FAQs About Lending Laws

Lending Laws FAQs

What are lending laws?

Lending laws are federal and state laws and regulations that govern how banks and other financial institutions provide credit. They address areas such as fair lending, disclosures, credit reporting, mortgage lending, servicing, advertising, and consumer protections.

Why are lending laws important?

Lending laws help protect borrowers, promote fair and transparent credit practices, establish disclosure requirements, and prohibit certain discriminatory or deceptive practices.

What is the Equal Credit Opportunity Act (ECOA)?

ECOA prohibits discrimination in credit transactions based on specified prohibited characteristics. It also establishes requirements concerning credit applications, underwriting, adverse actions, and other lending practices.

What is Regulation B?

Regulation B implements ECOA and establishes requirements concerning nondiscrimination, applications, notifications, recordkeeping, and other aspects of covered credit transactions.

What is the Fair Housing Act (FHA)?

The Fair Housing Act prohibits discrimination in certain housing-related transactions, including covered residential real estate lending, based on specified prohibited characteristics.

What is fair lending?

Fair lending means conducting covered lending activities without unlawful discrimination. Banks should apply credit policies, underwriting standards, pricing, servicing, and other lending practices consistently and in accordance with applicable law.

What is the Truth in Lending Act (TILA)?

TILA is designed to promote informed use of consumer credit by requiring disclosures about certain credit terms and costs and establishing other requirements for covered consumer credit transactions.

What is Regulation Z?

Regulation Z implements TILA and establishes requirements concerning disclosures, advertising, billing, and other aspects of covered consumer credit transactions.

What is the Real Estate Settlement Procedures Act (RESPA)?

RESPA establishes requirements for certain residential real estate transactions, including specified disclosures, servicing requirements, and restrictions concerning certain settlement practices.

What is Regulation X?

Regulation X generally implements RESPA and contains requirements concerning covered mortgage transactions and servicing activities.

What is the Home Mortgage Disclosure Act (HMDA)?

HMDA requires certain financial institutions to collect, report, and disclose information about covered mortgage lending activity. The data helps regulators and the public evaluate lending patterns and compliance.

What is Regulation C?

Regulation C implements HMDA and establishes requirements concerning the collection, reporting, and disclosure of covered mortgage lending data.

What is the Fair Credit Reporting Act (FCRA)?

FCRA regulates the collection, use, sharing, and accuracy of consumer report information. It establishes requirements for entities that obtain or use consumer reports and entities that furnish information to consumer reporting agencies.

What is Regulation V?

Regulation V implements portions of FCRA and addresses requirements concerning consumer reports and related information.

What is the Homeowners Protection Act?

The Homeowners Protection Act establishes requirements concerning the cancellation and termination of private mortgage insurance (PMI) on certain residential mortgage loans.

What is the Equal Housing Opportunity requirement?

Banks engaged in covered housing-related lending must comply with applicable fair housing and fair lending requirements and should provide required notices and disclosures.

What is the Military Lending Act (MLA)?

The MLA provides certain protections to covered active-duty servicemembers and their dependents in connection with covered consumer credit transactions.

What is the Servicemembers Civil Relief Act (SCRA)?

The SCRA provides certain legal and financial protections to servicemembers during military service, including protections that can affect certain credit and mortgage obligations.

What is the Ability-to-Repay (ATR) rule?

The Ability-to-Repay requirements generally require creditors making covered residential mortgage loans to make a reasonable and good-faith determination that the consumer has the ability to repay, subject to applicable requirements and exceptions.

What are Qualified Mortgages (QMs)?

Qualified Mortgages are a category of covered mortgage loans that meet specified criteria under applicable rules. Depending on the circumstances, QM status can provide certain legal protections to creditors.

What is Regulation B's requirement for adverse action notices?

When applicable, creditors must provide required notices when taking adverse action on a credit application or existing credit relationship. The notice requirements may include providing specific reasons or other information required by law.

What is disparate treatment?

Disparate treatment occurs when similarly situated applicants or borrowers are treated differently based on a prohibited characteristic or another impermissible factor.

What is disparate impact?

Disparate impact generally refers to a facially neutral policy or practice that disproportionately affects a protected group. Whether a particular practice violates applicable law depends on the facts, applicable legal standards, and regulatory requirements.

What is predatory lending?

Predatory lending generally refers to lending practices that may involve unfair, deceptive, abusive, or otherwise unlawful conduct that takes advantage of borrowers. Banks should maintain controls to prevent prohibited lending practices.

What are lending disclosures?

Lending disclosures provide borrowers with required information about credit terms, costs, fees, payment obligations, and other relevant terms. Disclosure requirements vary depending on the type of credit product and transaction.

What is a Loan Estimate?

For certain covered mortgage transactions, a Loan Estimate provides consumers with important information about the loan terms, projected payments, and estimated closing costs.

What is a Closing Disclosure?

For certain covered mortgage transactions, a Closing Disclosure provides consumers with final or near-final information about the loan terms, costs, and other transaction details before closing.

What is loan servicing?

Loan servicing includes activities performed after a loan is originated, such as processing payments, maintaining account information, managing escrow when applicable, responding to borrower inquiries, and handling delinquency or loss-mitigation activities.

What should banks do when lending laws change?

Banks should identify regulatory changes, assess their impact, update policies and procedures, modify systems and controls as necessary, train employees, and conduct appropriate monitoring or testing to confirm implementation.

What happens if a bank violates a lending law?

Potential consequences depend on the nature and severity of the violation and may include customer remediation, regulatory criticism, corrective action, civil money penalties, enforcement actions, litigation, or other supervisory measures.

What should employees do if they are unsure about a lending requirement?

Employees should consult the applicable lending policies and procedures and contact Compliance, Legal, Lending, or another designated subject-matter expert when appropriate. Employees should not bypass established controls or make assumptions about regulatory requirements.