CCP Legal & Regulatory Compliance in Credit Management 3 — Questions and Answers
Question 1: A credit manager discovers that a customer's check was returned for insufficient funds (NSF). Under which legal framework would criminal bad check statutes most likely apply?
- Federal Bankruptcy Code
- State criminal law and the Uniform Commercial Code (UCC) (Correct answer)
- The Fair Debt Collection Practices Act (FDCPA)
- The Truth in Lending Act (TILA)
Correct answer: State criminal law and the Uniform Commercial Code (UCC)
Bad check statutes are governed by state criminal law, while the UCC governs the commercial aspects of negotiable instruments like checks.
Question 2: Under the Uniform Commercial Code (UCC) Article 2, when does title to goods typically pass from seller to buyer in a credit sale with no specific agreement on title transfer?
- When the buyer makes final payment
- When the seller ships the goods
- When the goods are identified to the contract and delivered to the buyer (Correct answer)
- When the credit terms are agreed upon
Correct answer: When the goods are identified to the contract and delivered to the buyer
Under UCC Article 2, title passes to the buyer when the seller completes their performance with respect to the physical delivery of the goods, typically at the time of identification and delivery.
Question 3: What is a 'preference payment' in bankruptcy law, and why is it significant for credit managers?
- A payment made by the debtor to a favored creditor within 90 days before bankruptcy, which can be recovered by the trustee (Correct answer)
- A court-ordered priority payment to secured creditors only
- A payment arrangement negotiated outside of bankruptcy court
- An advance payment made by a buyer before receiving goods
Correct answer: A payment made by the debtor to a favored creditor within 90 days before bankruptcy, which can be recovered by the trustee
A preference payment is a transfer made to a creditor within 90 days before bankruptcy (one year for insiders) that allows the trustee to recover those funds and redistribute them equally among creditors.
Question 4: What is the primary function of a demand letter in the credit collection process from a legal standpoint?
- To formally terminate the credit relationship with the customer
- To formally notify the debtor of the outstanding obligation and intent to pursue legal remedies if not paid (Correct answer)
- To initiate garnishment proceedings against the debtor
- To transfer the debt to a collection agency
Correct answer: To formally notify the debtor of the outstanding obligation and intent to pursue legal remedies if not paid
A demand letter formally notifies the debtor of the amount owed and puts them on notice that legal action will follow if payment is not received, which can also be a prerequisite for certain legal remedies.
Question 5: Under the ECOA and Regulation B, what is the maximum number of days a creditor has to notify an applicant of action taken on a completed credit application?
- 15 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
Under ECOA and Regulation B, creditors must notify applicants of the action taken on a completed credit application within 30 days of receiving it.
Question 6: Which type of lien gives a creditor the right to retain possession of a debtor's property until a debt is paid?
- Judgment lien
- Artisan's lien (possessory lien) (Correct answer)
- Mechanic's lien
- Tax lien
Correct answer: Artisan's lien (possessory lien)
An artisan's or possessory lien gives a creditor (such as a repair shop) the right to retain physical possession of the debtor's property until the debt for services is paid.
Question 7: Which federal statute regulates the privacy of nonpublic personal financial information held by financial institutions and requires annual privacy notices to customers?
- Sarbanes-Oxley Act (SOX)
- Gramm-Leach-Bliley Act (GLBA) (Correct answer)
- Bank Secrecy Act (BSA)
- Dodd-Frank Wall Street Reform Act
Correct answer: Gramm-Leach-Bliley Act (GLBA)
The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to protect the privacy of consumers' nonpublic personal information and to provide annual privacy policy notices.
CCP Legal & Regulatory Compliance in Credit Management 3
A credit manager discovers that a customer's check was returned for insufficient funds (NSF).
Under which legal framework would criminal bad check statutes most likely apply?