What Is Legislation N?
Legislation N is a rule established throughout the Consumer Financial Protection Bureau (CFPB) and the Federal Business Charge (FTC) that enforces compliance with the Credit score ranking Card Accountability and Responsibility and Disclosure Act of 2009 (CARD Act) and the Dodd-Frank Wall Facet highway Reform and Consumer Financial Protection Act of 2010 (Dodd-Frank Act).
Key Takeaways
- Legislation N was established throughout the CFPB and FTC to implement the CARD Act and the Dodd-Frank Act.
- Reg N applies to folks subject to FTC regulation, alternatively the FTC and the CFPB percentage enforcement authority.
- Legislation N violations include false selling and misleading claims in selling.
Understanding Legislation N
Legislation N regulates what financial products constitute mortgage credit score ranking products, defining them as any credit score ranking product secured thru a dwelling or other precise belongings that is offered to a consumer for family, personal, or circle of relatives use. It moreover further regulates how mortgage brokers would possibly represent their mortgage credit score ranking products to shoppers. Compliance with Legislation N is overseen throughout the Federal Business Charge (FTC).
Legislation N is also known as the Mortgage Acts and Practices Selling Rule, or MAPs rule because it regulates how mortgage lenders, servicers, brokers, selling companies, and others can promote it mortgage services and products. The rule forbids deceptive claims in mortgage selling and other business communications sent to shoppers thru mortgage brokers, lenders, services and products, and selling companies.
Examples of deceptive claims include selling a low fixed price, without specifying that discussed price is suitable only for a very brief introductory duration and conflating value fees with interest rates. Then again, a lender might fail to let the consumer know that value fees won’t cover the interest due each and every month, leading to destructive amortization, a state of affairs during which the loan amount will building up over time on account of monthly unpaid interest is being added to the principle amount.
Deceptive mortgage commercials may also fail to talk about important loan words, or recommend that the mortgage lender in question is affiliated with a government corporate when they don’t seem to be.
Legislation N objectives to stamp out that type of behavior and was performed in step with laws that have been passed throughout the wake of the 2008 financial crisis and the next Great Recession. Excessive extension of exact belongings credit score ranking, along with alleged predator lending practices, was a vital component of the housing bubble of the 2000s that resulted on this crisis, prompting lawmakers, consumer advocacy groups, and financial business figures to take action and introduce reforms to prevent identical abuses from happening sooner or later.
Mortgage lenders and advertisers found out to be in violation of Legislation N can face civil penalties.
Examples of Deceptive Mortgage Claims Banned Beneath Legislation N
Legislation N parallels Section 5 of the FTC Act, which prohibits false selling and misleading claims in selling. Some examples of deceptive claims prohibited underneath Legislation N include misrepresentations of:
- The nature, amount, or lifestyles of customer fees associated with a mortgage product;
- The type of mortgage on offer;
- Words, expenses, amounts, or other must haves of the mortgage agreement, along with those related to insurance plans and taxes;
- Variability of interest rates, value amounts, period of time lengths, and other mortgage words;
- What proportion of the monthly value will transfer in opposition to paying interest, the quantity of the loan, or the entire amount due;
- The risk of the consumer to refinance or control the mortgage or its words, or the consumer’s talent to do so;
- Any prepayment penalties that the mortgage product would possibly elevate;
- The potential for default and what instances constitute default;
- The most efficient of the consumer to reside throughout the dwelling being purchased;
- The nature, substance, and availability of any a professional advice or counseling services and products offered to the consumer in regards to the mortgage credit score ranking product;
- The availability of commercial communication or commercials relating to mortgage products.
