A joint statement from the Federal Trade Commission and the Federal Reserve Board released in late December announced new rules for lenders who offer some borrowers less favorable loan terms than others.
With active participation from the borrowers in question, this measure could provide an important safeguard against certain predatory lending practices.
Current Mortgage and Home Loan Requirements
As things now stand, lenders are not required to inform individual borrowers whether their loan terms are better or worse than those offered to others.
When the new rules take effect, though, borrowers will receive a notice if they are offered loans that are “materially less favorable” than a significant amount of loans offered to other customers.
Ideally, the new requirement will help people make better choices about their loans. Many people who originally got into subprime loans weren’t fully aware how the loans worked or what their other options might be. What many thought were “regular deals” turned out to be trouble.
Partly because of this current gap in rules – that is, because of the system that leaves borrowers in the dark about where they stand in relation to others – lenders were able to develop the lending “innovations” that led to the subprime lending boom – and eventual bust.
New Rules to Help Home Mortgages
Set to take effect in one year (January 1, 2011), the new rules require the following:
- Compliance from mortgage lenders: All forms of consumer credit are included in the new regulations, which means that mortgage lenders, auto lenders, student loan issuers, credit card issuers, banks and financing firms will have to comply by notifying consumers when they’re offered unfavorable loan terms.
- Action from borrowers: The new rules require lenders who offer borrowers less-than-stellar terms on a loan to provide a free copy of a credit report or credit score. Once you get the report, it’s up to you to check that the negative action that the lender claims appears there is, in fact, there. And, if it does appear on your report, you must determine whether it’s correct.
In other words, these rules are good news, but they’re not a cure-all: you must still take the initiative to monitor and correct (if necessary) your credit report.
The new rules are apparently designed to ensure compliance with the Fair and Accurate Credit Transactions Act of 2003, an amendment to the Fair Credit Reporting Act.
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