and clearly state you are rescinding under TILA. Once you mail the notice, the rescission is effective — the lender has 20 days to return all fees and release the security interest.
What disclosures trigger the extended 3-year rescission right?+
The extended right applies if the lender failed to provide: (1) the Notice of Right to Cancel form (with correct date, lender information, and deadline), (2) the material TILA disclosures (APR, finance charge, amount financed, total of payments, payment schedule), or (3) accurate disclosures within statutory tolerances. Also triggered if the Notice of Right to Cancel form is not given to EACH person entitled to rescind.
Can TILA rescission stop a completed foreclosure?+
Possibly — but timing is critical. If you rescind before the foreclosure sale, the rescission terminates the lender's security interest and the foreclosure is defective (they are foreclosing on a void lien). After a completed sale, rescission is much harder — you must act quickly (within days, not weeks) and will need to litigate. The best strategy is to rescind as soon as you discover the TILA violations, not wait until the eve of sale.
What is a Qualified Mortgage and does it matter for foreclosure defense?+
A Qualified Mortgage (QM) is a loan that meets certain CFPB standards designed to ensure the borrower has the ability to repay. QM loans receive a legal presumption of compliance — making them harder to challenge on ATR grounds. Non-QM loans lack this presumption, meaning the lender must prove in court that they verified your ability to repay. If the lender cannot prove this, the loan is a TILA violation and the foreclosure can be defended on that basis.
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