Legal Alert: Plan Loans under Truth-In-Lending Act


The federal Truth in Lending Act ("TILA"), and the Federal Reserve Board's Regulation Z implementing TILA, are applicable to most employee benefit plans that have plan loan provisions, such as a "typical" 401(k) plan or 403(b) plan. This is because Regulation Z covers any entity or individual that offers credit under the following conditions: (1) the credit is offered or extended to a "consumer"; (2) the credit is primarily for personal, family, or household purposes; (3) the credit carries a finance charge, or is payable in more than four installments, pursuant to the terms of a written agreement; and (4) the entity or individual makes more than 25 loans – including both new loans and refinancing of old loans – during the year, or made more than 25 such loans during the preceding year. The first three conditions will always be met by a plan loan program, so it becomes a question of whether the plan makes, or has made, more than 25 loans per year.

Please see full alert for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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