What Is Regulation Z and How Does It Protect Borrowers?

How Regulation Z Works

Regulation Z is part of the Truth in Lending Act of 1968 and applies to home mortgages, home equity lines of credit, reverse mortgages, credit cards, installment loans and certain student loans.

Under the regulation, lenders are required to provide borrowers with access to interest rates, fees and finance charges in writing. Other aspects of the law include:

• Lenders must provide monthly billing statements to borrowers.
• Creditors must notify borrowers when there's a change in the interest rate on a variable-rate loan.
• Consumers will receive fair and timely responses to billing disputes.
• Mortgage lenders are prohibited from using unfair practices that give rise to a conflict of interest between the lender and a mortgage broker.

How Regulation Z Protects You With Mortgages

The primary way the regulation protects consumers during the mortgage process is by eliminating a conflict of interest for mortgage brokers.

More specifically, mortgage lenders aren't allowed to change a broker's fee based on the terms of the loan—which means brokers can't increase their commission check by pushing homebuyers to borrow more money or take on a loan with unfavorable terms.

As a result, borrowers can work with a broker they know won't get a kickback and will work with the homebuyer's best interests in mind.

Regulation Z also requires mortgage lenders to provide borrowers with a written disclosure of rates, fees and other finance charges. Plus, if you have an adjustable-rate mortgage, they're required to let you know in advance if your rate will be changing.

How Regulation Z Protections You With Credit Cards

Since the enactment of the Credit CARD Act of 2009, Regulation Z has provided expanded protections and rights for credit card holders including:

• Liability for unauthorized use: Your maximum liability for credit card fraud is just $50, and a lender must meet certain requirements before it can hold you liable for any amount of an unauthorized charge.
• Promotional rates: If a credit card offers a promotional interest rate, the card issuer must state when the promotional period will expire, what the ongoing APR will be after the promotion ends and whether a promotional fee applies and how much. It also requires lenders to note that a deferred interest promotion may incur interest retroactively if you don't pay the balance in full by the end of the promotional period.
• Marketing to college students: Regulation Z limits how credit card issuers can market their products to college students. For example, they can't offer goods—such as a gift card or T-shirt—as an incentive, and cannot advertise to students within 1,000 feet of college campuses.
• Disclosures: When you open an account, credit card issuers must provide clear information about a card's interest rate, fees and other finance charges and make certain additional disclosures. You're also entitled to a notification when your card issuer changes your variable interest rate.
• Penalty fees: If you miss payments on your account, some card issuers may choose to assess a penalty fee. According to Regulation Z, this penalty must be reasonable and proportionate to the violation, and there are hard limits on such fees.

Credit cards and other types of open-ended credit, including home equity lines of credit, are also covered by a billing dispute process. If you provide information about a billing error within the past 60 days, the lender must send written acknowledgment of the dispute within 30 billing days.

If the creditor confirms the billing error—which must happen within two billing cycles and no more than 90 days later—it must correct the error, refund the disputed amount, update fees and other charges associated with the error, and provide the customer with a correction notice.

How Regulation Z Protects You With Other Loans

Regulation Z also applies to installment loans, including but not limited to personal loans, auto loans and short-term installment loans. With student loans, however, it applies to private student loans.

Across all types of installment loans, you'll receive all the basic protections other borrowers receive. That includes the right to a monthly billing statement, access to fair and timely responses to billing disputes and clear details about a loan's interest rate and fees.

What to Do if Your Regulation Z Rights Are Violated?

If you believe your bank, credit card issuer or loan provider isn't following the rules of Regulation Z, and that's resulted in your rights being violated, start by calling their customer service line and requesting to speak with a supervisor or manager about the issue. The violation may have been a result of a mistake or a misunderstanding.

If the lender refuses to make the situation right, you can file a complaint with the Consumer Financial Protection Bureau, which has rule-making authority for the Truth in Lending Act. You can also submit a complaint to the Federal Trade Commission.

As a last resort, you may also consult an attorney, who can help you settle the matter directly with the creditor or in a court of law.

Make Your Credit a Top Priority

Regulation Z provides some excellent protections for consumers, but it's still your responsibility to read the fine print for every credit card or loan you apply for.

Also, keep in mind that billing disputes are valid only if you report them within 60 days of the lender sending the statement that reflects the error. As such, it's important to stay on top of your billing statements and review transactions to make sure everything is accurate.

Finally, take the time to keep track of your credit score. With Experian's credit monitoring service, you'll get free access to your FICO^® Score^☉ plus updates when new inquiries and credit accounts are added to your Experian credit file.

Monitoring your credit and developing good credit habits can help you improve your chances of qualifying for credit with favorable terms.