Truth in Lending Act Overview

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Questions and Answers

What is one of the primary purposes of the Truth in Lending Act (TILA)?

To ensure consumers can easily compare loan terms from different lenders. (correct)

To provide federal loans to all consumers.

To standardize personal loan interest rates across states.

To eliminate all mortgage lending practices in the U.S.

Which of the following is NOT a requirement imposed by TILA?

Limiting home equity lines of credit and certain mortgages.

Providing borrowers with the right to rescind certain transactions.

Disclosing loan terms in a standardized format.

Setting a universal interest rate for all loans. (correct)

Under TILA, what does the term 'dwelling' include?

Vacant land designated for building.

Mobile homes and individual condominium units. (correct)

Only single-family homes.

Residential structures with five or more units.

Which scenario would subject a loan to TILA regulations?

A loan made by a private lender to a consumer for household use. Signup and view all the answers

What is considered a 'business day' according to TILA for disclosure purposes?

Days when creditors are open for business activities. Signup and view all the answers

What consumer protection does TILA provide regarding new debt on a residence?

A right to rescind the transaction. Signup and view all the answers

Which of the following practices is prohibited under TILA?

Using deceptive mortgage lending practices. Signup and view all the answers

Which requirement does TILA impose on lenders regarding loan disclosures?

Timely delivery of standardized loan disclosures. Signup and view all the answers

What must be included in the appraisal disclosure provided to the borrower?

The lender may order an appraisal to determine the property's value. Signup and view all the answers

When must the lender provide a copy of each written appraisal to the borrower?

No later than three business days prior to loan consummation. Signup and view all the answers

Which of the following is a stipulation regarding prepayment penalties on loans?

The penalty does not apply if refinancing is done with the creditor. Signup and view all the answers

What is a requirement for lenders under the HPML regulations?

Lenders must confirm the borrower's ability to repay the loan. Signup and view all the answers

Which statement is true regarding loan originator compensation?

Loan originator compensation cannot be based on terms or their proxies. Signup and view all the answers

What can reduce originator compensation in a transaction?

Unexpected increases in estimated settlement costs. Signup and view all the answers

Under what conditions can a loan originator receive compensation from both the consumer and another person?

This type of compensation is strictly prohibited. Signup and view all the answers

What must the interest rate and payment conditions be for the first four years of a loan?

They should be fixed for at least the first four years. Signup and view all the answers

What must an advertisement for a loan secured by a dwelling include if it states the amount of any payment?

The amount of each payment over the loan term Signup and view all the answers

Which of the following is considered a triggering term that requires additional disclosures in an advertisement?

The number of payments or period of repayment Signup and view all the answers

What disclosure is required if an advertisement includes a fixed interest rate for a limited time?

Clarification stating the rates can vary after a certain period Signup and view all the answers

Which entity is primarily responsible for enforcing the Home Ownership and Equity Protection Act (HOEPA)?

Consumer Financial Protection Bureau (CFPB) Signup and view all the answers

During which situation can an adjustable-rate advertisement state specific payment amounts?

When the payments do not include taxes and insurance Signup and view all the answers

What is a condition that qualifies a loan as a HOEPA loan or Section 32 loan?

The loan's APR exceeds the APOR by more than 8.5 percentage points Signup and view all the answers

What must be disclosed in advertisements for adjustable-rate loans?

The terms of repayment and information about rate increases Signup and view all the answers

What kind of misleading claim is prohibited by TILA in advertisements for mortgage loans?

Stating rates are fixed when they may vary Signup and view all the answers

Which of the following is NOT a requirement for advertisements of loans secured by a dwelling?

Presentation of a government endorsement Signup and view all the answers

What is the maximum percentage of points and fees for a loan below $20,000 to qualify as a HOEPA loan?

8% Signup and view all the answers

When can multi-page advertisements meet the disclosure requirements?

When disclosures are placed clearly and conspicuously on a designated page Signup and view all the answers

What type of advertisements can omit detailed disclosures regarding specific loan terms?

Exempt advertisements that state a reference number and phone number Signup and view all the answers

What information must be disclosed if an advertisement presents a down payment amount?

