Which federal law prohibits making a loan to a customer without verifying the customer's ability to repay the loan?

The correct answer regarding the federal law that prohibits making a loan to a customer without verifying their ability to repay is HOEPA, or the Home Ownership and Equity Protection Act. This law is designed to prevent predatory lending practices and enhance consumer protection by imposing various requirements on lenders, particularly relating to high-cost mortgages.

One of the key features of HOEPA is the requirement for lenders to thoroughly assess the borrower’s ability to repay the loan before extending credit. This includes examining the borrower’s income, employment status, credit history, and other relevant financial information. By requiring this verification, HOEPA aims to minimize the risk of borrowers becoming trapped in cycles of debt or foreclosure due to unaffordable loan terms.

In contrast, the other laws mentioned focus on different aspects of lending and consumer protection. The Community Reinvestment Act (CRA) encourages banks to meet the credit needs of all communities, particularly low-income neighborhoods, without specifically focusing on the ability to repay loans. The Home Mortgage Disclosure Act (HMDA) is aimed at providing the public with information about mortgage lending patterns to ensure compliance with fair lending laws, but it does not address the verification of borrowers' repayment capabilities. The Real Estate Settlement Procedures Act (RESPA) primarily governs the disclosure of settlement