Getting Into Debt – Consumer Credit Transactions

If you obtain credit from a creditor, certain laws protect your rights regarding the credit transaction, including: billing you for payments, fees and finance charges, reporting transactions to credit reporting agencies, and collecting on debt if you fail to make your payments. The Truth in Lending Act (TILA) covers your consumer credit transaction when: (1) you are an individual person and the credit is being used primarily for personal, family or household purposes; (2) the transaction involves repayment in more than four installments; and (3) you will incur finance charges.

Under the TILA, you must receive full disclosure of all the terms of any credit offer, such as payment dates, annual interest rates, overdue payment charges, and finance charges.  These disclosures must occur before the loan is processed or credit is extended.  The TILA also prohibits the issuing of a credit card unless it is in response to an oral or written application, or as a card renewal.  However, creditors can send out applications for credit that you have not requested and can also renew your credit card.

The TILA applies to most types of credit, but the disclosures are different depending on whether it is a closed-end credit or an open-ended credit.  Closed-end credit is where you borrow a fixed amount of money to purchase a specific item, like a car or a house.  Open-ended credit is where you have a certain amount of money that you can borrow against to purchase whatever items you want, like a credit card or a line of credit.  All disclosures must be made clearly, conspicuously and in writing.  Keep in mind that some transactions are not covered by TILA, such as credit transactions of over $25,000 that do not involve a security interest.

Legal Editors: Marshal Coleman and Steven Bennett, July 2015 (updated February 2018)