Core Concepts and Principles Flashcards

What is the main benefit of a larger down payment to an auto finance company?

Answer: It reduces loan-to-value and shows borrower commitment

A larger down payment lowers exposure relative to collateral value and signals the borrower's investment in the vehicle.

Which privacy law requires financial institutions to give customers a notice about how their nonpublic personal information is shared?

Answer: Gramm-Leach-Bliley Act

GLBA requires privacy notices and safeguards for consumers' nonpublic personal information.

Which federal agency has broad supervisory authority over larger nonbank auto finance companies?

Answer: Consumer Financial Protection Bureau

The CFPB supervises larger participants in the auto financing market for compliance with federal consumer financial laws.

In a purchase-style program, how does it differ from a portfolio program for the dealer?

Answer: The dealer receives a one-time payment and no share of future collections

In a purchase program the finance company buys the contract outright, so the dealer typically gets a single upfront payment.

Why are financed add-on products like service contracts and GAP closely reviewed by compliance teams?

Answer: They raise the amount financed and must be voluntary and properly disclosed

Add-ons increase the consumer's debt and regulators scrutinize whether they are optional, fairly priced, and disclosed.

What does 'static pool' analysis help an auto finance company understand?

Answer: How loans originated in the same period perform over time

Static pool analysis tracks a fixed group of loans from a given origination period to measure losses and collections over time.

Which situation would most likely trigger a 'risk-based pricing' notice to a consumer?

Answer: The consumer receives credit terms materially less favorable based on their credit report

Under the FCRA risk-based pricing rule, consumers given less favorable terms based on a credit report must receive notice.