Truth in lending.
Given the number of consumer complaints I've heard since the cracks in the financial system began appearing in 2006 at least, the words truth and lending seem to have little in common.
Recently, the Mortgage Bankers Association commissioned a study concluding that borrowers should shoulder the lion's share of the responsibility for bad things happening to them.
Yet, from what the most financially savvy consumers tell me - those who read every word and paragraph of every document handed to them at the settlement table - lenders often promise one thing but deliver another.
The U.S. Truth in Lending Act has long offered a haven to the borrower who may not have known what he or she was getting into, or who was intentionally or unintentionally misinformed about the terms of a loan.
The act provides the "right of rescission" for up to three years from the date a loan agreement is consummated. If the proper disclosures were not provided at settlement, a borrower can rescind the loan by sending a notice to the creditor.
The law requires the creditor to cancel its security interest - that is, its right to take all or part of a property offered as security for the loan - once it receives the borrower's notice. When the lender cancels the loan, the borrower pays back the amount still due.
The security interest's cancellation provides the borrower with the opportunity to refinance, as well as a possible defense against foreclosure.
The Fed, however, has proposed a change in the right-of-rescission rule (FRB Docket No. R1390) that would, in effect, reverse the procedure.
Other proposed changes would revise disclosures for reverse mortgages and add restrictions regarding unfair acts or practices.
AARP legislative counsel David Certner said that what the Fed has proposed weakens the consumer's position by "putting the onus on the borrower to tender payment of the remaining loan proceeds before the creditor must take any action."
Essentially, the proposed changes would require the borrower to pay the entire amount demanded by the creditor before the security interest is canceled.
In a letter to Fed chairman Ben S. Bernanke, a group of law professors led by Elizabeth Renuart of Albany Law School said the proposed changes would "kill the vitality of this important remedy from the homeowner's perspective."
Anticipating lenders' arguments, the professors emphasized that the current rule doesn't give the borrower "a free ride."
In fact, as the group Americans for Financial Reform points out, though the amount due "is reduced by the charges, fees, and amounts the homeowner has already paid, the balance is still due the creditor."
An extended right of rescission is necessary to enforce the strict disclosure requirements in the Truth in Lending Act, opponents of the proposed change said.
"Regulation of our current mortgage market depends on disclosure of the real terms of the transaction to provide some balance between the parties to a mortgage transaction," said the financial-reform group - a coalition of 250 national, state, and local consumer, labor, investor, civil-rights, community, small-business, and senior-citizens organizations.
For their part, even lenders find the Fed's efforts "ill-timed" and say the changes should be postponed until more than a piecemeal approach to reform is made.
Or, as a subhead in a Nov. 10 letter from lender trade associations noted: "Reform efforts paved with good intentions have yielded suboptimal results."