Loan Officer Practice Exam

What is the main purpose of the Truth in Lending Act (TILA)?

1. To ensure fair lending practices

2. To inform consumers about the cost of credit

3. To regulate interest rates for mortgages

4. To establish approval criteria for loans

The correct answer is: To inform consumers about the cost of credit

The primary purpose of the Truth in Lending Act (TILA) is to inform consumers about the cost of credit. TILA requires that lenders disclose key terms and costs associated with borrowing, allowing consumers to better understand the financial implications of taking out a loan. This includes providing details about the annual percentage rate (APR), finance charges, and other important loan terms. By ensuring that consumers have access to clear and accurate information, TILA aims to promote transparency in the lending process, enabling borrowers to make informed decisions about their credit options. The act does not directly focus on regulating interest rates for mortgages or establishing specific approval criteria for loans, which are governed by other regulations and market factors. While fair lending practices are crucial for a healthy credit environment, TILA's specific goal is centered around transparency and informing consumers about the costs associated with credit, enhancing their ability to compare different lending offers.