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Unformatted text preview: Federal Trade Commission enforces this law for business firms. The purpose of the law is to help a borrower understand how much it is costing to borrow money. Each lender is required to show its costs in the same way, so borrowers can compare one lender against the other. The tool that is used to compare one loan against another is called the annual percentage rate (APR). The APR is not an interest rate. It is a simple way of informing a borrower of the “effective” rate of interest. Dynasty School (www.dynastySchool.com) 11-1 REAL ESTATE FINANCE APR is the cost of credit expressed as a yearly rate.
Accuracy of the APR must be within one–eight of one percent of the actual annual rate for a normal transaction. In irregular transactions, such as where there are multiple advances of funds or irregular payment periods or amount, accuracy must be within one–fourth of one percent of the rate determined to be the actual annual rate. To arrive at the total cost, you add not only the total interest paid but various other charges the borrower pays as permitted by statute. APPLICATION
The purpose of Regulation Z is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling. The regulation does not govern or limit charges for consumer credit; it only requires disclosure. Creditor – Under this act, a “creditor” is a person or firm who extends consumer credit more than 25 times a year or more than 5 times a year for transactions secured by dwellings. This does not include persons such as brokers who merely arrange credit from lenders. The effect of this is to exempt real estate brokers from the responsibility of providing “Truth in Lending” disclosures unless they are themselves acting as “creditors.” Application to Real Estate – Regulation Z affects “creditors” who offer or extend credit for real estate loans to a natural person for personal, family, or household uses, which are payable in more than four installments or for which a finance charge is made. Institutions – The law applies to banks, savings and loan associations, credit unions, consumer finance companies, and residential loan mortgage brokers. Advertising – Since October 1, 1982, Regulation Z has applied to all credit advertising of anyone, not just “creditors.” Exempt Transactions – I...
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- Spring '10