Finance term
Truth in Lending Act (TILA)
Also known as: TILA, Truth in Lending
Definition
The Truth in Lending Act (15 USC 1601 et seq.) is a federal law requiring clear disclosure of credit terms — including APR — on consumer credit products. Most commercial and small-business financing is explicitly excluded, which is why MCAs and other business products use factor rates instead of APR.
Detailed explanation
Enacted in 1968, TILA requires lenders offering consumer credit to disclose the cost of borrowing in a standardized way — most importantly as an annual percentage rate (APR). The CFPB enforces TILA through Regulation Z. The goal is to let consumers compare credit offers apples-to-apples without needing to decode different fee structures.
Commercial and business-purpose credit is largely exempt from TILA. This carve-out explains a major quirk of small-business financing: MCAs, revenue-based financing, and many short-term business loans don't have to disclose APR. They can quote factor rates, cents-on-the-dollar, or weekly payment amounts — making comparison shopping harder for business owners than for consumers shopping for a car loan.
A handful of states have started closing this gap. California, Utah, Virginia, New York, Georgia, and Florida have passed commercial financing disclosure laws (CFDLs) that extend TILA-style APR disclosure requirements to business credit products. These state laws are not TILA — they're independent statutes — but the policy logic tracks directly from TILA's consumer-protection framework.
◈ Worked example
- A consumer auto loan must disclose APR, total finance charge, and total amount financed — TILA-mandated disclosures. A business equipment loan does not.
- An MCA quoting a 1.35 factor rate is not required by federal law to also quote APR. California's CFDL (SB 1235) now requires the APR-equivalent disclosure for CA-based business borrowers.
- A personal credit card must show APR prominently on statements — TILA + Reg Z. A business credit card has fewer mandatory disclosures.
Common questions
The most-asked questions about Truth in Lending Act (TILA) — answered straightforwardly.
Does TILA apply to small-business loans? +
No. TILA explicitly exempts credit extended primarily for business, commercial, or agricultural purposes (15 USC 1603). This means SBA loans, MCAs, equipment financing, and most other business products are not required to follow TILA APR disclosure rules at the federal level. Some states — California, New York, Utah, Virginia, Florida, Georgia — have separate commercial financing disclosure laws that require APR-equivalent disclosures for business products.
What is Regulation Z? +
Regulation Z is the CFPB rule that implements TILA. It sets the specific disclosure formats, timing rules, and APR calculation methodology for consumer credit products. See the Regulation Z entry for details.
Why do MCAs quote factor rates instead of APR? +
Because TILA — and Regulation Z — don't apply to business credit. MCAs are commercial products, so they're not federally required to disclose APR. Factor rates are simpler to explain for a fixed-payback product, but they make it harder for borrowers to compare cost against a conventional term loan. Converting to APR-equivalent helps: APR ≈ ((factor rate − 1) × 365) / term in days.
Who enforces TILA? +
The CFPB is the primary federal enforcer for consumer financial products, including TILA/Regulation Z compliance. The FTC also has authority over certain non-bank entities. State attorneys general can enforce TILA against entities operating in their states.
Further reading
This glossary entry is educational content. ClearValue Lending is a business & personal financing platform — not a lender, broker, or financial advisor. Specific product terms vary by lender; verify with the lender or issuer before applying. See privacy policy.