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Illinois exam glossary

Truth in Lending Act

TILA is built around comparable credit information. The note rate tells you what interest accrues on principal. The finance charge gives a dollar cost under federal rules. APR translates covered cost into a yearly rate. Keeping those three measures separate solves a large share of exam questions.

Last updated: August 1, 2026

What does this exam area cover?

Short answer: The Truth in Lending Act and Regulation Z standardize consumer-credit disclosures and regulate mortgage practices. TILA distinguishes amount financed, finance charge, APR, total of payments, and payment schedule. It governs most Loan Estimates and Closing Disclosures, credit advertising, Ability-to-Repay, valuation independence, and other mortgage protections. Its three-business-day rescission right generally applies to covered nonpurchase credit secured by the consumer's principal dwelling, not the mortgage used to acquire that dwelling.

Official section
National IV: Financing
Broker weight
10% of the national broker portion
Expected scored items
Financing accounts for about 10 of 100 items

This guide follows the PSI Illinois Candidate Information Booklet effective June 24, 2026, current 15 USC Chapter 41, and Regulation Z in 12 CFR Part 1026 as most recently amended April 8, 2026, all checked through August 1, 2026. TILA rules vary across open-end, closed-end, dwelling-secured, residential mortgage, reverse mortgage, high-cost, higher-priced, private education, and credit-card transactions. Annual thresholds, forms, tolerances, exemptions, and interpretations must be checked for a live file.

What is on the official outline?

