Question 1

Which statement best describes TILA's core purpose?

Accepted Answer

TILA is designed to promote informed use of consumer credit by requiring meaningful disclosure of terms and costs. Regulation Z implements TILA and governs disclosures such as APR, finance charge, and rescission rules.

Question 2

Which item is most directly reflected in the APR for a closed-end mortgage?

Accepted Answer

APR reflects the cost of credit as a yearly rate and includes interest plus certain prepaid finance charges. It gives borrowers a better comparison tool than note rate alone under Regulation Z.

Question 3

Which transaction usually carries a federal right of rescission under TILA?

Accepted Answer

The right of rescission generally applies to certain non-purchase-money transactions secured by the consumer's principal dwelling, such as many refinances and home equity loans. It does not generally apply to purchase-money mortgages.

Question 4

A lender quotes a borrower a 6.25% note rate. The loan also includes prepaid finance charges that increase the cost of credit. Which rate will usually be higher?

Accepted Answer

Because APR captures certain finance charges in addition to interest, APR is often higher than the note rate. TILA requires APR disclosure so borrowers can compare credit costs more accurately.

Question 5

Which fee is most likely part of the finance charge under TILA?

Accepted Answer

The finance charge generally includes charges imposed directly or indirectly by the creditor as an incident to or condition of the extension of credit. Government recording charges and some third-party items are treated differently under Regulation Z.

Question 6

A borrower is comparing two loans with the same note rate. One loan has more prepaid finance charges. Which disclosure will help the borrower spot that difference most directly?

Accepted Answer

APR is intended to help consumers compare the cost of credit when fees and charges differ. More prepaid finance charges generally push APR upward even if the note rate stays the same.

Question 7

A lender failed to provide the notice of right to rescind on a covered refinance of the borrower's principal dwelling. How long may the rescission right remain open in many cases?

Accepted Answer

If required rescission disclosures or material disclosures are not provided, the rescission period can be extended up to three years in many cases. This is a major TILA penalty for defective disclosure on a rescindable transaction.

Question 8

A borrower refinances her primary residence on Friday and receives all required material disclosures and rescission notices that day. If there are no legal holidays, when does the rescission period generally expire?

Accepted Answer

For rescission purposes, business days include Saturdays but not Sundays or legal public holidays. If consummation and required disclosures occur on Friday, the three-business-day period generally runs Saturday, Monday, and Tuesday, expiring at midnight Tuesday.

Question 9

A borrower wants to waive the rescission period so funds can disburse immediately on a covered home equity loan. When is waiver generally allowed?

Accepted Answer

TILA permits waiver of rescission only in a bona fide personal financial emergency. The consumer must provide a dated written statement describing the emergency; preprinted waivers are not sufficient.

Question 10

An ARM advertisement says, '5.25% fixed payment for 30 years,' even though the rate and payment can adjust after 5 years. The main TILA concern is that the ad is:

Accepted Answer

Regulation Z prohibits misleading mortgage advertising. Advertising an adjustable-rate product as if the payment is fixed for the full term would likely mislead consumers about a material feature of the credit.

TILA Practice Questions

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