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Are lenders doing enough to educate borrowers on “True Cost” in 2026?
With rates hovering around 7% and insurance premiums skyrocketing in states like Florida and Texas, we are seeing a major shift in underwriting.
As Gustan Cho recently highlighted, lenders are moving toward manual underwriting and focusing heavily on “Residual Income” (especially for VA loans) to ensure borrowers can actually afford the home, not just qualify for the loan.
But here is my question for the professionals here:
Are we doing enough to educate buyers on the “True Cost” (PITI + Maintenance + Utilities)? Most buyers still rely on the P&I figure they see on Zillow, which leads to “House Poor” situations and escrow shocks in Year 2.
What strategies are you using to help your clients see the real picture before they sign? Do you use specific calculators or software?
I’d love to hear how you are handling this in your day-to-day business.-
This discussion was modified 2 weeks, 6 days ago by
Elmoustahyi Abdallah.
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This discussion was modified 2 weeks, 5 days ago by
Gustan Cho.
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This discussion was modified 2 weeks, 6 days ago by
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1 Reply
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Progress in this area has slowed, and 2026 will likely highlight ongoing gaps that still need attention. The main issue with showing the ‘true cost’ of credit is lender behavior, not just the disclosure rules. Some lenders recognize this, but most only follow the rules without helping consumers understand what they actually pay. For real progress, the industry needs to look closely at its own practices rather than just meet minimum requirements.
Overview of Regulatory Requirements
Regulation Z requires lenders to clearly disclose the real cost, including APR, finance charges, and total payments, for all types of loans, such as mortgages, car loans, personal loans, and credit cards. In 2026, the coverage limit increased to $73,400, reflecting a 2.1% rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The educational part is limited to showing these numbers and collecting signatures. These rules set a minimum standard but fall short of the bigger goal. Simply providing information does not ensure borrowers understand it.
Deficiencies in Lender Practices
- Disclosure documents often use language that only compliance officers understand, which confuses most consumers.
- The TRID Loan Estimate includes so much detail that borrowers confuse APR with the interest rate, do not understand ‘total interest rate,’ and miss how escrow affects their payments.
- Lenders rarely provide clear, example-based tools to explain these concepts.
- Buy Now Pay Later (BNPL) products often hide their true costs, making them even less transparent than traditional credit options, despite their growing popularity.
- Regulators are pushing for more transparency, but most BNPL users still do not know what they pay each year because providers keep this information hidden. The underwriting process is also unclear.
- The Consumer Financial Protection Bureau’s (CFPB) ‘explainable AI’ initiative encourages lenders to show what drives approval or rejection, aiming for more openness and accountability.
- However, this only addresses part of the problem, and the reasons behind pricing and rates remain unclear.
- Much more needs to be done for real pricing transparency.
- The lending industry’s incentives are not aligned with consumer interests.
- Lenders focus on products that are easy to create but difficult for consumers to compare.
- When borrowers cannot see the real costs, lenders can increase sales and avoid complaints about hidden fees.
- Small changes to Regulation Z and Regulation M limits, even with inflation adjustments, have little impact.
- Starting March 1, 2026, (RPACE) Loans will be covered by Regulation Z, adding Truth-in-Lending Act (TILA)-style checks on ability to repay and counseling notices.
- This is a positive step because PACE products often confuse consumers.
The Personal Financial Data Rights Rule (2026-The Personal Financial Data Rights Rule (2026-2030) allows borrowers to access and share their financial data. When borrowers use real loan terms in comparison tools, they take responsibility for understanding the true cost, gain more control, and reduce lenders’ control over information. Removing medical debt from credit decisions also changes underwriting. Even though lenders use standard forms, provide required counseling, and offer AI explanations, the industry still does not make costs and pricing clear. As the Consumer Financial Protection Bureau (CFPB) reduces inspections, its influence decreases. State regulators are stepping in, but their inconsistent approach means compliance varies. Some borrowers get all the information they need, while others are left uncertain. Lenders who want to stand out should go beyond the basics. Creating a true cost calculator that shows total costs in real situations will help as data sharing increases. For more on RPACE Regulation Z or how the data-sharing rule affects borrower comparisons, see Compliance Strategies 2026 by The Commonwealth Group. https://www.thecommonwealth.net/blog/navigating-reg-z-updates-compliance-strategies-2026 | American Bankers Association/acts/truth-in-lending-act
Q4 2025 compliance updates for financial institutions | Our Insights | Plante Moran
Banking Trends: The 8 Regulatory Trends of 2026 | OnCourse Learning
How the CFPB’s 2026 Agenda Could Redefine Consumer Finance | One Lend News
Key 2025-2026 Regulatory Compliance and Lending Law Changes: Data Privacy, AI, and Consumer Protection — Winnow
thecommonwealth.net
Navigating Reg Z: Essential Updates and Compliance Strategies in 2026 - The Commonwealth Group
Reg Z 2026: Get Ready for 2026 with Reg Z Essentials
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