How Regulation Z protects you from predatory lending practices

When you take out a mortgage, you can expect a package of around 50 pages detailing the terms of the loan, the fees involved, and other miscellaneous information that the mortgage company must provide.

While this package may be difficult for you to read, it will help you, the home buyer, understand the size of the loan that you will be paying back over the decades to come.

You can thank Regulation Z for reading it well. Regulation Z provides consumers with protection in the form of information that will help them make better financial decisions. When you buy a mortgage, or even credit cards, you are benefiting from this law in one way or another.

“Regulation Z allows people to fully understand what they are getting into because it makes it clear,” says Michael Piazza, original branch manager at CrossCountry Mortgage, a mortgage company based in Danbury, Connecticut. I don’t know what the terms are “,” how much I pay “etc. … [and] clears the question marks when people apply for a loan.

Regulation Z does not only apply to home loans. Read on to learn how this affects other types of credit as well.

What is Regulation Z?

Regulation Z came into effect on July 1, 1969. It is also known as the Truth in Lending Act, which required disclosures when consumers received certain types of credit. It applies to mortgages, home loans, private student loans, home equity lines, and credit cards. The law was first amended in 1970 to ban unsolicited credit cards. It has expanded significantly since then, and more safeguards were added during the Great Recession and Subprime Mortgage Crisis in the late 2000s.

“In July 2008, Regulation Z was amended to protect consumers in the mortgage market from unfair, abusive, or fraudulent credit and service practices,” according to the FDIC. “The revisions also banned several advertising practices that were believed to be misleading or misleading.”

Later changes also added disclosure requirements for credit cards and student loans, and additional protections for consumers who secure loans against home appraisals. With the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the power to regulate under the Truth in Lending Act fell to the then newly established Consumer Financial Protection Bureau.

How does Regulation Z apply to mortgages?

Aside from down payments, mortgage borrowers must pay a variety of fees to the lender, including bank transfers, home title, and application processing. Regulation Z requires the mortgage lender not only to list these charges but also to explain them.

Regulation Z requires “a checklist of all closing and processing costs, as well as spending on raising finance,” said Matthew Solomon, senior business development and underwriting manager at MCS and Intuitive Consulting in New York City. “This allows people to see the funds being allocated to all parties to the transaction, and ensures that there are no unexpected costs in signing or securing the loan so the customer doesn’t feel misled.”

Previously, some mortgage applications may have been four to five pages long, according to Piazza. Due to the requirements of Regulation Z, the applications are now more thorough. For example, there may previously have been 10 separate items of information on one page; now the information is broken down one by one.

How does Regulation Z apply to credit cards?

Similar to mortgages, Regulation Z increases the disclosure requirements for credit cards.

“Regulation Z provides guidance to consumers and disclosures about tariffs, penalties, and other charges associated with the card,” said Braden Perry, a governance, regulation, and enforcement attorney and partner at KennyHertz Perry of Mission Woods, Kan previously the “fine print”, that has been brought to the fore so that the consumer can understand the conditions of the product and the effects of using the product. “

For example, one of the most revealing and terrifying revelations shows real-world applications of the annual percentage rate of return (APR) on a card. Essentially, it indicates how long it would take to pay off a credit card debt with just the minimum payment, along with how much interest you would end up paying.

Regulation Z also enables consumers to purchase credit cards more effectively.

“The Truth in Lending Act is designed to ensure that credit terms are disclosed in a meaningful way so that consumers can more easily and more knowledgeably compare credit terms,” ​​said the Federal Reserve. “Before the enactment, consumers faced a bewildering variety of credit terms and rates. It was difficult to compare loans as they were rarely presented in the same format. Now all creditors must use the same credit terminology and interest rates. “

How does Regulation Z apply to other loans?

The law’s disclosure requirements also extend to other types of consumer loans, such as payday loans. Regulation Z makes it so that any advertisement for this type of loan is accurate and “only features the actual loan terms available and the effects of late payments and non-payments,” says Perry.

There are restrictions on the types of loans that fall under Regulation Z. According to the Federal Reserve, exempt transactions include business and trade loans, government loans, US $ 25,000 unsecured loans, and certain student loan programs.

What is the benefit of Regulation Z?

Regulation Z empowers and protects consumers when searching for credit, lines of credit, or mortgages by ensuring that lenders and other businesses disclose all of the information they need to make informed decisions.

The requirements of Regulation Z “create trust and transparency and help to build long-term relationships,” says Solomon. “This is to ensure that the customer receives the best possible offer, but without endangering the lender’s position. Everything is disclosed, and that gives the buyer complete freedom of choice. “

It also provides opportunities for consumers to take remedial action if they suspect lenders may have violated Regulation Z. You can file complaints with the CFPB and FDIC, or file lawsuits against malicious actors.

In a lawsuit filed in Missouri Federal District Court in 2014, consumers alleged that several companies were “involved in unlawful online payday loan programs,” according to Consumer Finance Monitor, which included “TILA disclosures that include the auto-renewal feature of the loan and the conditioning of the loan Loans did not reflect ”. Loans to repay consumers through pre-authorized electronic transfers. ”In 2018, the CFPB announced a settlement requiring companies to repay more than $ 69 million to the offended consumers.

Regulation Z “gives consumers who have been wronged in lending a right of action,” says Perry. “It enables consumers to look for practices that cheat and deceive.”

Bottom line

If you’re looking for any type of loan, getting a new credit card, or taking out a mortgage, Regulation Z is your friend. It requires your lender to spell out all of the terms and conditions that you need to know. Ultimately, the law makes sure you understand what you are getting yourself into and how much to expect over the life of the loan or how much interest you will end up paying. If this information is not provided, avoid the lender or file a formal complaint with the CFPB.