Topic
Name the law
What to know
Truth in Lending Act, TILA, Regulation Z, CFPB, Federal Reserve history, informed use of credit, meaningful disclosure, comparison, consumer, and creditor
Best exam move
Match TILA with consumer-credit terms and cost rather than settlement-service referrals.
Topic
Test general coverage
What to know
consumer credit, creditor, regularly extends, finance charge, more than four installments, personal, family, household, natural person, and written agreement
Best exam move
Identify consumer purpose, creditor status, and finance-charge or installment structure before applying general TILA duties.
Topic
Identify exemptions
What to know
business, commercial, agricultural, organizational credit, threshold amount, real property, dwelling, public utility, securities, home fuel budget, and student loan
Best exam move
A large-dollar exemption does not remove credit secured by real property or the consumer's principal dwelling merely because of amount.
Topic
Separate open and closed end
What to know
open-end plan, repeated transactions, reusable credit, finance charge on balance, credit limit, HELOC, closed-end loan, fixed advance, amortization, and mortgage
Best exam move
A HELOC uses Subpart B open-end rules, while a standard purchase mortgage uses closed-end rules.
Topic
Calculate amount financed
What to know
principal, amount paid to consumer, amount paid to others, prepaid finance charge, subtraction, financed costs, loan proceeds, and disclosure
Best exam move
Amount financed is the net credit made available under the federal formula, not always the note face amount.
Topic
Identify finance charges
What to know
interest, points, origination charge, mortgage broker fee, required insurance, service charge, transaction charge, creditor condition, third party, exclusion, and comparable cash transaction
Best exam move
Ask whether the consumer pays the charge because credit is extended, then apply the specific inclusion or exclusion.
Topic
Distinguish APR
What to know
annual percentage rate, yearly rate, finance charge, amount financed, timing, payment schedule, actuarial method, tolerance, note rate, and comparison
Best exam move
APR converts covered credit cost into a yearly rate and may exceed the contract interest rate.
Topic
Distinguish total of payments
What to know
payment schedule, principal, finance charge, total paid, down payment, amount financed, number, timing, balloon, and estimate
Best exam move
Total of payments is the dollar sum of scheduled payments, not a percentage rate.
Topic
Deliver early mortgage disclosures
What to know
application, six pieces, Loan Estimate, three business days, seven-business-day waiting period, good-faith estimate, changed circumstance, revised disclosure, and intent to proceed
Best exam move
The Loan Estimate comes early and does not itself approve the loan or lock every term.
Topic
Deliver closing disclosures
What to know
Closing Disclosure, consummation, three business days, seller data, final terms, cash to close, APR, finance charge, projected payments, loan calculations, and revision
Best exam move
The consumer generally must receive the Closing Disclosure at least three specific-business days before consummation.
Topic
Identify rescindable credit
What to know
principal dwelling, security interest, refinance, home-equity loan, HELOC, bridge loan, ownership interest, consumer, nonpurchase purpose, and creditor
Best exam move
Start rescission analysis with the collateral: the consumer's current principal dwelling must secure the covered credit.
Topic
Exclude purchase mortgages
What to know
residential mortgage transaction, acquisition, initial construction, principal dwelling, purchase-money first lien, purchase-money junior lien, mobile home, and houseboat
Best exam move
Credit used to acquire or initially construct the principal dwelling is exempt from section 1026.23 rescission.
Topic
Start the rescission clock
What to know
consummation, notice of right, material disclosures, latest event, midnight, third business day, Saturday, Sunday, federal holiday, written cancellation, and receipt
Best exam move
Count from the latest of the three triggering deliveries, using the special all-days-except rule.
Topic
Identify material disclosures
What to know
APR, finance charge, amount financed, total of payments, payment schedule, high-cost mortgage terms, escrow limits, and extended rescission
Best exam move
Missing a material disclosure can prevent the ordinary rescission clock from starting.
Topic
Apply extended rescission
What to know
three years, missing notice, missing material disclosure, consummation, sale, transfer of all interest, foreclosure sale, administrative proceeding, and expiration
Best exam move
The outside period is not always three full years because earlier sale or complete transfer can terminate the unexpired right.
Topic
Handle waiver
What to know
bona fide personal financial emergency, written dated statement, description, all entitled consumers, printed form, creditor, modification, and rare exception
Best exam move
A consumer cannot casually waive rescission for convenience or use a preprinted waiver.
Topic
Apply advertising rules
What to know
actually available terms, clear and conspicuous, APR, down payment, number of payments, period, payment amount, finance charge, variable rate, fixed claim, government endorsement, and misleading debt elimination
Best exam move
A trigger term requires the associated disclosures with equal clarity and prominence where the rule requires it.
Topic
Apply mortgage protections
What to know
Ability-to-Repay, Qualified Mortgage, loan-originator compensation, steering, valuation independence, higher-priced mortgage, high-cost mortgage, escrow, appraisal copy, and periodic statement
Best exam move
TILA is more than APR; Regulation Z regulates the design, origination, advertising, and servicing of mortgages.
Topic
Separate creditor and broker roles
What to know
creditor, loan originator, mortgage broker, real estate broker, advertising person, assignee, servicer, disclosure duty, steering, and compensation
Best exam move
A real estate broker is not automatically the TILA creditor, but anyone can be subject to applicable advertising restrictions.
Topic
Apply remedies
What to know
actual damages, statutory damages, attorney fees, rescission, assignee liability, administrative enforcement, criminal willful violation, limitations, cure, and defense
Best exam move
Match the remedy to the exact TILA violation rather than assuming rescission follows every disclosure error.

Which distinctions produce the most mistakes?

