Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which law is designed to prevent discrimination by lenders?

1. Truth-in-Lending

2. Real Estate Settlement Procedures Act

3. Equal Credit Opportunity Act

4. Patriot Act

The correct answer is: Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA) is specifically designed to prevent discrimination by lenders in the credit application process. This law makes it illegal for creditors to discriminate against applicants based on race, color, religion, national origin, sex, marital status, age, or because they receive public assistance. By enforcing equality in lending practices, the ECOA aims to ensure that all borrowers have access to credit based on their creditworthiness rather than any protected characteristic. In contrast, the Truth-in-Lending Act focuses on ensuring that consumers are provided with clear and conspicuous information about the costs of borrowing, enabling them to make informed choices. The Real Estate Settlement Procedures Act primarily addresses disclosures and settlement procedures in real estate transactions but does not specifically target discrimination. The Patriot Act is aimed at preventing terrorism and money laundering rather than focusing on lending practices. Thus, ECOA stands out as the law dedicated to preventing discrimination by lenders.