Truth in Lending Act

Overview

Veracross now offers schools the ability to create a Truth in Lending Act (TILA) disclosure document through the use of our software. The Veracross TILA product is designed to make compliance with your school’s TILA disclosure obligations seamless. 

We’ve outlined below information that we believe can help guide schools in deciding when TILA disclosure obligations may affect them and what information must be included in any required disclosures.

What is the Truth in Lending Act (TILA)?   

The Truth in Lending Act (TILA) is a federal law passed in 1968 to ensure that consumers are treated fairly by businesses in the lending marketplace and are informed about the true cost of credit. The TILA requires lenders to disclose credit terms in an easily understood manner so that consumers can confidently comparison shop interest rates and conditions. While a tuition payment plan is not the type of credit for which one would expect a parent to shop around, TILA’s implementing Regulation Z sets forth conditions where, in fact, the TILA disclosure requirements apply to independent schools.  

Which Schools are Subject to TILA disclosure requirements?

A school is considered a “lender” subject to the TILA disclosure requirements if it regularly (more than 25 times in the prior year[1]) extend “credit” of $58,300 (2020 threshold)[2] or less that is either:

• subject to a “finance charge”; or 
• payable by a written agreement in more than four installments after the tuition due date.[3]

A “finance charge” includes any amount charged to the parents as a result of the payment plan—any fees, interest, amounts required tuition insurance, etc. [4] A “finance charge” does include any equivalent charges imposed on parents who pay on or prior to the tuition due date. However, a discount (however small) to parents who pay by the tuition date, as opposed to through a payment plan, is considered a “finance charge” to the parents electing a payment plan, triggering the TILA disclosure requirements for those opting to pay after the tuition due date.[5] 

Where do Estimated Finance Charges appear in the TILA Disclosure Statement?

On the Truth In Lending Disclosure Statement, the only place where the estimated finance charges show up are in the top-level row of boxes.

Finance charges are not included in the "Payment Schedule listing" or in the "Itemization of Amount Financed" tables of this document. This is because:

1. There is the amount of money the signer will be borrowing (loan amount) which is split up. Then, separately, there is an additional fee (finance charge) that the borrower will pay in order to having the fees split up. The TILA document keeps these separate.
2. In most cases, the finance charge is applied as a one-time charge and is not split up.

When is a TILA disclosure Document required? 

Any Tuition Payment Plan in which the school permits parents to make periodic payments before the tuition amount is due is not a Payment Plan subject to TILA reporting requirements. TILA applies to Payment Plans allowing for payment after the “due date.” Thus, the “tuition due date” is important in determining the need for TILA compliance obligations for Tuition Payment Plans. 

For Payment Plans allowing payments after the due date, if the school imposes any “finance charges” then all parents electing Payment Plans (even if in 2 installments, for example) must receive a TILA disclosure document.  If the school does not charge any “finance charge” then the disclosure document is only required if the payment plan allows for more than four payments.  If a disclosure document is required, it must be provided to the parents before the time of contract signing.^[6] 

What must be included in a Truth in Lending Disclosure Document? 

TILA requires disclosure of certain information in a specific and uniform way[7], including:

• Total Loan Amount The total amount that is loaned to the Parent.  This bucket will not include Finance Charges or Deposits but will include Enrollment Fees if you have that fee.  If Financial Aid is populated prior to the contract being signed, this calculation will include Financial Aid.
• Finance Charges Any amount of money that the Parent must pay due to their choice of a particular Payment Plan that would otherwise not have to been paid if a different Payment Plan was chosen.  Examples:
  • Plan Specific Fees 
  • Tuition Refund Insurance (TRI) 
  • VC Pay Payment Plan Fees (Parent Pay Fee) 
• Annual Percentage Rate (APR) (the cost of credit as a yearly rate). Total Finance Charges/Total Loan Amount 
• Total of Payments Total Loan Amount Plus Finance Charge.
• Total Sale Price Total Payments Plus Deposit.
• Payment Schedule This will display the number, amount, and timing of the Payments.  This is populated based on the Total Loan Amount and will use the Charge Split Configuration on the Payment Plan to display.
• Itemization of Amount Financed This grid displays the specifics of what is included in the Total Loan Amount.

The disclosure must include other details as well, such as identifying your school as the "creditor," any applicable pre-payment fees, and whether the school can demand payment on an accelerated schedule. It also must include a reference that directs the parent to the appropriate contract document.

Disclaimer: This information is provided for general educational purposes only. It should not be relied upon as, or in place of, legal advice. Schools should consult with their own legal counsel.

Where Can I get More information? 

The full text of Regulation Z is available here. 

This legal advisory published By the National Association of Independent Schools (NAIS). 

[1] 12 C.F.R. § 1026.2(a)(17)(v)