The dollar amount or percentage of any down payment Signup and view all the answers

Which type of loan is exempt from TILA/Reg Z regulations?

Loans made to corporations and government entities Signup and view all the answers

What is a primary purpose of the Truth in Lending Act?

To ensure lenders disclose loan terms in a standardized format Signup and view all the answers

What is considered an accurate APR for a fixed-rate mortgage?

Within 1/8th percent of the actual APR Signup and view all the answers

Which statement regarding the right of rescission is correct?

It applies only to residential mortgage transactions Signup and view all the answers

What is NOT a requirement for adjustable rate mortgages under TILA?

Offering fixed interest rates throughout the loan term Signup and view all the answers

How is the finance charge defined according to TILA?

The cost of consumer credit as a dollar amount Signup and view all the answers

When must a borrower notify the creditor to rescind a transaction?

By midnight of the third business day after specific events Signup and view all the answers

What portion of a loan’s advertising must be presented accurately?

Loan term specifics must reflect the lender's current offers Signup and view all the answers

Which type of loan does NOT allow for rescission under the Truth in Lending Act?

A loan secured by a borrower's principal dwelling Signup and view all the answers

What is a prepaid finance charge?

A charge paid separately before loan closing or from proceeds Signup and view all the answers

Which of the following is a requirement for consumer advertising under TILA?

Stating the terms in clear and conspicuous language Signup and view all the answers

What defines an adjustable-rate mortgage according to TILA?

Its interest rate can increase after loan consummation Signup and view all the answers

A lender must redisclose the APR if it is determined to be inaccurate. What is the acceptable margin for fixed-rate mortgages?

1/8 percent Signup and view all the answers

What happens if a borrower rescinds a transaction?

The loan agreement is voided without penalty Signup and view all the answers

Which type of loan is exempt from HOEPA coverage?

Reverse mortgages Signup and view all the answers

What is a key restriction placed on HOEPA loans?

Late fees are limited to four percent Signup and view all the answers

Which of the following must lenders confirm before making a high-cost mortgage?

The consumer has received counseling Signup and view all the answers

What requirement applies to lenders of higher-priced mortgage loans (HPML)?

Escrow for taxes and insurance is mandatory Signup and view all the answers

Which loan type does NOT require tax and insurance escrow under HPML rules?

Cooperative share loans Signup and view all the answers

What constitutes a balloon payment under HOEPA?

A final payment that is twice the regular amount Signup and view all the answers

What is a requirement for lenders originating HELOCs?

They must assess the consumer's ability to repay Signup and view all the answers

What must lenders do prior to closing a HOEPA loan?

Provide a disclosure of obligations Signup and view all the answers

Which is NOT a condition under which balloon payments can be allowed?

For loans issued by urban lenders Signup and view all the answers

What action is strictly prohibited before approving a high-cost mortgage?

Encouraging the consumer to default on a loan Signup and view all the answers

What is the minimum increase in interest rate for a loan to qualify as a higher-priced mortgage loan (HPML) for a first lien?

1.5 percentage points Signup and view all the answers

How long must a lender wait to refinance a high-cost mortgage into another high-cost mortgage?

One year Signup and view all the answers

What must lenders do if a loan is not delinquent and the unpaid principal balance is less than 80% of the original value after five years?

Consider borrower requests to cancel escrow Signup and view all the answers

Study Notes

Truth in Lending Act (TILA)

Enacted May 29, 1968, effective July 1, 1969; amended and revised numerous times
A key federal law regulating mortgage lenders
Requires lenders to disclose loan terms clearly & uniformly to aid consumer comparison
Protects consumers from unfair credit billing & card practices
Guarantees borrowers the right to rescind transactions within a specified time frame
Sets loan rate caps on certain dwelling-secured loans
Includes limitations on home equity lines of credit & closed-end home mortgages
Provides minimum standards for most dwelling-secured loans
Defines & prohibits predatory mortgage practices

TILA - Disclosure Requirements & Timing

Employs "business days" for timing of disclosures and rescission rights; exceptions for Sundays and legal holidays
Applies to consumer loans, loans offered by lending businesses, loans with written agreements for more than four installments, and loans for personal/household use
Exclusions include business, commercial, or agricultural loans, non-owner-occupied residential property loans (except funds for personal usage from such loans), and loans to non-natural persons (e.g., corporations)