Terms
TILA vs. Regulation Z
Difference
TILA is the federal statute. Regulation Z is its detailed implementing regulation.
Question cue
Act versus rule.
Terms
TILA vs. RESPA
Difference
TILA centers on consumer-credit cost, terms, and practices. RESPA centers on settlement procedures, referrals, escrow, and servicing.
Question cue
Credit disclosure versus settlement practice.
Terms
Interest rate vs. APR
Difference
Interest rate determines contract interest on principal. APR expresses covered credit cost as a yearly rate.
Question cue
Note accrual rate versus comparison rate.
Terms
Finance charge vs. APR
Difference
Finance charge is a dollar amount. APR is the annualized rate reflecting covered cost and payment timing.
Question cue
Dollars versus percentage.
Terms
Amount financed vs. loan amount
Difference
Amount financed is calculated after subtracting prepaid finance charges and making required adjustments. Loan amount is the principal stated in the note.
Question cue
Net federal disclosure amount versus face principal.
Terms
Open-end vs. closed-end credit
Difference
Open-end credit permits repeated transactions under a reusable plan. Closed-end credit advances a defined amount under a set repayment obligation.
Question cue
HELOC versus standard mortgage.
Terms
Loan Estimate vs. Closing Disclosure
Difference
The Loan Estimate presents early estimated terms and costs. The Closing Disclosure presents final transaction details before consummation.
Question cue
Shop and compare versus final review.
Terms
Rescission vs. purchase-contract cancellation
Difference
TILA rescission cancels a qualifying credit security interest. Contract cancellation follows the purchase agreement, attorney review, contingency, or state law.
Question cue
Credit right versus sale-contract right.
Terms
Rescission vs. right to receive Closing Disclosure
Difference
Rescission is a post-consummation cancellation right for qualifying transactions. Closing Disclosure timing is a pre-consummation review requirement.
Question cue
Cancel covered lien versus review final loan terms.
Terms
Principal dwelling vs. second home
Difference
The principal dwelling is the consumer's main home. A vacation or second home is generally not collateral that creates the section 1026.23 right.
Question cue
Main residence versus other residence.
Terms
Residential mortgage transaction vs. any residential loan
Difference
Under Regulation Z, the defined transaction finances acquisition or initial construction of the consumer's principal dwelling and is exempt from rescission.
Question cue
Technical purchase definition, not every home loan.
Terms
Trigger term vs. required disclosure
Difference
A trigger term is an advertised detail that activates the duty to state additional terms. The required disclosures complete the credit picture.
Question cue
Promotional claim versus accompanying facts.

The T-I-L-A check

  1. Test coverage: identify consumer purpose, creditor status, finance charge or installment count, open or closed end, collateral, and exemption.
  2. Identify the number: separate note rate, APR, finance charge, amount financed, total of payments, payment schedule, and cash to close.
  3. Locate the disclosure: use the correct Loan Estimate, Closing Disclosure, account-opening form, rescission notice, advertising rule, or program form.
  4. Apply the special right: for rescission, test principal-dwelling collateral, purchase exemption, entitled consumers, latest triggering event, business-day definition, and outside limit.
Number
Note interest rate
Form
Percentage
What it tells you
Contract rate applied to unpaid principal
Number
Finance charge
Form
Dollars
What it tells you
Covered cost of consumer credit
Number
APR
Form
Annual percentage
What it tells you
Annualized comparison measure of covered credit cost
Number
Amount financed
Form
Dollars
What it tells you
Net amount of credit provided under the federal calculation
Number
Total of payments
Form
Dollars
What it tells you
Sum of scheduled payments over the loan

How do the rules work in scenarios?

APR can exceed the note rate

Scenario: Two fixed-rate loans have the same 6.25 percent note rate, but one charges more prepaid finance charges.

  1. The note rate measures contract interest on principal.
  2. APR also reflects covered prepaid credit costs and payment timing.
  3. The loan with higher covered charges will generally show the higher APR when other assumptions match.

Answer: Equal note rates do not guarantee equal APRs or equal total cost.

Purchase mortgage has no TILA rescission

Scenario: A buyer closes a mortgage used to acquire the Illinois home that will be the buyer's principal dwelling.

  1. The loan finances acquisition of the consumer's principal dwelling.
  2. That is a residential mortgage transaction under Regulation Z.
  3. Section 1026.23 expressly exempts that transaction from its rescission right.

Answer: The buyer does not receive a TILA three-day right to cancel this purchase mortgage.

Refinance with a new creditor

Scenario: A homeowner refinances the mortgage on the current principal dwelling with a different creditor for personal purposes.

  1. The current principal dwelling secures the new consumer credit.
  2. The transaction is not the original acquisition loan.
  3. No same-creditor refinancing exemption applies on the stated facts.

Answer: The transaction is generally subject to the Regulation Z rescission right.

Count the rescission period

Scenario: A rescindable loan is consummated and all required notice and material disclosures are delivered on Friday. Monday is not a federal holiday.

