CCP Legal & Regulatory Compliance in Credit Management 2 — Questions and Answers
Question 1: Under the Fair Debt Collection Practices Act (FDCPA), which of the following communications is PROHIBITED when contacting a consumer about a debt?
- Sending a written validation notice within 5 days of first contact
- Contacting the consumer at their place of employment when the employer prohibits such calls (Correct answer)
- Identifying the name of the debt collection company
- Disclosing the amount of the debt owed
Correct answer: Contacting the consumer at their place of employment when the employer prohibits such calls
The FDCPA prohibits debt collectors from contacting consumers at their workplace if the collector knows the employer prohibits such calls.
Question 2: A creditor files a UCC-1 financing statement to perfect a security interest. What is the primary purpose of this filing?
- To notify the debtor of the creditor's claim
- To provide public notice of the creditor's security interest to third parties (Correct answer)
- To initiate legal proceedings against the debtor
- To satisfy a court judgment
Correct answer: To provide public notice of the creditor's security interest to third parties
Filing a UCC-1 financing statement perfects a security interest by providing constructive notice to third parties, establishing priority over subsequent creditors.
Question 3: Which federal law requires creditors to provide applicants with a notice of adverse action when credit is denied?
- Truth in Lending Act (TILA)
- Fair Credit Reporting Act (FCRA)
- Equal Credit Opportunity Act (ECOA) (Correct answer)
- Gramm-Leach-Bliley Act (GLBA)
Correct answer: Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act (ECOA) requires creditors to notify applicants of adverse action taken on a credit application, including the reasons for denial.
Question 4: A business debtor files for Chapter 11 bankruptcy. What is the immediate effect on creditors' collection efforts?
- Creditors may accelerate collection efforts before the case is confirmed
- An automatic stay immediately halts most collection activities against the debtor (Correct answer)
- Unsecured creditors are paid first from the estate
- Creditors must file suit within 30 days or lose their claims
Correct answer: An automatic stay immediately halts most collection activities against the debtor
Upon filing for Chapter 11 bankruptcy, an automatic stay immediately goes into effect, which prohibits most collection actions, lawsuits, and enforcement of liens against the debtor.
Question 5: Under the FCRA, how long may a Chapter 7 bankruptcy remain on a consumer's credit report?
- 5 years from discharge date
- 7 years from the date of filing
- 10 years from the date of filing (Correct answer)
- Indefinitely until the debtor requests removal
Correct answer: 10 years from the date of filing
Under the FCRA, a Chapter 7 bankruptcy may remain on a consumer's credit report for 10 years from the date of filing.
Question 6: What does the term 'subordination agreement' mean in the context of commercial credit?
- An agreement where one creditor agrees to have their debt repaid after another creditor's debt (Correct answer)
- A legal document requiring the debtor to report financial status monthly
- A court order forcing a debtor to liquidate assets
- An agreement between the debtor and a guarantor sharing repayment obligations
Correct answer: An agreement where one creditor agrees to have their debt repaid after another creditor's debt
A subordination agreement is a contract in which one creditor (the subordinated party) agrees that its claim will rank behind that of another creditor in the event of default or bankruptcy.
Question 7: Which of the following best describes 'piercing the corporate veil' in credit law?
- A creditor's right to inspect all company financial records
- Holding individual shareholders or officers personally liable for corporate debts (Correct answer)
- The process of converting secured debt to unsecured debt
- A court order requiring a corporation to disclose its assets
Correct answer: Holding individual shareholders or officers personally liable for corporate debts
Piercing the corporate veil is a legal remedy allowing courts to hold shareholders or officers personally liable for corporate obligations when fraud or abuse of the corporate form is found.
CCP Legal & Regulatory Compliance in Credit Management 2
Under the Fair Debt Collection Practices Act (FDCPA), which of the following communications is PROHIBITED when contacting a consumer about a debt?