For years, unfair and dishonest practices prevented people from having equal access to many financial products. This made it hard for them to get a mortgage or open a credit card. That changed in recent years with the passage of Fair Lending Acts.
Five federal acts protect American families and consumers from predatory lending practices in Texas. Understanding these federal laws is crucial to becoming a successful real estate professional.
Texas Fair Lending Acts
Equal Credit Opportunity Act
Enacted in 1974, this act leveled the financial playing field for women, people of color, and other minorities. The act prohibits banks and financial entities from discriminating against consumers based on:
Whether they receive public benefits such as food stamps
For example, before the act passed, women could be required to have their husband's permission to open a bank account. The Dodd-Frank Act, passed in 2010, added additional rights and restrictions to the Equal Credit Opportunity Act.
Real Estate Settlement Procedures Act
This act, which became law in 1975, requires lenders to estimate closing costs for the buyer after they apply for a mortgage. Why is this act important? It gives home buyers a better understanding of closing costs. It also eliminates practices such as kickbacks.
Lawmakers have amended this act several times. It now requires disclosures for escrow costs and mortgage servicing. It also requires closing costs to be itemized.
Truth in Lending Act
The Truth in Lending Act was passed in 1968 to increase informed consent for consumer credit products. The law requires lenders to disclose all the terms of a mortgage loan or credit card.
For example, consumers have three days to reconsider a loan without losing money. This protects consumers from high-pressure sales tactics by giving them time to think. It also requires mortgage lenders to provide buyers with clear, easy-to-understand terms. Finally, they can't raise the interest rate later.
Dodd-Frank Wall Street Reform Act
Passed in 2010, the Dodd-Frank Wall Street Reform Act regulates the financial markets to prevent a repeat of the 2008 financial crisis. It increases transparency in the financial world, ending the "too big to fail" practices, and limiting bailouts.
The law also established a new government agency called the Consumer Financial Protection Bureau (CFPB). This organization gives consumers somewhere to turn if they experience unfair practices from:
Credit card companies
SAFE Mortgage Licensing Act
Since July 2008, the Secure and Fair Enforcement for Mortgage Lending (SAFE) Act enhances consumer protection and reduces fraud. It does this by setting licensing and registration requirements for state-licensed mortgage originators. The SAFE Act requires all mortgage loan originators to:
Take pre-licensing courses
Pass a written test
Submit a background check
Take continuing education courses
Today, the CFPB enforces the SAFE Act.
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