Apply TILA Disclosure Rules - Nationwide Multistate Licensing System NMLS

What is the key difference between interest rate and APR for closed-end credit?

APR reflects certain fees; interest rate reflects only interest. APR includes finance charges beyond interest, providing a more comprehensive measure of credit cost.
Identify the TILA term for a finance charge paid at or before closing (for example, points).

Prepaid finance charge. These charges are paid upfront and included in the finance charge calculation under TILA.
What is APR under TILA in one sentence?

The cost of credit expressed as a yearly rate including finance charges. APR standardizes the cost of borrowing annually, incorporating interest and specific fees for accurate comparisons.
What is the relationship between amount financed and principal when prepaid finance charges exist?

Amount financed equals principal minus prepaid finance charges. Prepaid charges are deducted from the principal to determine the net amount provided to the borrower.
Which fee is generally a finance charge: discount points or an appraisal fee?

Discount points. Discount points are prepaid interest, thus treated as finance charges, unlike third-party fees like appraisals.
What must be disclosed if an ad states "no closing costs" but costs are offset by a higher rate?

The ad must not be misleading; material terms must be clearly stated. Regulation Z prohibits misleading ads, requiring clear disclosure of how costs are handled, such as rate increases.
When an ad states a periodic payment amount, what key term generally must also be disclosed?

The APR. Stating a payment amount triggers disclosure of the APR to provide complete credit cost information.
Which is generally NOT a finance charge: interest or a bona fide third-party appraisal fee?

A bona fide third-party appraisal fee. Bona fide third-party fees are excluded from finance charges if reasonable and not retained by the creditor.
Which APR description is required in ads when an APR may increase after consummation?

It must be stated as "variable rate" (or that the APR may increase). Ads must disclose variability to inform consumers of potential rate changes post-consummation under Regulation Z.
What is the "total of payments" for closed-end credit under TILA?

The sum of all payments the consumer will make over the loan term. This disclosure reflects the aggregate amount the borrower is obligated to pay, including principal and finance charges.
What is the Truth in Lending Act (TILA) primarily designed to require in consumer credit?

Meaningful disclosure of credit terms to allow comparison shopping. TILA mandates clear disclosures to enable consumers to compare credit options effectively and make informed decisions.
What is the finance charge under TILA in one sentence?

The dollar cost of credit, including interest and certain fees. The finance charge captures all costs imposed by the creditor for extending credit in a dollar amount.
What does "annual percentage rate" indicate when comparing two loan offers?

The higher the APR, the higher the overall cost of credit. APR allows comparison of true credit costs, with higher values indicating more expensive loans overall.
Which is a triggering term: " $2\%$ down" or "limited time offer"?

" $2\%$ down". "2% down" indicates a specific downpayment percentage, requiring additional credit term disclosures in ads.
Which is a triggering term: "$0 down" or "apply today"?

"$0 down". "$0 down" specifies a downpayment amount, triggering further disclosures under Regulation Z advertising rules.
Identify the term for the amount on which interest is calculated for a loan.

Principal balance. Interest accrues on the outstanding principal, which decreases over time with payments in amortizing loans.
Identify the rule for APR prominence in advertising compared with any interest rate stated.

APR must be stated with equal prominence to any rate stated. Regulation Z mandates that APR appear at least as conspicuously as any advertised interest rate for clarity.
What is the "triggering term" concept in credit advertising under Regulation Z?

Stating certain terms triggers required additional disclosures. Regulation Z requires additional terms like APR when specific credit terms are advertised to ensure full disclosure.
Calculate the finance charge if total of payments is $\$386{,}000$ and amount financed is $\$350{,}000$ .

$\$36{,}000$ . Subtract the amount financed from the total of payments to find the finance charge as per TILA formula.
Identify the prepaid finance charge if principal is $\$250{,}000$ and amount financed is $\$245{,}000$ .

$\$5{,}000$ . The difference between principal and amount financed represents prepaid charges deducted upfront.
Identify the term for an ad that uses "teaser" payments or rates not available for the full term.

A promotional (introductory) rate/payment advertisement. Such ads feature temporary low rates, requiring clear disclosure of post-promotional terms to avoid misleading consumers.
Find the amount financed if principal is $\$300{,}000$ and prepaid finance charges are $\$6{,}000$ .

$\$294{,}000$ . Deduct prepaid finance charges from the principal to calculate the net amount financed under TILA rules.
Which statement is correct: APR can be lower than the note rate when points are charged, or higher?

Higher. Points as prepaid finance charges increase the effective APR above the stated note rate.
State the general formula for finance charge using amount financed and total of payments.

$\text{Finance charge} = \text{Total of payments} - \text{Amount financed}$ . This formula derives the total cost of credit by subtracting the borrowed amount from all required payments.
What two TILA disclosures are considered the most prominent for closed-end credit?

APR and finance charge. These disclosures are emphasized in TILA to provide key cost information for closed-end credit transactions.

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