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A key component of our business practice is Responsible Lending. We are aware of and adhere to quality lending practices across federal and state levels. In doing so, we promote safe lending to our valued customers.
Responsible lending legitimizes the loan industry by providing a channel of consumer protection. Created to enforce a set of responsible practices, responsible lending ensures transparency of loan terms and conditions, as well as affordability and suitability of the borrower’s needs.
Prior to entering into a loan contract, lenders must:
- Guarantee that the loan product and terms meet the borrower’s need.
- Make certain that the borrower will, in fact, be able to make good on the agreed-upon loan payments without suffering financial hardship in doing so.
- Not coerce the borrower in any way into a loan contract.
- Help borrowers make informed decisions.
- Not mislead or deceive the borrower with florid or vague contract language meant to obfuscate terms, or via false advertising of any sort.
- Act with high ethical standards when and if the borrower encounters unforeseen hardship or a breach of contract of any sort.
- Comply with federal consumer protection legislation written to facilitate ethical dealings between lender and borrower.
- Not falsely represent or mislead the borrower.
Regulatory Framework In Lending
Markets gain when borrowers can repay debt. Regulating consumer lending, one of the highest-risk practices for most lending institutions, aids in maintaining a robust economy, whereas unscrupulous lending practices often negatively impact the economy. Irresponsible or unaffordable lending sets in motion loans that are unable to be repaid.
Truth in Lending Act
Lenders must abide by the Truth in Lending Act when working with potential borrowers. Transparency in contract language and loan terms becomes a legal matter, as the Act forces loan originators to disclose all rates, fees, terms, interest, etc. before having the customer sign off.
Fair Lending Act
Written to protect against discrimination, the Fair Lending Act is another form of ethical standards for lenders to follow. The legislation stipulates that no lender can use any criteria other than financial guidelines when approving or rejecting potential borrowers. Race, gender, religion, creed, marital status, and age are irrelevant information on loan applications.
Many states have written their codes of legislation pertaining to lending in addition to federal laws, in an effort to further protect both the consumer and the lending industry as a whole.
In an effort to regulate the business practices along the United States, certain institutions have been created.
Federal Trade Commission
The FTC (Federal Trade Commission), an agency of the U.S. Government, oversees consumer protection and works to prevent deceptive or unfair business practices, such as scams, false advertising, and business monopolies. Further information on credit and loans can be found on the FTC’s website.
Consumer Financial Protection Bureau
A separate U.S. Government regulatory agency created to keep financial institutions honest is the Consumer Financial Protection Bureau. It oversees federal financial laws, explicitly written to protect borrowers from abuse by lenders.
In summary, responsible lending exists to provide loan originators with a framework to offer credit products appropriate to the borrower’s needs and in accordance with the borrower’s ability to repay debt.
Fairness, honesty, and transparency are the underpinnings of responsible lending practices.