7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)
Key Takeaways
- TILA/Reg Z requires disclosing APR and finance charge and gives a 3-day right of rescission on primary-residence refinances/equity loans, not purchases.
- RESPA Section 8 bans kickbacks and unearned referral fees and requires disclosure of affiliated business arrangements.
- ECOA bars credit discrimination based on race, color, religion, national origin, sex, marital status, age, or public-assistance income.
- TRID timing: Loan Estimate within 3 business days of application; Closing Disclosure received at least 3 business days before closing, with a new 3-day wait on APR/prepayment/product changes.
The Four Consumer-Protection Laws
Four federal laws dominate the financing-regulation questions. Learn what each protects against and which document or behavior it governs.
| Law | Core purpose | Key tool/trigger |
|---|---|---|
| TILA (Truth in Lending) | Disclose the true cost of credit | APR, finance charge, right of rescission |
| RESPA | Stop kickbacks; disclose settlement costs | Bans referral fees; ABA disclosure |
| ECOA | Prohibit credit discrimination | Protected classes in lending |
| TRID | Combine TILA + RESPA disclosures | Loan Estimate & Closing Disclosure |
TRID is not a separate right; it is the integrated disclosure rule that merged TILA and RESPA disclosure forms.
TILA and Regulation Z
TILA (implemented by Regulation Z) requires lenders to disclose the APR and the total finance charge so consumers can compare loans. The APR reflects interest plus certain loan costs, so it is usually higher than the note rate.
TILA also governs advertising: stating a trigger term (such as the down payment amount, monthly payment, number of payments, or APR-related terms in some ads) requires additional disclosures. A vague ad like 'low monthly payments' alone is fine; '$500/month' triggers full disclosure.
Right of rescission: for a refinance or home-equity loan on a primary residence (not a purchase), the borrower has 3 business days to cancel. The 3-day rescission does not apply to a purchase-money loan.
RESPA
RESPA covers federally related mortgage loans on 1-4 unit residential property. Its two famous prohibitions:
- Section 8 bans kickbacks and unearned referral fees. A lender cannot pay an agent for steering buyers to it. Paying for an actual service rendered is allowed; paying merely for the referral is not.
- Affiliated Business Arrangements (ABAs) must be disclosed, the consumer cannot be required to use the affiliate (except for designated attorney/credit/appraisal services), and no fee can be exchanged just for the referral.
RESPA also restricts the escrow/impound account cushion a lender may hold (generally no more than about two months of payments).
ECOA and TRID Timing
ECOA (Equal Credit Opportunity Act) prohibits discrimination in credit based on race, color, religion, national origin, sex, marital status, age (if old enough to contract), or because income comes from public assistance. Note these are the lending protected classes and differ slightly from the Fair Housing Act list.
TRID timing rules to memorize:
- Loan Estimate (LE): delivered within 3 business days of application.
- Closing Disclosure (CD): received at least 3 business days before consummation.
- A change in APR beyond tolerance, a prepayment penalty added, or a loan-product change triggers a new 3-day CD waiting period; most other changes do not.
Tip: 'Three days early to know what you're getting; three days before closing to be sure.'
Counting Business Days and the LE/CD Forms
Under TRID, 'business day' has two meanings. For delivering the Loan Estimate, a business day is any day the creditor is open. For the waiting periods (CD received 3 days before closing; rescission), a business day excludes Sundays and federal holidays but includes Saturdays.
The Loan Estimate is a 3-page form given after application; the Closing Disclosure is a 5-page form that mirrors the LE so consumers can compare. Lenders must respect tolerance buckets: some fees (lender's own charges) have a zero tolerance and cannot increase; others (third-party services the borrower may shop) allow up to a 10% cumulative increase; a third group (prepaids, escrow) has no limit if estimated in good faith. Comparing the LE to the CD for unexplained increases is a core consumer-protection skill.
ECOA vs. Fair Housing, and Loan Servicing
Do not blur ECOA with the Fair Housing Act. ECOA governs credit and adds protections such as marital status, age, and receipt of public assistance that Fair Housing does not list. Fair Housing governs housing transactions and adds familial status and disability. A lender that denies credit must, under ECOA, give the applicant a statement of specific reasons for the adverse action.
RESPA also governs loan servicing: a borrower must be notified before the servicing of the loan is transferred, and qualified written requests to the servicer must be answered within set timeframes. These post-closing protections frequently appear as scenario questions distinct from the upfront disclosure rules.
TRID Timing Rules and the Four Federal Laws Side by Side
The TRID rule combined TILA and RESPA disclosures into two forms with strict deadlines:
- Loan Estimate (LE) - must be delivered within 3 business days of application.
- Closing Disclosure (CD) - must be received at least 3 business days before consummation.
- A change in APR beyond tolerance, a switch to an adjustable rate, or adding a prepayment penalty triggers a new 3-day waiting period.
| Law | Core protection |
|---|---|
| TILA (Reg Z) | Truth in lending: APR, finance charge, right to rescind certain refis within 3 days |
| RESPA | Bans kickbacks/referral fees; governs settlement-cost disclosure and servicing |
| ECOA | Bars discrimination in credit on protected bases; lender must give reasons for denial |
| TRID | Integrates TILA + RESPA into the LE and CD with the timing rules above |
RESPA Section 8 trap: A licensee who accepts a fee, gift, or thing of value for referring a buyer to a specific lender, title company, or inspector violates RESPA - even a "marketing" payment that is really a disguised referral fee. ECOA reminder: a denied applicant is entitled to the specific reasons for the adverse decision, usually within 30 days.
A buyer's lender provides the Closing Disclosure, then the day before closing the APR jumps well above the disclosed figure. Under TRID, what happens?
A title company pays a real estate agent $200 each time the agent sends a buyer to it, with no service performed by the agent. Which law does this violate?