What potential consequence faces lenders who fail to comply with Regulation Z?

The correct answer highlights the serious implications that lenders can face if they do not comply with Regulation Z, which is part of the Truth in Lending Act. This regulation is designed to promote informed consumer credit decisions by mandating clear disclosure of the terms and costs associated with borrowing.

If lenders fail to adhere to these regulations, they can face a range of consequences, including penalties from regulatory agencies, potential lawsuits, and damages to their reputation. This can create financial liabilities and impact a lender's ability to operate effectively within the financial market. Legal action can come from both regulatory bodies and consumers who may have been misled or not provided with the required disclosures.

The other options do not accurately reflect the realities of non-compliance with Regulation Z. There are indeed consequences even if a borrower does not directly complain, reinforcing the importance of adherence to the law for all lenders. Additionally, non-compliance is unlikely to result in increased loan approval rates or a loan reduction for borrowers; these options do not align with the purpose of the regulations, which is to ensure transparency and protect consumers rather than facilitate more loans or reduce them arbitrarily.