  1. Saturday counts for this rescission rule.
  2. Sunday does not count.
  3. Monday is the second business day and Tuesday is the third.

Answer: The ordinary right runs until midnight Tuesday.

Co-owner receives a right

Scenario: One spouse signs a home-equity note, but both spouses own the principal dwelling and both ownership interests secure the loan.

  1. Rescission turns on the ownership interest subjected to the security interest.
  2. A co-owner can be a consumer for rescission even without signing the credit agreement.
  3. Each entitled consumer must receive the required notice.

Answer: Both owning spouses generally have the right to rescind.

Advertising trigger term

Scenario: An advertisement says, 'Only $1,500 down' for a closed-end consumer mortgage but omits the additional terms required by Regulation Z.

  1. The amount of a required down payment is a trigger term.
  2. The ad must clearly and conspicuously add the required down-payment, repayment, and APR information under the rule.
  3. A footnote that cannot be noticed or understood does not solve clear-and-conspicuous presentation.

Answer: The advertisement is incomplete under the closed-end trigger-term rule.

Amount financed calculation

Scenario: An exam problem gives $250,000 principal and $5,000 in prepaid finance charges, with no other amount-financed adjustments.

  1. Prepaid finance charges are subtracted in the amount-financed calculation.
  2. $250,000 minus $5,000 equals $245,000.
  3. The $250,000 note amount and $245,000 amount financed are therefore not interchangeable.

Answer: The disclosed amount financed is $245,000 on the stated facts.

What are the common exam traps?

Trap
Calling Regulation Z the statute
Correction
TILA is the statute; Regulation Z implements it.
Trap
Limiting TILA to mortgages
Correction
It regulates many forms of consumer credit, with special mortgage provisions.
Trap
Applying TILA to every business loan secured by a home
Correction
Primarily business, commercial, or agricultural credit can be exempt after the purpose analysis.
Trap
Calling APR the note rate
Correction
APR reflects covered credit costs and timing, while the note rate accrues interest on principal.
Trap
Calling finance charge a percentage
Correction
Finance charge is disclosed in dollars; APR is the annual percentage.
Trap
Calling every closing cost a finance charge
Correction
Regulation Z contains detailed inclusions and exclusions, including special real-estate fee treatment.
Trap
Calling amount financed the same as principal
Correction
Prepaid finance charges and other required adjustments can make the figures differ.
Trap
Giving a buyer three days to cancel a purchase mortgage
Correction
The acquisition or initial-construction loan for a principal dwelling is exempt from TILA rescission.
Trap
Applying rescission to a second home
Correction
Section 1026.23 ordinarily requires security in the consumer's principal dwelling.
Trap
Starting rescission only from signing
Correction
Use the latest of consummation, notice delivery, and delivery of all material disclosures.
Trap
Excluding Saturday from every rescission count
Correction
For this rule, every day except Sunday and federal legal public holidays counts.
Trap
Saying extended rescission always lasts exactly three years
Correction
Sale or transfer of all interest can terminate the unexpired right earlier.
Trap
Letting only the note signer rescind
Correction
An owner whose principal-dwelling interest is encumbered can have the right even without signing the note.
Trap
Advertising only a simple rate without APR labeling
Correction
A stated finance-charge rate must be expressed as an annual percentage rate under the rule.
Trap
Assuming disclosure cures misleading mortgage advertising
Correction
Regulation Z separately prohibits specified misleading claims and requires clear, conspicuous presentation.

Can you answer these original practice questions?

These questions are original study items aligned to the published outline. They are not copied, recalled, or predicted PSI questions.

1. Which regulation implements TILA?

  1. Regulation Z
  2. Regulation X
  3. Regulation B
  4. Regulation V only
Show answer and explanation

Answer: Regulation Z

Regulation Z appears in 12 CFR Part 1026.

2. What is the finance charge?

  1. The dollar cost of consumer credit under Regulation Z
  2. The appraised value
  3. The down payment percentage
  4. The property tax bill
Show answer and explanation

Answer: The dollar cost of consumer credit under Regulation Z

APR expresses covered cost as an annual percentage rather than a dollar total.

