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Truth in Lending: 3.11.1 Overview

One of the underlying assumptions for the “more than four installments” rule1092 is that merchants might circumvent the objective of TILA by “burying the cost of credit in the price of the goods sold.”1093 The mere fact that a transaction falls within the more than four installment rule does not necessarily mean that a finance charge is involved.1094 But a transaction within the scope of TILA that has no finance charge, a nominal finance char

Truth in Lending: 3.11.2 Proving the Credit Mark-Up

Some sellers may actually admit a differential pricing structure, and certainly this information should be sought in discovery if the practitioner suspects a hidden finance charge.1117 Or a credible witness may be sent to the business to obtain price quotes for a cash purchase, and a second to obtain a price quote after making it clear to the seller that the shopper wants seller financing.1118

Truth in Lending: 3.12.1 Collecting the Papers

While a Truth in Lending analysis has to start with the Truth in Lending disclosures, it frequently does not end with them. Some lenders incorporate everything—note, security agreement, and all TILA disclosures—on one piece of paper. Most car loans and some finance companies (at least on non-mortgage loans) will use this single, integrated document. Other lenders have disclosure statements separate from the note and mortgage or security agreement.

Truth in Lending: 3.12.2.1 Level One

A thorough check of the disclosed figures takes place on three levels.

Do a basic check, taking the creditor’s disclosed figures at face value. Just assume for the moment that the component parts of the loan are all legitimate, and it has allocated them correctly.

Doing a basic arithmetic check on Friendly Finance’s disclosure statement, we see that:

Truth in Lending: 3.12.3 Looking Behind the Papers

Most often, the paper analysis is not the end of a compliance check. More common are charges that are the subject of the exclusionary rules, where the preconditions necessary to qualify are questions of fact. Similarly, there are the “mystery” charges, which you cannot identify. Moreover, occasionally the most innocent-looking item on the list—such as “check to borrower”—can be concealing hidden finance charges, if not outright fraud. The next level of analysis, therefore, is factual investigation. Some of it can be learned from a careful client interview and some from public records.

Truth in Lending: 9.1.3 Credit Balances Rule for Mortgage Loans

For all consumer credit transactions, including mortgage loans, TILA requires creditors to credit or otherwise refund a balance in excess of one dollar when such balance was created by a transmittal of funds in excess of the total amount due, a rebate of unearned finance charges or insurance premiums, or amounts otherwise owed to or held for the benefit of an obligor.16 The creditor is required to credit the amount to the consumer’s account, refund any part of the amount of the remaining balance upon request of the consumer, and make a good

Truth in Lending: 9.2.1 Overview

The CFPB is required under TILA to prohibit acts or practices in connection with loans that it finds to be unfair, deceptive, or designed to evade the provisions of section 1639.18 The CFPB’s authority to identify and ban unfair, deceptive, or abusive acts and practices has survived constitutional arguments that this provision is void for vagueness.19 In addition, the CFPB is to prohibit acts or practices specifically related to refinancing that it finds to be abusive or otherwise not in the

Truth in Lending: 9.2.2 Remedies for Violations of Regulations Issued Under the CFPB’s Authority to Prohibit Unfair, Deceptive, or Evasive Practices

The FRB first used its authority under then section 1639(l), now 1639(p), to issue regulations in 2008.27 Those regulations addressed a variety of servicing abuses for loans secured by the homeowner’s principal dwelling, set some basic standards for appraisals, and created a new category of higher-priced mortgages, with additional, substantive protections.28

Truth in Lending: 9.3.1 Overview; Scope; Record Retention and Monitoring Requirements

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law.37 As part of the sweeping changes in this financial reform bill, Congress amended TILA in Title XIV of the Act to include a variety of substantive provisions relating to mortgage lending and servicing, and to provide for additional damages for certain of these violations.38

Truth in Lending: 9.3.2.1 Overview

Rules issued by the FRB went into effect April 1, 2011,50 and remained in effect until January 1, 2014, when new rules issued by the CFPB, under the Dodd-Frank Act, went into effect for loans with applications made on or after that date.51 The rules are similar, but not the same. Both rules generally prohibit dual compensation and compensation based on the terms of the mortgage, other than the amount of credit extended, although the CFPB’s rules have some significant exceptions.

Truth in Lending: 9.3.2.3 What Is a Mortgage Broker?

Mortgage brokers are defined separately from loan originators. The CFPB accepted, without alteration, the FRB’s definition of mortgage brokers. This definition has important implications for other areas of TILA, including whether or not a loan has HOEPA coverage.60

Truth in Lending: 9.3.2.7.1 Problems with dual compensation

As extensively documented by the Department of Housing and Urban Development, dual compensation, when the broker receives payments both from the homeowner and from a third party, leads to increased costs for the homeowner across the board and decreased transparency in pricing.101 The FRB originally proposed to regulate dual compensation through disclosure, but found that it could not eliminate the harms of dual compensation through disclosure alone.102

Truth in Lending: 9.3.2.8.1 Regulation Z steering prohibitions

Regulation Z prohibits loan originators from steering consumers to a loan based on the fact that the loan originator will receive greater compensation for that transaction from the creditor, unless the consummated transaction is in the consumer’s interest.113 This rule was adopted by the FRB in 2010, before its rulemaking authority was transferred to the Consumer Financial Protection Bureau.114

Truth in Lending: 9.3.2.9 Qualification, Registration, and Licensing of Loan Originators

Mortgage originators are now subject to a “duty of care” requirement, which mandates qualification and registration and licensing.124 Any unique identifier of a mortgage originator provided by the national registry must be provided on all loan documents.125 Practitioners may wish to request production of documents based on the unique identifier to minimize confusion between originators and to increase the provision of relevant documents.

Truth in Lending: 9.6.4.1 General

Lender attempts to avoid HOEPA coverage by undercounting the settlement charges relevant to the points and fees trigger is one of the most widespread abuses in the high-rate home equity market. For this reason, it is critical that practitioners carefully sift through the points and fees charged by the creditor to determine which can be counted toward this trigger.

Truth in Lending: 9.6.5 Prepayment Penalty Trigger

The third HOEPA trigger, added by the Dodd-Frank Act effective for applications received on or after January 10, 2014, is based on a loan’s prepayment penalty provisions.720 A loan is covered by HOEPA where it is a consumer credit transaction secured by the consumer’s principal dwelling, other than a reverse mortgage, and the terms permit the creditor to charge or collect prepayment fees or penalties more than thirty-six months after the transaction closing, or such fees or penalties exceed, in the aggregate, more than 2% of the amount bein