7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)
Key Takeaways
- TILA (Reg Z) requires APR and finance-charge disclosure and gives a 3-day rescission on refinances and home-equity loans, not purchases.
- RESPA (Reg X) governs settlement-cost disclosure and bans kickbacks and unearned referral fees under Section 8.
- ECOA (Reg B) bars lending discrimination and adds protected classes (marital status, age, public assistance) beyond Fair Housing.
- TRID created the Loan Estimate (within 3 business days of application) and Closing Disclosure (at least 3 business days before closing).
- The CFPB administers these laws; certain late changes restart the 3-day Closing Disclosure waiting period.
The Federal Consumer-Protection Framework
A cluster of federal laws governs how lenders disclose costs and treat applicants. The exam expects you to match each law to its purpose, its enforcing concept, and its key documents. Four dominate: the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), the Equal Credit Opportunity Act (ECOA), and the TILA-RESPA Integrated Disclosure rule (TRID). All are now administered largely by the Consumer Financial Protection Bureau (CFPB).
TILA (Regulation Z)
The Truth in Lending Act, implemented by Regulation Z, requires lenders to disclose the true cost of credit, expressed as the Annual Percentage Rate (APR) and the finance charge, so borrowers can compare loans. TILA also governs advertising: if an ad states a specific trigger term (down payment, payment amount, term, or rate), it must disclose all key terms. TILA grants a three-day right of rescission on certain refinances and home-equity loans on a primary residence, but not on a loan to purchase that residence.
The APR is broader than the note rate because it includes interest plus points and many lender fees expressed as a yearly percentage. That is why a low advertised rate can carry a higher APR. The finance charge is the total dollar cost of credit over the loan's life. Advertising rules are strict: stating "$1,000 down" or "$900 a month" triggers full disclosure of the APR, term, and any balloon.
RESPA (Regulation X)
The Real Estate Settlement Procedures Act applies to federally related mortgage loans on one-to-four-family residential property. Its core goals: ensure borrowers receive clear settlement-cost disclosures and prohibit kickbacks and unearned referral fees among settlement-service providers (Section 8). RESPA also limits the amount a lender can require in an escrow (impound) account for taxes and insurance, and it bars a seller from requiring the buyer to use a particular title company. A referral fee between cooperating brokers is allowed; a kickback for steering a buyer to a lender is not.
Matching each statute to the violation it governs
The fastest way to answer these questions is to map a fact pattern to the right law.
| Fact pattern | Statute violated |
|---|---|
| Ad states "3.5% rate" but hides the APR and terms | TILA / Reg Z |
| Lender pays an agent a kickback for referrals | RESPA / Reg X |
| Loan denied because applicant receives public assistance | ECOA / Reg B |
| Buyer not given the Closing Disclosure 3 days before closing | TRID |
TILA governs disclosure of the cost of credit (APR, finance charge) and advertising: naming one trigger term (down payment, payment amount, term, or rate) forces disclosure of all key terms. RESPA governs the settlement process on federally related mortgages — it bans kickbacks and unearned fees and requires the Loan Estimate and servicing disclosures. ECOA bans discrimination in credit on protected bases and requires a notice of action taken.
TRID's two documents and the timing rules
TRID merged earlier forms into two:
- Loan Estimate (LE): delivered within 3 business days of application.
- Closing Disclosure (CD): received at least 3 business days before consummation.
Worked timing trap: A lender issues a corrected CD that raises the APR beyond tolerance the day before closing. The 3-business-day clock restarts, pushing closing back. Borrowers also keep a 3-day right of rescission on a refinance of a primary residence (not on a purchase). Memorize "LE = 3 days after application; CD = 3 days before closing; rescission = 3 days after a refi closes," because the exam clusters these three-day rules to see which you confuse.
Under RESPA Section 8, which of the following is prohibited?
ECOA (Regulation B)
The Equal Credit Opportunity Act prohibits discrimination in any credit transaction based on race, color, religion, national origin, sex, marital status, age (provided the applicant can contract), or because income derives from a public assistance program. Unlike the Fair Housing Act, ECOA targets the lending decision, not the housing itself. Lenders must notify applicants of action taken on an application, and on denial must provide the specific reasons or a notice of the right to learn them. Note ECOA covers categories (marital status, age, public assistance) that Fair Housing does not.
TRID and the Two Key Documents
TRID combined older TILA and RESPA forms into two documents for most closed-end consumer mortgages:
| Document | Replaces | Timing rule |
|---|---|---|
| Loan Estimate (LE) | GFE + early TIL | Within 3 business days of application |
| Closing Disclosure (CD) | HUD-1 + final TIL | Received at least 3 business days before closing |
The 3-business-day rules are the most tested facts. Certain changes (APR increase beyond tolerance, adding a prepayment penalty, switching loan products) trigger a new 3-day waiting period before closing.
A borrower must receive the Closing Disclosure how far in advance of consummation under TRID?
Other Federal Lending Rules
A few additional laws round out the framework. The Fair Credit Reporting Act (FCRA) governs how credit-report data is collected and used, and entitles applicants to a free report after an adverse action. The Home Mortgage Disclosure Act (HMDA) requires lenders to report loan-application data so regulators can detect discriminatory lending patterns.
The Dodd-Frank Act created the CFPB and the Ability-to-Repay/Qualified Mortgage (QM) rules, which require lenders to verify a borrower can actually repay. The SAFE Act requires mortgage loan originators to be licensed or registered. Each pairs with a consumer-protection theme tested on the national exam.
Common Exam Traps
Do not confuse the laws. TILA = cost-of-credit disclosure (APR/finance charge) and rescission. RESPA = settlement costs and anti-kickback. ECOA = no discrimination in lending. TRID = the LE and CD forms with their 3-day timing. Another trap: the right of rescission applies to refinances and home-equity loans, never to a purchase money loan on the home being bought. And remember the Loan Estimate is delivered after application while the Closing Disclosure is delivered before closing.