Final answer:
The Truth in Lending Act and Regulation Z serve to protect consumers by making sure lenders provide clear information about the terms and costs of credit. The correct answer is option 1.
Step-by-step explanation:
The purpose of the Truth in Lending Act and Regulation Z is to ensure that consumers are fully informed about the costs and terms of credit before they enter into a loan agreement. This includes loans to buy a car, repair a home, or finance a laptop.
Specifically, the answer to the student's question is that the purpose is "To protect consumers by requiring lenders to disclose the terms and costs of credit." When we talk about loans and borrowing, understanding the details like the interest rate, repayment schedule, and any additional fees or penalties is critical. The Act does not regulate the interest rates charged by lenders directly nor does it provide financial assistance for purchases. Instead, it focuses on disclosure and transparency, ensuring consumers can make informed decisions and avoid potential pitfalls of borrowing.
Additionally, the Federal Reserve ensures banks are compliant with these regulations and prohibits discrimination in lending. Understanding how much one can afford and the responsibilities of borrowing is crucial for consumers. During the housing market crisis, for example, issues arose when loans were given to families who could not afford them, leading to a need for stricter oversight.