CCM Credit Law and Regulations 2 — Questions and Answers
Question 1: Under the Equal Credit Opportunity Act (ECOA), which of the following is a prohibited basis for denying business credit?
- Payment history
- Debt-to-income ratio
- Race or national origin (Correct answer)
- Business age
Correct answer: Race or national origin
ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or because someone receives public assistance.
Question 2: The Robinson-Patman Act primarily concerns which aspect of credit and business transactions?
- Interest rate discrimination between borrowers
- Price discrimination between competing purchasers (Correct answer)
- Geographic discrimination in lending decisions
- Discriminatory credit terms based on business size
Correct answer: Price discrimination between competing purchasers
The Robinson-Patman Act prohibits sellers from charging different prices to competing buyers for goods of like grade and quality when the effect may substantially lessen competition.
Question 3: Which section of the Uniform Commercial Code (UCC) governs the sale of goods and is most relevant to trade credit transactions?
- Article 2 (Correct answer)
- Article 3
- Article 6
- Article 9
Correct answer: Article 2
UCC Article 2 governs contracts for the sale of goods, making it directly applicable to trade credit transactions between businesses.
Question 4: A creditor receives a notice that a debtor has filed for Chapter 11 bankruptcy. Which immediate legal obligation arises?
- File a proof of claim within 24 hours
- Cease all collection activity under the automatic stay (Correct answer)
- Accelerate all outstanding debt immediately
- Convert all unsecured claims to secured claims
Correct answer: Cease all collection activity under the automatic stay
The automatic stay under 11 U.S.C. § 362 immediately prohibits creditors from continuing collection efforts upon a bankruptcy filing.
Question 5: Under UCC Article 9, a 'purchase money security interest' (PMSI) in inventory gives the secured creditor what special advantage?
- Priority over all other creditors regardless of filing date
- Superpriority over prior perfected security interests if proper notice is given (Correct answer)
- Immunity from preference avoidance in bankruptcy
- The right to repossess without a court order in all states
Correct answer: Superpriority over prior perfected security interests if proper notice is given
A PMSI in inventory can achieve superpriority over earlier perfected security interests if the PMSI holder notifies prior secured parties and perfects before delivery.
Question 6: The Sarbanes-Oxley Act (SOX) most directly affects credit managers by requiring:
- Disclosure of all credit terms to customers
- Greater accuracy and transparency in financial reporting that credit decisions rely on (Correct answer)
- Caps on interest rates for commercial credit
- Mandatory credit insurance for public companies
Correct answer: Greater accuracy and transparency in financial reporting that credit decisions rely on
SOX strengthens financial reporting integrity, which credit managers rely on when analyzing customer financial statements to make credit decisions.
Question 7: Which legal concept allows a creditor to hold a debtor's property as security until a debt is satisfied, without a written security agreement?
- Garnishment
- Attachment lien
- Common law lien (Correct answer)
- Fraudulent conveyance
Correct answer: Common law lien
A common law lien (or possessory lien) allows a creditor in possession of a debtor's property to retain it until the related debt is paid.
CCM Credit Law and Regulations 2
Under the Equal Credit Opportunity Act (ECOA), which of the following is a prohibited basis for denying business credit?