Reading the Federal Truth in Lending Box

What the box is and when you get it

Under 12 CFR 1026.17, the disclosures must be clear, conspicuous, in writing and in a form you can keep. They are grouped together and set apart from the rest of the paperwork, often inside a ruled box or under a caption such as "Federal Truth in Lending Disclosures". The terms "finance charge" and "annual percentage rate" must stand out more than any other item except the lender's name.

The lender must give them to you before consummation. The official commentary adds that you must be free to review the whole document before you sign; merely showing it to you is not enough. If you are asked to e-sign before you can open the disclosure, stop and ask for it.

The four headline figures, worked

Here is the box for the site-wide example: a $10,000 loan at 14% for 36 months, with a $500 (5%) fee kept by the lender at funding, so $9,500 reaches your account. The numbers are computed, not an offer.

Two checks take seconds. The amount financed plus the finance charge equals the total of payments: $9,500.00 plus $2,804.08 is $12,304.08. And the payment schedule, 36 monthly payments of $341.78, multiplies out to the same total. If either sum is off, ask why before going further. The total cost of a loan page explains how to rank offers on these figures.

The lines beneath the four boxes

• Payment schedule (1026.18(g)): the number, amount and timing of payments.
• Late charge (1026.18(l)): any dollar or percentage charge for a late payment. Details are on the late fees page.
• Prepayment (1026.18(k)): a definite statement of whether a charge may be imposed for paying early and, where it applies, whether you get a rebate of part of the finance charge. See prepayment penalties.
• Security interest (1026.18(m)): whether the lender takes or will take a lien on property, and what it is. On an unsecured personal loan this line should be absent or say none.
• Insurance and debt cancellation (1026.18(n)): the statements that make optional coverage optional, with its price and a place to sign for it. More on credit insurance and add-ons.
• Contract reference (1026.18(p)): a pointer to the contract for terms on nonpayment, default and acceleration.

The layout and the order of the lower lines differ from lender to lender. What may not vary is the substance: every line that applies to your loan must be there, and none may be buried in other text. Some lines carry the word "estimate". Regulation Z allows that only when a figure is unknown at the time and the lender uses the best information reasonably available, and it must say so clearly.

The itemization of the amount financed

Section 1026.18(c) breaks the amount financed into the money paid to you, any amount credited to an account you hold with the lender, amounts paid to others for you, and the prepaid finance charge. A lender may give you a statement that you have the right to an itemization instead, with a place to ask for one. Ask: it is where a financed add-on or a payoff sent to another creditor appears. On a debt consolidation loan, check that each payoff matches the balance on that card or loan, so nothing is left owing.

How exact the APR must be

Under 12 CFR 1026.22, the disclosed APR on a regular loan, with equal payments at equal intervals, counts as accurate within 1/8 of one percentage point of the true rate. On an irregular loan, for example one with several advances or uneven payments, the tolerance is 1/4 of a point.

For the example, a box showing 17.60% or 17.70% is within tolerance. A box showing 17.50% is 0.15 point below the true 17.65% and is not. To find the true figure, enter the amount financed, the payment and the number of payments in the offer comparison calculator.

If a number is wrong

1. 1 Before signing, do not sign. Ask the lender in writing to explain the figure or issue a corrected disclosure, and compare the new version line by line.
2. 2 Check the quote against the box. If the rate, fee or amount differs from what you were offered, ask which one the contract uses; the disclosure must reflect the legal obligation you are signing.
3. 3 After signing, write to the lender with the figures you believe are correct and how you got them, and keep copies.
4. 4 If it is not fixed, complain. Use the CFPB complaint form or call (855) 411-2372, and contact your state's lending regulator, listed in State rules.

Questions people ask