3. Why can APR exceed the note rate?

  1. APR can reflect covered prepaid finance charges and payment timing
  2. APR is always the property tax rate
  3. The note rate includes title value
  4. APR is the loan balance
Show answer and explanation

Answer: APR can reflect covered prepaid finance charges and payment timing

The two percentages answer different questions.

4. Which transaction is generally exempt from TILA rescission?

  1. A mortgage used to acquire the consumer's principal dwelling
  2. A home-equity loan secured by the current principal dwelling
  3. A personal-purpose refinance with a new creditor
  4. A HELOC secured by the principal dwelling
Show answer and explanation

Answer: A mortgage used to acquire the consumer's principal dwelling

It is a residential mortgage transaction under Regulation Z's technical definition.

5. When does the ordinary rescission period begin?

  1. After the latest of consummation, notice, and all material disclosures
  2. Only when the application is submitted
  3. At appraisal inspection
  4. At recording only
Show answer and explanation

Answer: After the latest of consummation, notice, and all material disclosures

The right lasts until midnight of the third applicable business day.

6. Which day is excluded from the Regulation Z rescission business-day count?

  1. Sunday
  2. Saturday
  3. Every Monday
  4. The closing date in all cases
Show answer and explanation

Answer: Sunday

Federal legal public holidays are also excluded; Saturday ordinarily counts.

7. Who generally receives rescission rights?

  1. Each consumer whose principal-dwelling ownership interest is encumbered
  2. Only the real estate broker
  3. Only the appraiser
  4. Every adult occupant without regard to ownership
Show answer and explanation

Answer: Each consumer whose principal-dwelling ownership interest is encumbered

Ownership subjected to the lien, not mere occupancy, controls the analysis.

8. Which advertised phrase is a closed-end trigger term?

  1. Only $2,000 down
  2. Competitive financing available
  3. Easy terms
  4. Apply today
Show answer and explanation

Answer: Only $2,000 down

A stated required down-payment amount triggers additional disclosures.

9. What form gives early estimated terms for most covered closed-end mortgages?

  1. Loan Estimate
  2. Deed
  3. Promissory note only
  4. Property tax card
Show answer and explanation

Answer: Loan Estimate

The Closing Disclosure provides later final transaction information.

10. Does TILA set one maximum lawful mortgage interest rate nationwide?

  1. No, it primarily requires disclosure and regulates specified credit practices
  2. Yes, always 6 percent
  3. Yes, always the APR
  4. Only brokers choose the maximum
Show answer and explanation

Answer: No, it primarily requires disclosure and regulates specified credit practices

Other federal or state laws can regulate rates, fees, or particular loan classes.

How should you study this area?

Session
Session 1
Focus
Map the numbers
Proof you are ready
Classify and calculate 30 note-rate, amount-financed, finance-charge, APR, total-of-payments, payment-schedule, and cash-to-close prompts.
Session
Session 2
Focus
Test coverage
Proof you are ready
Sort 35 consumer, business, open-end, closed-end, dwelling-secured, organizational, large-credit, and exempt transactions.
Session
Session 3
Focus
Master disclosures
Proof you are ready
Place application, Loan Estimate, intent to proceed, revised estimate, Closing Disclosure, consummation, and later notices on a timeline.
Session
Session 4
Focus
Master rescission
Proof you are ready
Solve 35 principal-dwelling, purchase, refinance, HELOC, bridge, second-home, co-owner, business-day, waiver, and extended-right scenarios.
Session
Session 5
Focus
Review advertising
Proof you are ready
Audit 30 rate, payment, down-payment, fixed-claim, government-endorsement, debt-elimination, and trigger-term advertisements.
Session
Session 6
Focus
Run T-I-L-A
Proof you are ready
Audit two complete Illinois consumer mortgage files, score at least 90 percent, and explain every missed distractor.

Do not count recognition as mastery. Close the notes and explain the rule, apply it to a new fact pattern, and identify why each distractor fails.

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Questions students ask about TILA: Illinois Real Estate Exam Guide

What is TILA?

