Banking Regulations and Ethics Flashcards

A loan officer is reviewing an application from their cousin for a significant personal loan. The loan meets all standard underwriting criteria. What is the most ethical action for the loan officer to take?

Answer: Disclose the conflict of interest to their manager and ask for the loan to be reassigned to another officer.

The most ethical course of action is to disclose the potential conflict of interest to a supervisor and have the application reassigned. This prevents any appearance of preferential treatment and ensures the decision is made objectively, protecting both the employee and the bank.

Which of the following scenarios best describes the primary goal of the Community Reinvestment Act (CRA)?

Answer: A bank actively markets home mortgage and small business loans in low- and moderate-income neighborhoods within its service area.

The primary purpose of the Community Reinvestment Act (CRA) is to encourage banks to meet the credit needs of their entire community, including low- and moderate-income (LMI) neighborhoods, consistent with safe and sound banking operations.

A customer reports an unauthorized electronic fund transfer on their account statement. Under Regulation E, what is the general timeframe a financial institution has to investigate the claim after receiving the notice of error?

Answer: 10 business days

Regulation E generally requires a financial institution to promptly investigate a notice of error and determine whether an error occurred within 10 business days of receiving the notice. The investigation period can be extended under certain conditions, such as if the bank provides provisional credit to the customer's account.

A credit applicant indicates that a significant portion of her stable income is from a public assistance program. According to the Equal Credit Opportunity Act (ECOA), how must a lender treat this income?

Answer: It must be considered in the same way as income from any other source.

The Equal Credit Opportunity Act (ECOA) and its implementing Regulation B prohibit discrimination against an applicant because all or part of their income derives from a public assistance program. Lenders must consider this income and evaluate it on the same basis as other sources of income when determining creditworthiness.

Which of the following is the best example of an 'abusive' practice under the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) framework?

Answer: A mortgage lender offering a complex, high-risk loan product to a consumer with a limited understanding of finance, knowing the consumer cannot protect their own interests in the transaction.

An 'abusive' act under UDAAP involves, among other things, taking unreasonable advantage of a consumer's lack of understanding of the material risks, costs, or conditions of a product or service. Offering a complex and risky product to a vulnerable consumer who cannot reasonably protect their own interests fits this definition.

A customer deposits a $15,000 personal check from an out-of-state bank into their account. Under Regulation CC's large-deposit exception, what is the maximum amount of the deposit the bank is permitted to place an extended hold on?

Answer: $8,275

Under Regulation CC, the large-deposit exception applies to amounts over a certain threshold (currently $5,525, but was previously $5,000 and the search results show various figures as the threshold is indexed to inflation - using $6,725 from a recent search result for this calculation). The bank must make the first portion ($6,725 in this case) available according to its normal availability schedule. The portion of the deposit exceeding that amount ($15,000 - $6,725 = $8,275) is subject to the extended hold permitted by the large-deposit exception.