Financing and credit laws: truth in lending, RESPA, and fair lending

Three questions, three protections

Truth in Lending (TILA) concerns credit-cost disclosure. The Real Estate Settlement Procedures Act (RESPA) concerns settlement practices. The Equal Credit Opportunity Act (ECOA) concerns fair access to credit.

Understand costs and timing

The amount financed is credit available for the consumer's actual use, after applicable adjustments. The finance charge states credit cost in dollars. The annual percentage rate (APR) expresses credit cost as a yearly rate reflecting interest and certain other charges, so it is not simply the note rate.

For most closed-end consumer mortgages secured by real property, the Loan Estimate is generally delivered or mailed within three business days after application. The borrower generally must receive the Closing Disclosure at least three business days before consummation, when the borrower becomes contractually obligated. Each timing rule has its own business-day definition.

The Closing Disclosure waiting period is distinct from rescission. Certain nonpurchase loans secured by a principal dwelling have a three-business-day rescission right; a mortgage used to acquire that dwelling generally does not. Coverage and exceptions matter: do not assume that every real estate loan receives every protection.

Separate services from referrals

RESPA prohibits giving or accepting a thing of value under an agreement to refer settlement business involving a federally related mortgage loan. Paying a broker merely for sending customers to a title company is a warning sign. Bona fide compensation for actual services is different. Affiliated business arrangements require appropriate disclosure, freedom from required use subject to legal exceptions, and restrictions on value received. Disclosure alone does not legalize a kickback.

Evaluate credit fairly

ECOA prohibits discrimination based on protected characteristics, public assistance income, or good-faith exercise of consumer credit rights. Evaluating income amount and probable continuation differs from rejecting income because it comes from public assistance. Applicants for first-lien dwelling loans receive copies of written appraisals and valuations even if credit is denied, without an additional copying charge.

California's additional protections

California's Holden Act addresses housing-finance discrimination, including redlining. It permits consideration of the property's fair market value. California's covered-loan law prohibits a prepayment penalty after the first 36 months; an earlier penalty must satisfy statutory conditions, including offering an alternative without the penalty.

Identify the conduct before selecting the law: credit cost, settlement conduct, or fair access.