Definition of adequate notice
What is adequate notice
The term adequate notice refers to a written document that specifies in detail the terms and conditions of a loan or credit extension to a consumer. Proper notice requires the consumer to be made aware of key details of the credit agreement, such as annual percentage rate, grace period, annual fees, etc.
Understand adequate advice
the Loan Truth Act (TILA) requires lenders to disclose the main terms of a credit agreement to borrowers before signing the agreement. The concept of adequate notice aims to protect the consumer by ensuring that they are aware of all the key details of a proposed credit agreement. The purpose of requiring adequate notice under TILA is to strengthen the economy by facilitating the informed use of credit among consumers.
Key points to remember
- Adequate notice specifies the terms of a loan or credit extension by businesses or individuals to a consumer or customer.
- Adequate notifications must be made in writing.
- Adequate notices must meet the specifications set out in the Loan Truth Act (TILA).
Who must give adequate notice under TILA
Under TILA, any business or person who meets the following four criteria must adequately inform borrowers of the terms and conditions of the credit agreement:
- They extend or offer credit to customers;
- They do this regularly (i.e. more than 25 times a year for a revolving loan or a loan secured by movable property other than a home, and more than five times a year for a loan secured by a home. );
- The credit is financially charged or payable in more than four installments; and
- Credit should be used for household, personal or family purposes.
However, if the credit extension involves a credit card, TILA dictates that issuers must give adequate notice even if the card is not payable in more than four installments, or is not subject to finance charges. , or is used for commercial purposes. .
What an adequate notice should look like
Adequate notice under TILA must be given in writing. It should be done “clearly and conspicuously”, in a meaningful way and in a form that the customer can take home and keep. This must not be misleading.
Adequate notice for a closed credit agreement should include:
- The duration of the credit agreement or the period during which the credit is advanced;
- The amount financed, including a breakdown of the amount;
- The financial burden;
- The payment schedule;
- The total of these payments;
- The identity of the creditor;
- Penalties for early payment or late payment;
- And, where applicable, required deposits, total selling costs, demand characteristics, insurance, contract references and collateral.
Proper advice for an open credit transaction includes:
- Finance charges, including annual percentage rates and variable rate information;
- The method of determining the financial charge;
- Any expectation of the creditor that the borrower is making repeated transactions;
- The restoration of credit to the consumer as he pays the balance;
- The method and amount of membership or participation fees;
- Billing Rights Statement; and
- Security interests, if applicable.
Example of adequate notice
Susan’s credit card application with her bank is approved. With her card, she receives an adequate notice from her bank detailing the conditions and fees applicable to her account. When she logs into her account website, a privacy statement regarding the use of her financial data is displayed.