7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)
Key Takeaways
- RESPA governs settlement-service disclosures and prohibits kickbacks and unearned fees (Section 8).
- TILA (Regulation Z) requires disclosure of the cost of credit, including the APR, and governs advertising 'triggering terms.'
- ECOA prohibits credit discrimination based on protected classes such as race, color, religion, sex, national origin, marital status, age, and receipt of public assistance.
- TRID merged RESPA/TILA disclosures into the Loan Estimate (within 3 business days of application) and the Closing Disclosure (at least 3 business days before consummation).
- Changing the APR beyond tolerance, the loan product, or adding a prepayment penalty triggers a new 3-day Closing Disclosure waiting period.
RESPA — Real Estate Settlement Procedures Act
RESPA applies to most federally related residential mortgage loans. Its purpose is transparency in settlement (closing) services and the elimination of abusive practices that raise costs.
- Section 8 prohibits kickbacks, referral fees, and unearned fees between settlement-service providers. A title company cannot pay an agent for steering closings.
- Requires disclosure of affiliated business arrangements (e.g., a brokerage that owns a title company) so consumers know of the relationship.
- Limits the amount a lender can require in an escrow/impound account for taxes and insurance.
Trap: A thank-you gift of nominal value or a normal commission split is not a RESPA violation; paying for referrals of settlement business is.
TILA — Truth in Lending Act (Regulation Z)
TILA requires lenders to disclose the true cost of credit so borrowers can comparison-shop. The headline figure is the APR (annual percentage rate), which folds in interest plus certain finance charges—so APR is usually higher than the stated note rate.
Advertising triggering terms
If an ad states any one triggering term, it must also disclose the full credit terms (down payment, repayment terms, and APR). Triggering terms include:
- The amount or percentage of any down payment
- The number of payments or the period of repayment
- The amount of any payment
- The amount of any finance charge
Stating only "low monthly payments available" or the APR alone does not trigger full disclosure; stating "$1,200/month for 30 years" does.
ECOA — Equal Credit Opportunity Act
ECOA prohibits discrimination in any aspect of a credit transaction based on a protected class:
- Race or color
- Religion
- National origin
- Sex
- Marital status
- Age (provided the applicant can legally contract)
- Receipt of income from public assistance
Lenders must notify applicants of action taken (approval, counteroffer, or adverse action) and, on denial, provide the reasons.
Trap: ECOA is about credit/lending; the federal Fair Housing Act covers discrimination in the sale and rental of housing. They overlap but are separate laws—a lending bias question is ECOA, a refusal-to-sell question is Fair Housing.
TRID — TILA-RESPA Integrated Disclosure
TRID merged the old GFE/early-TIL and HUD-1 into two forms:
| Form | Replaces | Timing |
|---|---|---|
| Loan Estimate (LE) | GFE + early TIL | Delivered within 3 business days of loan application |
| Closing Disclosure (CD) | HUD-1 + final TIL | Received at least 3 business days before consummation |
The 3-day re-disclosure rule
Three changes after the CD is issued restart the 3-business-day waiting period:
- The APR increases beyond tolerance (more than 1/8% for fixed, 1/4% for adjustable).
- The loan product changes (e.g., fixed to adjustable).
- A prepayment penalty is added.
Minor changes—like a small fee correction—do not restart the clock. Worked timing: If the CD is received Monday, the earliest consummation is the following Thursday (three full business days later, counting Saturday but not Sunday or holidays per the rule).
Putting the four laws side by side
The fastest way to answer a federal-financing question is to identify the kind of harm in the fact pattern and map it to the right statute. Each law owns a distinct lane.
| Harm in the fact pattern | Governing law | Trigger language |
|---|---|---|
| Kickback / referral fee for closing business | RESPA Sec. 8 | "paid $X per referred closing" |
| Hidden cost of credit / misleading ad | TILA (Reg. Z) | "APR," "triggering term," "low monthly payment" |
| Denied credit due to a protected class | ECOA | "denied because of marital status/age/sex" |
| Wrong or late LE/CD timing | TRID | "3 business days," "Loan Estimate," "Closing Disclosure" |
| Refusal to sell/rent housing | Fair Housing Act | "refused to show," "steered away from" |
Overlap trap: ECOA and the Fair Housing Act both bar discrimination, but ECOA governs the lending/credit transaction while the Fair Housing Act governs the sale or rental of the dwelling. A lender's biased denial is ECOA; a landlord's biased refusal is Fair Housing. A single scenario can implicate both — a bank that both refuses a loan and steers the applicant away from a neighborhood.
The right of rescission and APR tolerance
For a refinance or home-equity loan on a primary residence (not a purchase), TILA grants a three-business-day right of rescission: the borrower may cancel until midnight of the third business day after signing, receiving the disclosures, and getting the rescission notice. Purchase-money loans to buy a home carry no rescission right — a frequent exam distractor.
APR tolerance worked example: A disclosed fixed-rate APR of 6.50% is corrected to 6.60% before closing. The change is 0.10%, within the 1/8% (0.125%) tolerance for fixed loans, so it does not restart the 3-day clock. But a jump to 6.70% (a 0.20% increase) exceeds tolerance and forces a new Closing Disclosure and a fresh 3-business-day wait. Knowing the 1/8% fixed / 1/4% adjustable thresholds turns these into quick arithmetic checks.
RESPA escrow limits and the CFPB
RESPA also caps the cushion a lender may hold in a tax-and-insurance escrow (impound) account — generally no more than two months of payments beyond the projected need. The Consumer Financial Protection Bureau (CFPB) now administers RESPA, TILA, ECOA, and TRID, having absorbed authority from HUD and the Federal Reserve. When a question asks which federal agency enforces these disclosure rules today, the answer is the CFPB.
Trap: RESPA's anti-kickback rule (Section 8) does not prohibit normal cooperative commission splits between licensees or genuine payment for services actually rendered; it prohibits paying for the referral of settlement business. A title company buying lunch for an office is not the violation — a per-closing referral fee is.
A real estate brokerage refers all of its buyers to one title company, and the title company pays the brokerage $200 for each referred closing. Which law does this most directly violate?
After the borrower receives the Closing Disclosure, which change requires a new 3-business-day waiting period before consummation?