CFE CFE Consumer Protection & Lending Compliance 1 — Questions and Answers
Question 1: Which federal law requires lenders to disclose the Annual Percentage Rate (APR) and total finance charges to borrowers?
- Equal Credit Opportunity Act (ECOA)
- Truth in Lending Act (TILA) (Correct answer)
- Fair Housing Act
- Community Reinvestment Act (CRA)
Correct answer: Truth in Lending Act (TILA)
The Truth in Lending Act (TILA) mandates that lenders clearly disclose the APR, finance charges, and loan terms so consumers can make informed borrowing decisions.
Question 2: Under the Equal Credit Opportunity Act (ECOA), a lender may NOT deny credit based on which factor?
- Credit score
- Debt-to-income ratio
- National origin (Correct answer)
- Payment history
Correct answer: National origin
ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
Question 3: A financial examiner finds that a bank charges higher interest rates to borrowers in minority neighborhoods despite similar credit profiles. This is an example of:
- Predatory lending and redlining (Correct answer)
- Prudent risk management
- Compliant tiered pricing
- Standard underwriting practice
Correct answer: Predatory lending and redlining
Charging higher rates based on neighborhood demographics rather than individual creditworthiness constitutes predatory lending and redlining, both illegal under fair lending laws.
Question 4: What is the primary purpose of the Community Reinvestment Act (CRA)?
- To regulate mortgage interest rates
- To encourage banks to meet the credit needs of all communities they serve, including low-income areas (Correct answer)
- To insure consumer deposits up to $250,000
- To establish minimum capital requirements for banks
Correct answer: To encourage banks to meet the credit needs of all communities they serve, including low-income areas
The CRA requires federal financial regulatory agencies to assess how well banks fulfill their obligations to serve all segments of their communities, especially low-income areas.
Question 5: Which regulation implements the Real Estate Settlement Procedures Act (RESPA) and requires lenders to provide a Loan Estimate to mortgage applicants?
- Regulation B
- Regulation X (Correct answer)
- Regulation Z
- Regulation E
Correct answer: Regulation X
Regulation X implements RESPA and, alongside TILA's Regulation Z, governs the Loan Estimate and Closing Disclosure that mortgage lenders must provide to borrowers.
Question 6: A 'qualified mortgage' under the Dodd-Frank Act must include which feature?
- A balloon payment at maturity
- Verification that the borrower has the ability to repay (Correct answer)
- An adjustable interest rate
- A prepayment penalty
Correct answer: Verification that the borrower has the ability to repay
Under Dodd-Frank's Ability-to-Repay (ATR) rule, qualified mortgages require lenders to verify that borrowers can repay the loan based on documented income and assets.
CFE CFE Consumer Protection & Lending Compliance 1
Which federal law requires lenders to disclose the Annual Percentage Rate (APR) and total finance charges to borrowers?