smart spending

Consumer protection laws: Know your rights

Primer on consumer protection laws

Law: Home Ownership and Equity Protection Act, or HOEPA, of 1994 Amends the Truth in Lending Act

What it covers: Certain high-priced mortgage loans

What it does for consumers: Sets disclosure rules for lenders and shields consumers from predatory home equity lending.

  • Covers first-lien mortgages that have an APR that's more than 8 percentage points above the comparable Treasury yield
  • Covers second-lien mortgages that have an APR at least 10 percentage points above the rates on comparable Treasury notes
  • Covers loans whose fees and points associated with closing cost the consumer at least $528 or 8 percent of the total loan amount
  • Requires written disclosure to the consumer at least three business days before the loan is finalized
    • Must disclose APR, payment amounts, loan amounts, balloon payment and maximum monthly payment for variable rate loans.
    • Consumer must receive notice that he or she retains the right to not sign the loan agreement, despite having applied for the loan
    • Written notice should be given that if the consumer fails to make mortgage payments, he or she may forfeit the house
  • Borrower has three days to sign the loan
  • Prohibits certain conditions of loans covered by HOEPA
    • Most balloon payments
    • Negative amortization
    • Default interest rates that exceed interest rate prior to default
    • Most prepayment penalties
    • Ignore consumer's repayment ability and grant the loan based on the home's collateral value

For more information, visit the FTC's Web site.

If you have a complaint against a lender, you can submit it to the commission for nondepository lenders and to your state's attorney general. If you want to recover monetary loss from a lender in violation of the act, you'll need to contact an attorney.

Access the full text of the law here.

Law: Home Mortgage Disclosure Act, or HMDA, of 1975

What it covers: loan application register information

What it does for consumers: It requires certain mortgage lenders and financial institutions in metropolitan areas to report demographic data on its mortgage borrowers and applicants and pricing information on high-priced loans to the government for the previous calendar year by March 1.

  • Makes loan application register, or LAR, information available upon request
  • Aggregate reports on HMDA-reporting lenders inside a metropolitan area also available
  • Data reported includes loan originations, approval rates and loan applications that were denied, withdrawn or otherwise closed refinanced loans, home purchase loans and home improvement loans.
  • Report should disclose loan type, loan purpose, loan amount, action taken on application, occupancy and applicant's sex, ethnicity, race and income. Institutions regulated by the Office of Thrift Supervision, or OTS, or the Office of the Comptroller of the Currency, or OCC, must report reasons for denial -- other lenders have the option to cite.
  • Lenders must make their disclosure statements available to the public at their home office within three business days after the institution receives the report from the FFIEC
  • Branch offices located in other MSAs may make their disclosure statements available within 10 business days of receiving it in at least one branch office in each MSA where they have offices or explain that disclosure statements are available upon written request to an address indicated in a public notice. These disclosure statements should arrive within 15 days after the lending institution receives a written consumer request.
  • Can review reports online on the Federal Financial Institutions Examinations Council's Web site

For more information or to order a report on an individual lender, go to the FFIEC Web site. Beginning with the 2005 disclosure and aggregate reports, reports obtained from the FFIEC Web site won't be available for paper copy or on CD-ROM. Reports from calendar year 1999 leading up to 2005 are available online for free. Consumers may also obtain reports from their lenders. To request reports from 1998 or earlier, go to

Access the full text of the law here.

Law: Real Estate Settlement Procedures Act, or RESPA, of 1974

What it covers: certain mortgage loans

What it does for consumers: It sets disclosure rules for closing costs and procedures and prohibits abusive practices.

  • Applies to mortgage loans on a one-to-four family residential property.
  • Lenders must provide a good faith estimate of settlement costs to applicants before the closing. Actual charges may differ.
  • Requires lenders to issue a Mortgage Servicing Disclosure Statement, which declares who will service the loan
  • Section 8 prohibits kickbacks and illegal markups
  • Section 9 outlaws a requirement that the buyer purchase title insurance from a particular company
  • Section 10 caps consumer payments into an escrow account. An annual account analysis should flag amounts over $50 and return them to the buyer.
  • Allows borrowers to request the HUD-1 Settlement Statement, which details the finalized list of closing costs one day before closing
  • Requires the lender or mortgage broker to provide Affiliated Business Arrangement Disclosure documentation if the consumer gets referred to a business with which the lender has a business relationship

Depending on the section violated and the timing of the grievance, you can file a complaint with the U.S. Department of Housing and Urban Development, your state's attorney general or insurance commissioner or file a lawsuit. For more about enforcing RESPA violations, visit the U.S. Department of Housing and Urban Development's Web site.

If you want to know more about what to expect before and during closing, read the Bankrate feature, "Understanding the closing process."

Access the full text of the law here.




          Connect with us

Connect with us