AFIP AFIP Credit and Lending Fundamentals 3

Question 1

Which federal act requires lenders to provide borrowers with a copy of their credit report if adverse action is taken based on that report?

Accepted Answer

Fair Credit Reporting Act (FCRA)

Answer

Truth in Lending Act (TILA)

Answer

Gramm-Leach-Bliley Act (GLBA)

Answer

Consumer Financial Protection Act (CFPA)

Question 2

In an installment loan, what does 'amortization' refer to?

Accepted Answer

The gradual repayment of a loan through scheduled principal and interest payments

Answer

The process of transferring a loan to another lender

Answer

Refinancing a loan at a lower interest rate

Answer

The penalty charged for early loan payoff

Question 3

What is the primary purpose of a 'Red Flags Rule' compliance program in a dealership's F&I department?

Accepted Answer

To detect and prevent identity theft in credit transactions

Answer

To identify vehicles with high accident risk

Answer

To flag customers with prior repossessions

Answer

To identify lenders with predatory lending practices

Question 4

What does a 'balloon payment' loan structure mean for the borrower?

Accepted Answer

A large lump-sum payment is due at the end of the loan term

Answer

Monthly payments increase over the loan term

Answer

Interest rates fluctuate with market conditions

Answer

The loan can be extended indefinitely without penalty

Question 5

Which document in an auto finance transaction outlines the specific terms of the loan, including interest rate, payment schedule, and borrower obligations?

Accepted Answer

The retail installment sales contract (RISC)

Answer

The title application

Answer

The vehicle purchase order

Answer

The lender's dealer agreement

Question 6

Under TILA, what must be disclosed as the 'finance charge' in a consumer credit transaction?

Accepted Answer

The total dollar cost of credit, including interest and certain fees

Answer

Only the interest charged over the life of the loan

Answer

The down payment required to obtain the loan

Answer

The dealer's profit margin on the financing