LESSON 10: AGENCY, ETHICS, LAW Flashcards
What is the definition of law in the United States?
Law is a body of rules of conduct that are of binding legal force, recognized, and enforced by controlling authorities. U.S. law includes statutes, case law, treaties, executive orders, and regulations made by federal, state, and local governments. Laws regulate what we can or cannot do and impose consequences for violations.
What is the difference between law, ethics, and morals?
Law refers to rules enacted by governing bodies with legal consequences for violations. Ethics are personal or professional rules of conduct based on what is right or wrong. Morals are principles of right and wrong that are often taught through fables or general truths, and are subjective to individuals.
What is common law?
Common law is a system of law based on court decisions and customs, as opposed to statutes or written laws. It evolves from judicial decisions and precedents.
What are the main goals of the Truth in Lending Act (TILA)?
TILA aims to promote informed use of consumer credit by requiring lenders to disclose the terms and costs of loans. It allows consumers to compare credit costs and protects them from unfair credit practices. TILA also provides a “right of rescission,” which gives borrowers three days to back out of certain loans without penalty.
What does the Fair Housing Act prohibit?
The Fair Housing Act prohibits discrimination in housing based on race, color, religion, sex, familial status, or national origin. It also prohibits discrimination in terms, conditions, privileges, and advertising of the sale or rental of properties.
What is the purpose of the Community Reinvestment Act (CRA)?
The CRA encourages depository institutions to meet the credit needs of all areas in their communities, including low- and moderate-income neighborhoods. It requires institutions to submit annual statements about their efforts to help these communities, and evaluates them periodically to ensure they meet credit needs.
What is redlining in the context of the CRA?
Redlining refers to the practice of limiting the number of loans or setting unfavorable terms in certain neighborhoods based on racial or other discriminatory factors. It violates both the Fair Housing Act and the Community Reinvestment Act.
What type of loans does the Truth in Lending Act (TILA) apply to?
TILA applies to real estate loans, consumer loans for $25,000 or less, and personal, family, or household loans that are repaid in more than four installments or involve a finance charge.
What information must lenders disclose under Regulation Z of TILA?
Lenders must disclose loan application fees, the property address, the total sale price, the amount financed, finance charges, the APR, prepayment penalties, late payment charges, and whether the loan is assumable. If the loan is an ARM, the highest possible interest rate must be disclosed.
What are the consequences of noncompliance with TILA?
Civil liability for creditors who fail to comply with TILA may include actual damages, legal fees, and penalties. Criminal liability includes fines up to $5,000 or imprisonment for up to one year. Administrative actions can require adjustments to consumer accounts or reimbursement for violations.
What is the Real Estate Settlement Procedures Act (RESPA) designed to do?
RESPA is a consumer protection law that educates consumers about the costs and services involved in real estate transactions. It aims to eliminate unnecessary referral fees and tacked-on charges that increase closing costs. It applies to most loans secured by a mortgage lien on residential properties.
What must lenders provide within three days of receiving a loan application under RESPA?
Lenders must provide a booklet about settlement costs, a truth-in-lending statement, and a good-faith estimate of settlement costs. They must also inform borrowers if they refer them to an affiliated business.
What does RESPA prohibit in real estate transactions?
RESPA prohibits parties from accepting or giving fees for referring closing services, charging for unperformed services, and requiring the use of a specific title insurance company. It also limits escrow account amounts and requires standardized settlement statements.
What triggered the Dodd-Frank Wall Street Reform Act?
The financial crisis of 2008, which caused millions of Americans to lose jobs and resulted in trillions in lost wealth, due to a fragmented, outdated financial regulatory system.
What was the primary purpose of the Dodd-Frank Act?
To prevent excessive risk-taking that led to the financial crisis and provide protections for American families from unfair, abusive financial practices.
What agency did the Dodd-Frank Act create?
The Consumer Financial Protection Bureau (CFPB), which regulates and enforces financial consumer laws.
What is the purpose of the “Know Before You Owe” program?
To simplify mortgage disclosures by combining two federally required forms into one, making it easier for consumers to understand and compare loan costs and risks.
Which financial products does the CFPB regulate?
The CFPB regulates all consumer financial products, including mortgages, and enforces the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
What are the exceptions from CFPB regulations?
Reverse mortgages, home equity lines of credit (HELOCs), and mobile home loans (if the mobile home is not attached to real property).
What are the CFPB’s stated goals?
To create easier-to-use mortgage disclosure forms, improve consumer understanding, aid comparison shopping, and prevent surprises at closing.
When did the new disclosure rules under the CFPB become effective?
October 3, 2015.
What are the new requirements for loan disclosures under the CFPB regulations?
The Good Faith Estimate (GFE) and Truth-in-Lending (TIL) became one form called Loan Estimate, which must be provided within 3 days after loan application. The HUD-I Settlement Statement and final TIL became one form called Closing Disclosure, which must be delivered 3 days prior to closing.
What is the penalty for failing to follow CFPB regulations?
Daily penalties: $5,000 for failure to follow the law, $25,000 for gross negligence, and $1,000,000 for intentional violations.
