Which act requires the disclosure of loan costs and Annual Percentage Rate (APR) to borrowers?

Which act requires the disclosure of loan costs and Annual Percentage Rate (APR) to borrowers?

• A. Real Estate Settlement Procedures Act
• B. Truth in Lending Act
• C. Equal Credit Opportunity Act
• D. Fair Housing Act

Answer: (B)

The Truth in Lending Act (TILA) is the legislation that mandates lenders disclose key loan costs and the Annual Percentage Rate (APR) to borrowers. This act was designed to promote informed use of consumer credit by requiring clear and comprehensive information about the costs involved in borrowing money. The requirement for disclosing the APR is particularly important because it provides consumers with a standardized way to compare different loan offers. The APR reflects not just the interest rate, but also includes fees and other costs associated with the loan, giving borrowers a clearer picture of the total cost of borrowing. In contrast, other acts like the Real Estate Settlement Procedures Act focus primarily on providing consumers with information about the settlement process and ensuring transparency in real estate transactions, while the Equal Credit Opportunity Act seeks to prevent discrimination in lending. The Fair Housing Act addresses discriminatory practices in housing but is not concerned with the detailed cost disclosures of loans. Thus, TILA specifically targets the obligation of lenders to inform consumers regarding loan costs, making it the correct answer.

The Truth in Lending Act (TILA) is the legislation that mandates lenders disclose key loan costs and the Annual Percentage Rate (APR) to borrowers. This act was designed to promote informed use of consumer credit by requiring clear and comprehensive information about the costs involved in borrowing money.

The requirement for disclosing the APR is particularly important because it provides consumers with a standardized way to compare different loan offers. The APR reflects not just the interest rate, but also includes fees and other costs associated with the loan, giving borrowers a clearer picture of the total cost of borrowing.

In contrast, other acts like the Real Estate Settlement Procedures Act focus primarily on providing consumers with information about the settlement process and ensuring transparency in real estate transactions, while the Equal Credit Opportunity Act seeks to prevent discrimination in lending. The Fair Housing Act addresses discriminatory practices in housing but is not concerned with the detailed cost disclosures of loans. Thus, TILA specifically targets the obligation of lenders to inform consumers regarding loan costs, making it the correct answer.