Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which of the following laws requires that lenders disclose the true cost of borrowing?

1. Homeowner's Protection Act

2. Truth-in-Lending

3. Equal Credit Opportunity Act

4. Real Estate Settlement Procedures Act

The correct answer is: Truth-in-Lending

The Truth-in-Lending Act (TILA) is designed specifically to ensure that consumers are fully informed about the costs associated with borrowing, including interest rates and any additional fees. This law mandates that lenders provide borrowers with clear and concise documentation that outlines the terms and conditions of their loans, allowing consumers to compare different financing options. The primary goal of TILA is to protect consumers from deceptive lending practices by requiring transparency in disclosing the costs of credit, thereby enabling informed decision-making. In contrast, the other laws listed focus on different aspects of mortgage lending. The Homeowner's Protection Act addresses private mortgage insurance (PMI), the Equal Credit Opportunity Act prohibits discrimination in lending based on various factors, and the Real Estate Settlement Procedures Act (RESPA) focuses on transparency in the settlement process and the closing costs associated with purchasing real estate. While these laws are all important for consumer protection in real estate transactions, they do not specifically require disclosure of the true cost of borrowing in the same comprehensive way that TILA does.