For loans under $20,000, what is the rate threshold for them to be classified as High Cost Loans according to Title 46?

• A. 4.5% or $1,000
• B. 6% or $1,000
• C. 5% or $500
• D. 7% or $1,500

Answer: (B)

For loans under $20,000, Title 46 classifies them as High Cost Loans if the interest rate exceeds 6 percentage points over the comparable treasury securities or if the total points and fees exceed $1,000. This classification is crucial because it provides legal protections for borrowers, ensuring they are informed about the terms of loans that can potentially lead to predatory lending practices.

The threshold of 6% is pivotal as it establishes a clear benchmark above which loans may be considered high cost, warranting higher scrutiny and regulatory oversight. In addition, the $1,000 cap on total points and fees further defines the limits of what constitutes excessive charges that might exploit borrowers having limited financial resources.

Understanding these terms is vital for MLOs since they need to assist clients appropriately, especially when they may be seeking smaller loan amounts which often fall into riskier lending categories. This helps to safeguard borrowers from high costs that could lead to default or financial hardship.