What could be a consequence of not disclosing a prepayment penalty?

Not disclosing a prepayment penalty can lead to legal ramifications because lenders are required to provide clear and transparent information about the terms of a loan, including any fees that may apply if a borrower decides to pay off the loan early. Failure to disclose such a significant detail could be perceived as misleading or deceptive practices, potentially violating federal and state regulations, such as the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). Non-compliance with these regulations can result in penalties or legal action against the lender, including lawsuits or fines.

In contrast, the other options do not accurately represent the consequences of nondisclosure. For instance, increased borrower trust is less likely when critical fees are hidden from borrowers, while higher interest rates and extended loan terms may be influenced by various factors not directly related to the nondisclosure of a prepayment penalty. Thus, the legal ramifications stand out as a significant consequence tied directly to the requirement of transparency in lending practices.