Flashcards in Financial legislation-lending Deck (110)
Three-Day Right of Rescission:
The right of a borrower via Regulation Z of the Truth in Lending Act to rescind the transaction within three days by merely notifying the lender
Equal Credit Opportunity Act (ECOA):
Law prohibiting credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance
Laws that limit interest rates
Federal and state governments regulate the lending practices of mortgage lenders through several pieces of legislation, among them are
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Community Reinvestment Act, and the Real Estate Settlement Procedures Act (RESPA).
The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) was enacted:
on July 30, 2008,
a nationwide licensing and registration system for residential mortgage loan originators (MLOs).
The SAFE Act requires that federal registration and state licensing and registration be accomplished through the same online registration system, the
Nationwide Mortgage Licensing System and Registry.
The objectives of the SAFE Act include:
Aggregating and improving the flow of information to and between regulators
Providing increased accountability and tracking of MLOs
Enhancing consumer protections; supporting anti-fraud measures
Providing consumers with easily accessible information at no charge regarding the employment history of and publicly adjudicated disciplinary and enforcement actions against MLOs
The Consumer Financial Protection Bureau (CFBP) is one of the agencies created as result of the
Dodd -Frank Act
The Consumer Financial Protection Bureau (CFBP) directive is to:
educate and protect consumers and prevent predatory lending in the mortgage marketplace.
CFPB Mission (cont.)
Our work includes:
Rooting out unfair, deceptive, or abusive acts or practices by writing rules, supervising companies, and enforcing the law
Enforcing laws that outlaw discrimination in consumer finance
Taking consumer complaints
Enhancing financial education
Researching the consumer experience of using financial products
Monitoring financial markets for new risks to consumers
The Federal Reserve is responsible for enforcing it.
Title I of the Consumer Credit Protection Act of 1968 is known as the Truth in Lending Act (TILA)
Truth in Lending Act
Each of the following loans is covered by the act if the loan is to be repaid in more than four installments or if a finance charge is made:
Real estate loans
Loans for personal, family, or household purposes
Consumer loans for $25,000 or less
The Truth in Lending Act is designed to help consumers in two main ways:
Comparison: TILA helps consumers compare both costs of credit from different lenders AND the cost of buying with cash.
Protection: TILA protects consumers from unfair and inaccurate credit practices.
TILA and regulation Z
Regulation Z applies to credit transactions where credit is:
Extended to consumers
Offered on a regular basis (that is, Mr. A offering his friend Mr. B a loan would not fall under Regulation Z; but a car dealership offering consumer financing on a regular basis would)
Either subject to a finance charge, such as an interest rate or financing fees, or is to be paid in four or more installments
*Secured by a residence
*To be used for personal, family, or household purposes (that is, not for business, commercial, or agricultural purposes)
Involves a closed-end transaction (that is, any line of credit that is not open-end or revolving)
TILA & Regulation Z (cont.)
In it, lenders must disclose:
The application fee for obtaining the loan
The address of the property that is to be collateral for the loan
The total sale price, including the down payment
The amount financed, which is the sale price plus any other financed fees, less the down payment
The loan’s finance charge, which is the sum of the discounts, fees, and interest payments
The total amount of the loan payments
The annual percentage rate (APR), which is the ratio of the finance charge to the total amount of the loan payments
Any prepayment penalties
The charge for late payments
Whether the loan is assumable or not
If the loan is an adjustable rate mortgage, what the highest possible interest rate is
If the loan is an ARM, how the periodic interest rate is calculated and how monthly payments are derived from it
In most consumer credit transactions covered by Regulation Z, the borrower has
three days to rescind the transaction by merely notifying the lender.
applies to other refinancing options on a home mortgage, to a second lien, or to a home equity loan.
Regulation Z & Advertising
if specific trigger terms (such as the down payment, number of payments, monthly payment, or dollar amount of the finance charge) are used, the following information must be included as well:
Amount or percentage of down payment
Terms of repayment, reflecting repayment obligations over the full term of the loan, including any balloon payment, and
Annual percentage rate and any increase in the rate after loan closing
The amount of the down payment
The amount of any payment
The number of payments or the period of repayment
The amount of any finance charge
If you see any of these terms on an advertisement for real estate, you must ensure to also include the following:
Amount or percentage of down payment
Terms of repayment
Annual percentage rate
A summary of your major rights under the FCRA include:
You must be told if information in your file has been used against you
You have the right to know what is in your file
You have the right to ask for a credit score
You have a right to dispute incomplete or inaccurate information
Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information
Consumer reporting agencies may not report outdated negative information
Access to your file is limited
You must give your consent for reports to be provided to employers
You may limit "prescreened" offers of credit and insurance you get based on information in your credit report
You may seek damages from violators
Identity theft victims and active duty military personnel have additional rights
RESPA is a consumer protection statute that aims to
help educate consumers about closing and settlement services.
One important goal of RESPA is to
protect consumers from abusive lending practices.
RESPA is enforced by the
Consumer Financial Protection Bureau (CFPB).
RESPA & Closing Procedures
within three days of receiving a loan application, the lender must provide the applicant with the following material:
A booklet entitled “Settlement Costs and You,” published by HUD, concerning settlement services.
A Truth-in-Lending Statement (TIL), indicating the total credit costs and the annual percentage rate (APR) of the loan, which may differ from the initial rate a borrower will pay on the loan
A good-faith estimate of settlement costs, detailing the expected costs of closing and indicating which settlement services are mandated by the lender
RESPA also requires that any time the closing agent refers a borrower to a firm with which the lender is affiliated, the lender must inform the borrower of the connection through an
Affiliate Business Arrangement (ABA) Disclosure stating the relationship and that the buyer need not use affiliated firms.
RESPA also requires that both the borrower (i.e., the buyer) and the seller receive a standardized form from the United States Department of Housing and Urban Development (HUD) that shows all of the
borrower’s and seller’s charges arising from the settlement of their real estate transaction (for example, the buyers' and sellers' closing costs).
in 2015, the HUD-1 Settlement Statement was replaced by a document called
the Closing Disclosure
...that consolidates the HUD-1, Good Faith Estimate, and Truth in Lending Act disclosures.
The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the
Equal Credit Opportunity Act (ECOA)
The Community Reinvestment Act (CRA), passed by Congress in 1977, ensures that financial institutions pursue their responsibilities to meet both
the deposit and the credit needs of members of the communities in which they are chartered.
Community Reinvestment Act (cont.)
The CRA requires that each government-insured depository institution act in
good faith to meet the credit needs of its entire community.