Annual Percentage Rate (APR) Disclosures

APR is the yearly rate representing credit cost, accounting for various factors (interest rate, loan amount, closing costs, repayment schedule)
APR must be accurate or re-disclosed if an error is identified
Fixed-rate mortgages require accuracy within 1/8th of a percent
Adjustable rate mortgages require accuracy within 1/4 of a percent

Finance Charges & Seller Contributions

Finance charge represents the aggregate costs of consumer credit (includes lender charges but excludes cash-equivalent charges)
Prepaid finance charges are any charges paid before closing or withheld from loan proceeds
Seller contributions (seller's points), intended as sales incentives, are excluded from the finance charge calculation.

Right of Rescission

Provides borrowers three business days to cancel the transaction after becoming obligated (consummation).
Excluded transactions include: -transactions creating a mortgage, deed of trust, purchase money security interest, or security interest (in owner-occupied homes) to finance the acquisition or initial construction in a dwelling; -refinances or consolidations by the same lender(no new funds)
- state agency loans;
Individuals in title of owner occupied property also have a right to rescind if the transaction is rescindable, and must receive a specific notice detailing the condition, how to rescind, effects of rescission and the date of expiration,
To rescind transaction, notify the creditor in writing by midnight of the third business day, after the latest of: consummation, disclosure delivery, notice receipt

TILA & Advertising

Lenders must adhere to advertised loan terms
Disclosures are required to be clear and conspicuous
Advertised rates of finance charges must be expressed as the annual percentage rate (APR)
Advertisements for dwelling-secured loans can not state any rate except the simple annual rate in conjunction with, but not more conspicuously than, the annual percentage rate.
Triggering terms (down payment amount/percentage, number/period of repayment,payment amount,finance charges) require additional disclosures of specifics of each triggering term
Ads can be placed in multi-page/printed, websites, radio or television mediums, which must meet specific requirements

TILA - Prohibited Deceptive Practices

Prohibits seven deceptive/misleading acts/practices in mortgage loan advertisements. (e.g., Misrepresenting rates/payments, false statements/claims)

Home Ownership and Equity Protection Act (HOEPA)

Amendment to TILA to enhance protections for borrowers (enforced by the CFPB)
Covers particular loan types characterized by high costs or high risk (referred to as 32 loans or high-cost mortgages)
Loans will be considered a HOEPA or Section 32 loan if any criterion is met.
Certain loan types are excluded from HOEPA, such as: Loans to finance initial construction of a dwelling, reverse mortgages, loans by housing finance agencies, USDA loans
Restrictions on HOEPA loans include: no balloon payments, no negative amortization, no prepayment penalties, limiting of points and fees, limiting of late fees and other fees, restriction on loan modification fees, assessments of consumers ability to repay, no recommending default, lenders must confirm counseling, limiting of advance payments.
Additional specific pre-closing disclosures are required for HOEPA loans.

Higher-Priced Mortgage Loans (HPML or Section 35 Loans)

Another TILA category with specific requirements
Defined as Loans that meet specific criteria regarding a exceeding a particular rate in relation to a average prime offer rate (APOR) with differences based whether it's a first lien or a subordinate lien.
Restrictions include requirements for Escrow for taxes and insurance, written appraisal requirements, written appraisal disclosures (timing and format specifications), restrictions on prepayment penalties, and restrictions on interest rates and payments.

Loan Originator Compensation

Dodd-Frank Act limitations on compensation are part of the TILA/Reg Z implementations
Loan originator compensation cannot be based on transaction terms or a proxy for a term.
Compensation cannot be tied to transaction profitability.
Originators cannot receive compensation from multiple sources in the same transaction

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Description

This quiz covers the key aspects of the Truth in Lending Act (TILA), including its history, requirements for lenders, and the protections it provides to consumers. Understand the significance of disclosures, loan terms, and borrowers' rights under TILA. Prepare to test your knowledge on this essential consumer protection law.