Fairness in Lending

Fairness in lending is something of a catch-all phrase to describe a number of laws that regulate the terms and conditions in loans. The most important of these is The Truth in Lending Act which is part of the consumer Credit Protection Act. This is Federal law and so applies to every such loan in the United States. There are also a series of State laws with similar titles and which can place further duties and restrictions upon lenders.

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The aim of such fairness in lending provisions is to make the entire transaction as open as possible. Most people deal with mortgages and other loans once every few years while the professionals in the industry are dealing with them all day every day, of course. So without legal restrictions it would be all too easy for the professionals to confuse or mystify the customers.

The basic provisions promoting fairness in lending are that full and complete information must be given. So the maximum interest rate possible under an adjustable rate mortgage must be given, just as one example. Similarly, the annual percentage rate (APR) must be shown. This is a specific way of calculating the cost of a loan, including all fees and charges and interest, so that it is easier to compare products with each other. These fairness in lending provisions extend to most forms of credit as well, the major addition for mortgage transactions being the “cooling off” period. Almost all loans that include a lien on a residence (that is, a mortgage) must include a period after signature for people to change their minds.