Truth-in-Lending Act (TILA) Flashcards

Questions and Answers

What is the stated purpose of the Truth-in-Lending Act?

Restrict the interest rates charged by lenders

Assist consumers in comparing credit to avoid the uninformed use of credit (correct)

Protect consumers from unethical mortgage lenders by requiring use of the Good Faith Estimate for all mortgage loans

Prevent discrimination based on protected class distinctions

Which of the following advertisements contains a term that would require additional disclosures under the Truth-in-Lending Act?

Buy for less than rent!

Own for $700 per month! (correct)

Interest rates as low as 5.65% APR!

No origination fee charged!

Which of the following would be considered a 'dwelling' under the Truth-in-Lending Act?

Residential condominium (correct)

Residential apartment building

Office building

Residential fiveplex

A first lien higher-priced mortgage loan (HPML) is defined as a loan with an annual percentage rate which exceeds the average prime offer rate by?

1.5% Signup and view all the answers

Which of the following is true if a borrower effectively rescinds on a refinance transaction on their primary residence?

The borrower is entitled to a refund of their prepaid appraisal fee Signup and view all the answers

Which of the following is NOT required to be disclosed in an advertisement which contains a trigger term as set forth in the Truth-in-Lending Act?

The amount of principal covered in each payment Signup and view all the answers

Which of the following would be considered to be a high-cost home loan if the average prime offer rate is 3%?

A 15-year mortgage loan with an annual percentage rate of 10% Signup and view all the answers

Study Notes

Truth-in-Lending Act (TILA) Overview

Aims to assist consumers in comparing credit options to prevent uninformed use of credit.
Requires lenders to disclose clear and conspicuous terms of consumer loans, protecting borrowers from unethical practices.

Trigger Terms in Advertisements

The advertisement stating "Own for $700 per month!" qualifies as a trigger term.
Trigger terms necessitate additional disclosures regarding down payments, loan terms, payment amounts, or finance charges.

Definition of Dwelling

Under TILA, a "dwelling" consists of residential structures with one to four units.
Includes various types like condominiums, cooperatives, mobile homes, and trailers when used as residences.

Definition of Higher-Priced Mortgage Loan (HPML)

A first lien HPML is defined by an APR exceeding the average prime offer rate by 1.5%.
Subordinate lien loans exceed the average prime offer by 3.5% to be considered HPMLs.

Rights upon Rescinding a Refinance Transaction

When a borrower rescinds on a refinance transaction for their primary residence, they are entitled to a refund of prepaid appraisal fees.
Creditors must return funds and void any mortgage or trust deed, eliminating consumer responsibility for the loan.

Disclosure Requirements for Trigger Terms

Disclosures that must be made if trigger terms are present include down payment amounts, payment schedules, and annual percentage rates.
The specific amount of principal covered in each payment does not require disclosure under TILA.

High-Cost Home Loan Identification

A loan is classified as high-cost if its APR exceeds the average prime offer rate by over 6.5 percentage points for first lien loans.
For a loan with a 3% average prime offer rate, a 15-year mortgage at 10% APR qualifies as a high-cost home loan.

Description

Test your knowledge on the Truth-in-Lending Act (TILA) with these flashcards. This quiz focuses on the key purposes and definitions related to TILA, helping you understand consumer protections in lending. Perfect for students of finance or anyone interested in consumer rights.