The Truth In Lending Act is a protection for consumers to know exactly what they are getting into before they take out a loan, agree to credit terms or open a credit card. As the name implies, it ensures that the company that is offering the loan is truthful in all terms. The main point of the Truth In Lending Act is to allow consumers to take the terms of one credit loan and compare them to other available loans to find the best fit for them.
As an accounts receivable department, this affects your job because you must lay out all information about your credit terms to a customer before they sign on. This includes what the interest will be, any additional fees, finance charges, annual percentage rates and your policies. If your consumers are covered by the Truth in Lending Act, a customer has three days to reconsider and back out of the loan process without losing any money.
If you’re not following the Truth In Lending Act, you could find yourself facing hefty penalties and fines. Furthermore, it is not good practice to not be up front with customers about what your credit terms entail. Without a doubt, if you are not completely transparent with customers, you will have many that are unhappy with your company in the end.
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A comprehensive guide to federal law affecting accounts receivable professionals.
Read the guide here.