Get to know the names of the following consumer protection laws and what they cover to get you through any Real Estate License Exam questions. The government passed these laws designed to inform consumers just what they’re getting into when borrowing money.
The Community Reinvestment Act
In 1977, the federal government passed the Community Reinvestment Act (CRA). This legislation required banks to address the financial needs of the communities where they are located, by making funds available for mortgages and other types of consumer loans to people within their service areas and to make periodic reports indicating activities that were undertaken with respect to providing loan opportunities to residents of the area.
The Equal Credit Opportunity Act
The Equal Credit Opportunity Act (ECOA), enacted in 1975, prohibits discrimination in the granting or arranging (for example a mortgage broker) of credit. Lenders are prohibited from discriminating on the basis of age (must be of legal age), color, dependence on public assistance, marital status, national origin, race, religion, and sex.
The act further requires that people who are not granted a loan must be given the reason why they were turned down. It also prohibits discrimination against an applicant who may have used some right under the Consumer Credit Protection Act, usually the Truth in Lending Act.
The National Affordable Housing Act
The National Affordable Housing Act requires that borrowers must be notified whenever the servicing of their loans is transferred to another institution. Borrowers must be notified of the transfer at least 15 days before it becomes effective.
The Truth in Lending Act
The Truth in Lending Act is the popular name for the federal Consumer Credit Protection Act. This act was implemented by Regulation Z of the Federal Reserve Board. In practice, these three names are used interchangeably when referring to this piece of consumer protection legislation. The regulation applies to all real estate credit transactions for personal (home) or agricultural purposes but not for commercial properties.
The primary purpose of the act is to require that creditors provide information to consumers so they can make informed decisions about the use of credit in real estate transactions. Creditors are defined in the act as people or institutions that make more than 25 loans per year or provide credit more than five times a year, if the loans use real estate as security.
The act provides for what is referred to as a three-day right of rescission in most consumer credit transactions. This right enables consumers to change their minds within three days after closing on the loan. This right does not, however, apply to purchase money mortgages, first mortgages, or deed of trust loans. Refinancing loans, such as home equity loans, are covered by the rescission provision of Regulation Z.
Advertising of real estate financing is heavily regulated by this act. If details about financing are presented in an ad, then the annual percentage rate (APR) must be stated.
In addition, if the advertisement mentions any trigger terms, then additional regulations kick in that require more detailed information to be included in the ad. The trigger terms are the
Amount of any payment, such as the monthly mortgage payment.
Dollar amount of the finance charge, that is, the interest rate.
Number of payments.
Term of the loan, that is, how long the loan is for.
If any trigger terms are mentioned in an ad, then it must also contain the following information:
Annual percentage rate (APR)
Cash price (amount of the loan)
Down payment necessary
Number, amount, and due dates of all payments
Total of all payments to be made
The penalties for violating Regulation Z range from penalties paid to the consumer based on the finance charge to fines of up to $10,000 per day and jail time of up to a year.