TILA & Reg Z Fundamentals
~13 min read · Compute what goes into the finance charge and APR, and apply the right-of-rescission clock.
TILA — the Truth in Lending Act, implemented by Regulation Z — makes credit costs comparable: the finance charge and APR turn every loan's pricing into one apples-to-apples number. Add the right of rescission and advertising trigger terms, and you have three of the exam's most reliable question factories.
Finance charge and APR
The finance charge is the cost of credit expressed in dollars: interest, origination fees, discount points, mortgage insurance, and most lender-required third-party fees paid to the creditor or broker. Excluded: charges payable in a comparable cash transaction and bona fide third-party costs like title insurance and appraisal fees (when reasonable and paid to unaffiliated parties). The APR re-expresses the finance charge as a yearly rate on the amount financed — which is why the APR runs above the note rate whenever prepaid finance charges exist.
- Finance charge = dollar cost of credit (interest + points + origination + MI)
- APR = that cost as an annual rate; APR ≥ note rate
- Appraisal/title fees to third parties: generally excluded
The right of rescission
For credit transactions secured by the consumer's principal dwelling — refinances, HELOCs, home-equity loans — each consumer with an ownership interest may rescind until midnight of the third business day after consummation, delivery of the rescission notice, or delivery of material disclosures, whichever is latest (missing disclosures stretch the window to three years). Excluded: purchase-money loans (residential mortgage transactions), investment properties, second homes, and refinances with the same creditor of the same balance. For rescission counting, business days are every day except Sundays and federal holidays — Saturdays count.
- 3 business days; Saturdays count, Sundays and holidays don't
- Principal-dwelling security only; purchases excluded
- Defective disclosures extend rescission up to 3 years
- Each owner can rescind; two copies of the notice each
Advertising trigger terms
Reg Z polices credit advertising: stating a trigger term — the amount of a down payment, payment amount, number of payments, term, or amount of any finance charge — obligates the ad to disclose the full package: down payment amount/percentage, repayment terms, and APR (labeled as such, with any post-consummation rate increase noted). 'Low monthly payments!' with numbers triggers; 'great rates' alone does not. Advertising a rate other than the APR without the APR alongside is a violation.
Worked example
A borrower refinances her primary home, closing Thursday. Friday morning she finds a better offer. Also on the desk: her lender's draft ad — '$1,250/month on a 30-year loan, only 4.9%!' Evaluate her options and the ad.
Rescission: a refinance secured by the principal dwelling carries the right. Consummation Thursday; count business days Friday (1), Saturday (2 — Saturdays count), Monday (3, assuming no holiday): she may cancel until midnight Monday by written notice. The lender then has 20 days to release the security interest and return charges. The ad: '$1,250/month' and '30-year' are trigger terms (payment amount, term), and '4.9%' is a rate that is not labeled APR. Compliance requires the APR stated as such, the repayment terms, and down-payment information where applicable. The exam's two favorite TILA plays in one desk: the Saturday-counts rescission calendar and the trigger-term cascade.
Common exam pitfalls
Granting rescission on a purchase loan.
Purchase-money mortgages have no rescission right — the remedy belongs to refis/HELOCs on the principal dwelling.
Excluding Saturday from the rescission count.
For rescission, business days = all days except Sundays and federal holidays.
Advertising the note rate alone.
Any advertised rate must appear with the APR, labeled 'APR' — and stated more conspicuously than the note rate.
TILA tells the True cost: dollars in the finance charge, percent in the APR, three days to change your mind.
Recap
- Finance charge: dollar cost of credit; APR: annualized equivalent
- APR exceeds note rate when prepaid finance charges exist
- Rescission: 3 business days, principal-dwelling non-purchase loans
- Saturdays count; missing disclosures extend to 3 years
- Trigger terms in ads require full disclosure with APR
- Reg Z is TILA's implementing regulation (CFPB-enforced)
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