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Flashcards in Financial legislation-lending Deck (110)
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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


Usury Laws:

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:

And mandates:

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.


The CRA requires that lenders submit an annual statement, including public comments about

their attempts to help low-income communities.