Which law introduced the concept of the "ability-to-repay" rule?

The "ability-to-repay" rule was introduced by the Dodd-Frank Act, which was enacted in response to the financial crisis of 2007-2008. This rule requires lenders to make a reasonable and good faith determination of a borrower's ability to repay a mortgage loan before extending credit. The intent is to ensure that borrowers are not approved for loans that they cannot afford, thereby promoting responsible lending practices and reducing the risk of default.

The Dodd-Frank Act implemented several measures to improve the stability and transparency of the financial system, and the ability-to-repay rule is a central feature aimed at protecting consumers and the economy from the types of risky lending practices that contributed to the housing market collapse. This rule established criteria for evaluating a borrower’s income, employment, credit history, and other financial factors to ensure they have the capacity to repay the loan, thus reducing the likelihood of borrower default and potential foreclosure.