It’s easy to “blank out” when it comes to reading disclosure notices. After all, aren’t disclosures just a bunch of legal mumbo jumbo?
Well, they may read a little like “mumbo,” to the average person, but without them, you could pay “jumbo” consequences when you take out a loan.
INB’s Vice President, Senior Compliance Manager Caeri Chiaro knows the ins and outs of Regulation Z (Reg Z), part of the Truth in Lending Act (TILA), that became law in 1968. Her job includes making sure Reg Z is applied, giving customers the intended safeguards.
Reg Z in a Nutshell
Caeri explains the law’s protections like this: “Reg. Z requires lenders to provide consumers with the information they need to make an informed decision about all types of credit (mortgage, installment, credit card, etc.). It involves specific disclosure of loan terms and fees and provides some limits on timing and costs.” She notes there’s even a portion of the regulation that requires lenders to underwrite the loan to ensure consumers can afford to repay what they borrow.
Why You Should Care
“Prior to the TILA,” Caeri says, “creditors didn’t have to provide loan terms and costs in any specific format.” She points out that this made it difficult for borrowers to compare lending options. It also allowed dishonest lenders to mislead consumers who didn’t understand the credit terms.
Reg Z Applied to Mortgage Lending
Reg. Z requires lenders to make disclosure from the earliest part of the sale process through to the very end. Caeri says it governs information required in mortgage advertisements, limits pricing on certain loans, and dictates additional underwriting and appraisal requirements on higher-priced loans. She adds that it also limits what a lender can be paid based on the terms of a mortgage loan. “This protects consumers by removing any likelihood a lender would steer them into a less beneficial product in hopes of higher pay.”
Another consumer protection law, RESPA (Real Estate Settlement Procedures Act), governs only real estate loans. Caeri notes it “works in tandem with Reg. Z” to provide requirements for disclosure and timing but, among other things, also provides rules for escrow accounts and mortgage loan service after the sale.
Rules Updated as Needed
Reg Z hasn’t been static over the last 50 plus years. Caeri explains that the CARD Act in 2009 addressed disclosure, fee limits, and how lenders apply payments on credit card accounts. Other 2009 changes, in the form of the Higher Education Opportunity Act, added disclosures for private education loans. “The most notable change was due to the Dodd Frank Act which, in 2015, implemented the Integrated Mortgage Disclosures as part of the TILA RESPA Integrated Disclosure (TRID) rule and drives the multi-page disclosures we provide consumers today.”
How We Comply
Since Reg. Z impacts everything loan related, Caeri and the INB mortgage team spend a lot of time making sure our systems properly generate the disclosures that go to the consumer. As for the compliance department in particular, Caeri’s staff answers questions for lenders and processors who might have questions on specific loan applications. She says: “We also work with auditors and regulators who review those documents to make sure they are completed accurately so borrowers have the information they need to make educated lending decisions.”
As for consumer protections in general, Caeri says lending is a heavily regulated industry. To help make sure we get things right, we’ve automated disclosures as much as possible so the documents are right every time they go out the door. We’re also subject to third-party, quality control audits and exams by regulators.
If you think Reg Z – or any other regulation – has not been followed during the mortgage loan process, you should begin by talking to your lender. The Consumer Financial Protection Bureau (CFPB) governs mortgage regulations and provides resources. If you feel something isn’t right, and you can’t get a satisfactory answer from your lender, you can submit a complaint to the CFPB or any other bank regulator.