What is the maximum late payment fee a lender can charge under TILA?

What is the maximum late payment fee a lender can charge under TILA?

• A. 10% of the overdue payment
• B. 5% of the overdue payment
• C. No late payment fees are allowed
• D. Only a flat fee regardless of amount

Answer: (B)

Under the Truth in Lending Act (TILA), the maximum late payment fee a lender can charge is 5% of the overdue payment. This provision is intended to regulate how much lenders can impose on borrowers who fail to pay on time, ensuring that late fees remain reasonable and proportionate to the payment that was missed. This limitation promotes transparency in lending practices, allowing borrowers to be informed of their potential obligations should they miss a payment. The rationale behind capping the late fee at 5% is to prevent excessive charges that could exacerbate the financial difficulties of borrowers who are already struggling to make their payments. By setting a specific percentage, TILA aims to protect consumers while still allowing lenders to recoup some losses due to late payments.

Under the Truth in Lending Act (TILA), the maximum late payment fee a lender can charge is 5% of the overdue payment. This provision is intended to regulate how much lenders can impose on borrowers who fail to pay on time, ensuring that late fees remain reasonable and proportionate to the payment that was missed.

This limitation promotes transparency in lending practices, allowing borrowers to be informed of their potential obligations should they miss a payment. The rationale behind capping the late fee at 5% is to prevent excessive charges that could exacerbate the financial difficulties of borrowers who are already struggling to make their payments. By setting a specific percentage, TILA aims to protect consumers while still allowing lenders to recoup some losses due to late payments.