Consumer Credit Protection Act of 1968
Posted By: Dr. Frugal in Loans on 09/12/2007 at 19:58:41
The Consumer Credit Protection Act of 1968 (aka the Truth in Lending Act) set out guidelines for lenders that require them to disclose all the costs of financing to the consumer. This is where we get the term annual percentage rate (APR). Any loan or credit extension has to prominently display the APR, which is always higher than the advertised interest rate.
The Truth in Lending Act/Consumer Credit Protection Act and other related regulations are supposed to make it easier for consumers to understand financial service questions, but that is not always the case. If you have a question about a banking service, call customer service and ask for a detailed explanation--get it in writing too just to be safe.
The next time you receive a solicitation from a credit card company (so tomorrow), look at how the company advertisers the interest rate. The card may state the interest rate is 9%, but somewhere on the solicitation will be the disclaimer indicating it's actually 9.xx--something higher.
Lenders want to make their loans look affordable, so they may feature the interest rate more prominently, but also display the APR number (because they have to). Banks and other institutions that want your deposits will look for a different way to express the interest rate they pay in terms of APY (annual percentage yield)--regardless, the information must be made available to you to ensure that you're informed and can make the best financial decisions that you can.
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