TILA is the federal Truth in Lending Act. Regulation Z implements it. The law promotes informed use of consumer credit through standardized disclosure of credit costs and terms. In real estate, it governs subjects including finance charges, APR, Loan Estimates, Closing Disclosures, mortgage advertising, rescission, high-cost and higher-priced loans, loan-originator conduct, valuation independence, Ability-to-Repay, and periodic statements.

What is the difference between TILA and Regulation Z?

TILA is the statute in federal law. Regulation Z is the detailed CFPB regulation in 12 CFR Part 1026 that implements TILA. Exam questions may use the names together, but the distinction is act versus implementing rule. Official interpretations to Regulation Z also explain how its sections apply to particular facts.

What credit does TILA cover?

Regulation Z generally covers consumer credit offered or extended regularly when the credit is subject to a finance charge or payable by written agreement in more than four installments. The credit must be primarily for personal, family, or household purposes. Real-estate security creates important mortgage rules, but TILA also covers other consumer credit.

What is a finance charge?

The finance charge is the dollar cost of consumer credit. It includes charges payable directly or indirectly by the consumer and imposed by the creditor as an incident to or condition of the credit, subject to detailed inclusions, exclusions, and mortgage-specific rules. Interest, points, and certain loan fees can be included. Not every closing cost is a finance charge.

What is APR?

The annual percentage rate expresses the cost of credit as a yearly rate using the Regulation Z calculation. APR can include the effect of prepaid finance charges and therefore can exceed the note interest rate. APR is a comparison measure, not the exact interest rate applied to the unpaid principal each month and not the total dollar finance charge.

What mortgage forms does TILA require?

For most covered closed-end consumer mortgages, the integrated disclosure rules require a Loan Estimate early in the application process and a Closing Disclosure before consummation. Regulation Z sections 1026.37 and 1026.38 prescribe their content. Certain loans, including reverse mortgages and some subordinate programs, remain outside the TRID form set and use other disclosures.

Does a homebuyer have three days to cancel a purchase mortgage?

No. The Regulation Z right of rescission does not apply to a residential mortgage transaction used to acquire or initially construct the consumer's principal dwelling. It commonly applies to a refinance with a different creditor, home-equity loan, or other covered nonpurchase credit secured by the principal dwelling. Contract review, attorney review, financing contingencies, and rescission are separate rights.

How long is the TILA rescission period?

The ordinary period runs until midnight of the third business day after the latest of consummation, delivery of the rescission notice, or delivery of all material disclosures. For this rule, business day means every calendar day except Sunday and federal legal public holidays. If required notice or material disclosures are missing, the right can extend up to three years, subject to earlier sale or transfer and other statutory limits.

Who can rescind a covered home-secured transaction?

Each consumer whose ownership interest in the principal dwelling is or will be subject to the security interest generally has the right, even if that owner did not sign the credit agreement. The right concerns an ownership interest encumbered by the lien. A person with no ownership interest is not made a rescinding consumer merely by living in the home.

What are TILA advertising trigger terms?

For closed-end credit, stating the amount or percentage of a required down payment, number of payments, payment period, amount of any payment, or amount of any finance charge can trigger additional clear and conspicuous disclosures. If an ad states a rate of finance charge, it must state it as an annual percentage rate. Special mortgage advertising rules also prohibit misleading claims.

Are these official PSI questions or TILA compliance advice?

No. The questions are original. Primary sources were checked through August 1, 2026, including the current PSI Illinois outline and Regulation Z as most recently amended April 8, 2026. This is exam education, not lending, advertising, disclosure, rescission, compliance, or legal advice. Live transactions require current forms, calculations, dates, creditor procedures, and counsel when needed.

Primary sources

The current official outline controls the tested scope. Statutes, regulations, and official agency materials control when a general study rule and a jurisdiction-specific rule differ.

Editorial status

Checked against primary sources

The Pass Illinois editorial team last checked this guide on August 1, 2026. Every practice question is an original study item, and the source links above let you verify the rules that support the lesson.

Read our editorial and corrections process

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