Unit 8: Consumer Protection Laws Flashcards
What are the 2 consumer protection laws?
- Truth in Lending Act (TILA)
2. Real Estate Settlement Procedures Act (RESPA)
What does TILA cover?
All consumer lending, not just real estate.
What does RESPA cover?
All closing costs association with real estate professionals, including lenders and title companies.
Who enforces the consumer protection laws?
The Consumer Financial Protection Bureau
What is another name for TILA?
Regulation Z
What does RESPA standardize?
The closing practices for 1- to 4-family residential properties financed by federally related loans.
What does RESPA require at the application for the loan and at the closing of the loan?
A loan cost disclosure at application and a loan closing disclosure at closing.
What are the 2 things restricted by RESPA?
- Excessive escrow account deposits (taxes & insurance)
2. Kickbacks
How many months of additional fees can an escrow account have?
No more than 2 months of additional fees plus what is owed.
What is the purpose of TILA?
To promote the informed use of consumer credit by requiring advance disclosures of loan terms and costs.
Tell the whole truth!
According to TILA, what are the 4 primary disclosures required of lenders?
- True cost of obtaining credit
- Total finance charges associated with loan
- Total number and amount of all payments
- Total amount financed
How is the true cost of obtaining credit expressed?
As the loan’s APR, the relationship of the total finance charge to amount financed.
T/F A loan’s APR is the same as the interest rate.
False. APR and interest rate are not the same thing.
Why will the APR be higher than the “face rate” or “nominal interest rate”?
Because they factored in all costs with acquiring the loan.
What kinds of real estate loans do not require TILA disclosures?
- Loans to corporations
- Business or commercial loans
- Seller financing loans
What does the right of rescission under TILA allow the borrower to do?
It allows the borrower to cancel within 3 days of closing.
T/F Rescission does not apply to home purchase or construction loans.
True
Under TILA, what would trigger a full disclosure requirement in an advertisement?
Down payment, interest rate, monthly payments, and number of payments.
What are the 2 specific finance terms allowed in an advertisement under TILA?
- Asking price
2. APR
T/F General statements like “low down payment” or the amount of property taxes and HOA dues, are allowed in an advertisement.
True
Under TRID (the merging of TILA and RESPA), what are the 2 disclosures that are now required for lenders to provide?
- Loan Estimate
2. Closing Disclosure
What does the loan estimate show the borrower?
Both the APR/lender costs and all estimated loan costs
When must the lender provide the borrower the loan estimate disclosure?
No later than 3 business days after the loan application.
When must the lender provide the borrower the closing disclosure?
No later than 3 business days before the closing.
If changes are made to the loan, how many days does the borrower get to review?
3 business days
What are the changes to a loan that require an additional 3 business day review?
If the APR increases more than
- 1/8% for fixed rate loan
- 1/4% on variable rate loan
