Regulation Z
The Federal Reserve rule implementing the Truth in Lending Act, requiring lenders to clearly disclose the full cost of credit to consumers.
What is Regulation Z?
Regulation Z implements the Truth in Lending Act (TILA) of 1968 and requires creditors to disclose the cost of consumer credit in a standardized, meaningful way so borrowers can compare offers and make informed decisions. Key disclosures required under Regulation Z include: the Annual Percentage Rate (APR), the finance charge (total dollar cost of credit), the amount financed, and the total payment schedule. The regulation applies to most consumer credit including mortgages, credit cards, home equity loans, and auto loans. Administered by the Consumer Financial Protection Bureau (CFPB), Regulation Z also governs mortgage advertising, rescission rights on home equity loans, and ability-to-repay requirements for qualified mortgages.
Example
A consumer applying for a $30,000 auto loan at 6.5% interest receives a Truth in Lending disclosure as required by Regulation Z. The disclosure shows an APR of 7.1% (which includes the dealer origination fee not captured by the stated interest rate), total finance charges of $4,890, and a monthly payment of $586. By standardizing this disclosure, Regulation Z allows the borrower to compare this offer against competing lenders on an apples-to-apples basis.