7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)

Truth in Lending Act (TILA / Regulation Z)

TILA, implemented by Regulation Z, requires lenders to disclose the true cost of consumer credit. Its signature disclosure is the annual percentage rate (APR) — the cost of credit expressed as a yearly rate that bundles interest plus certain finance charges, so borrowers can compare loans on equal footing. The note rate is the simple interest rate; the APR is almost always slightly higher.

TILA also governs advertising. If an ad states a specific credit term — a trigger term such as the down payment, monthly payment, number of payments, or finance charge — the ad must also disclose the APR and other key terms. Stating only "low rates available" triggers nothing; stating "$500 down" triggers full disclosure.

Right of Rescission

TILA grants a three-day right of rescission on certain consumer credit secured by the borrower's principal residence, most notably home-equity loans and refinances with a new lender. The borrower may cancel until midnight of the third business day after closing.

Important trap: the rescission right does not apply to a loan used to purchase or construct the borrower's primary residence. So a buyer financing a home purchase has no three-day rescission. Memorize: rescission = refinances and home-equity loans on a principal residence, not purchase-money loans.

RESPA and the Equal Credit Opportunity Act

The Real Estate Settlement Procedures Act (RESPA) applies to federally related mortgage loans on one-to-four-family residential property. It prohibits kickbacks and unearned referral fees (Section 8) and limits the amount a lender may require in an escrow/impound account. RESPA does not cap interest rates or set fees — it targets disclosure and abusive referral arrangements.

The Equal Credit Opportunity Act (ECOA) prohibits discrimination in credit based on race, color, religion, national origin, sex, marital status, age, or because income comes from public assistance. Contrast ECOA (lending/credit) with the Fair Housing Act (housing transactions). A lender refusing a loan based on the applicant's marital status violates ECOA.

TRID: The Integrated Disclosures

TRID (TILA-RESPA Integrated Disclosure rule) merged the old TILA and RESPA forms into two:

The three-day CD waiting period gives the borrower time to compare the final terms against the Loan Estimate. Certain changes — a higher APR beyond tolerance, a prepayment penalty added, or a change in loan product — reset the three-day clock. The CFPB (Consumer Financial Protection Bureau) enforces TRID, TILA, RESPA, and ECOA.

Putting the Statutes Together

Exam questions often describe a scenario and ask which law applies. Use these triggers:

• Disclosure of the APR or an advertising trigger term -> TILA / Regulation Z.
• A kickback for referring a borrower to a title company -> RESPA Section 8.
• A lender denying credit because of marital status or age -> ECOA.
• Timing of the Loan Estimate or Closing Disclosure -> TRID.

Do not confuse ECOA (discrimination in credit) with the Fair Housing Act (discrimination in housing). Also separate RESPA (settlement procedures, escrow limits, kickbacks) from TILA (cost-of-credit disclosure). A single transaction can trigger several of these laws at once, so read each fact pattern for the specific abuse or disclosure being tested rather than guessing from the loan type alone.

Worked Example: The TRID Timing Rules

TRID merged the old TILA and RESPA disclosures into two forms with strict clocks the exam loves. The Loan Estimate (LE) must be delivered within 3 business days of application. The Closing Disclosure (CD) must be received by the borrower at least 3 business days before consummation (closing).

A borrower applies on Monday. The LE is due by Thursday. Later, the lender must deliver the CD so the borrower has it three business days before signing — if closing is set for Friday, the CD must be received by Tuesday. A change in APR beyond tolerance, a switch to a prepayment penalty, or a different loan product restarts the three-day CD waiting period; a minor seller-credit change generally does not.

Trigger Terms, Tolerances, and Prohibited Conduct

Under TILA / Regulation Z, advertising a specific trigger term — a down-payment amount, a monthly payment, the number of payments, or a finance charge — forces disclosure of the full terms including the APR. "Low monthly payments" alone is fine; "$1,200/month" forces the full disclosure box.

RESPA governs settlement on federally related mortgages: it bans kickbacks and unearned referral fees (Section 8) — a title company may not pay an agent for steering closings — and limits escrow cushions. ECOA bars credit discrimination on prohibited bases (race, color, religion, national origin, sex, marital status, age, receipt of public assistance) and requires a decision notice. The exam pairs each statute with its one-line job: TILA = cost of credit / APR, RESPA = settlement / anti-kickback, ECOA = fair access to credit, TRID = the two combined forms and their clocks.