CRCM Fair Lending and Equal Credit Opportunity 2 — Questions and Answers
Question 1: What does the Community Reinvestment Act (CRA) require of depository institutions?
- They must offer mortgages to all applicants regardless of creditworthiness
- They must meet the credit needs of their entire community, including low- and moderate-income areas (Correct answer)
- They must donate 1% of profits to community organizations
- They must maintain branches in rural areas
Correct answer: They must meet the credit needs of their entire community, including low- and moderate-income areas
The CRA requires banks to meet the credit needs of all areas in their assessment area, including LMI communities, consistent with safe and sound operations.
Question 2: Which agency primarily enforces fair lending laws for national banks?
- FDIC
- State banking departments
- Office of the Comptroller of the Currency (OCC) (Correct answer)
- Department of Justice only
Correct answer: Office of the Comptroller of the Currency (OCC)
The OCC is the primary federal regulator for national banks and enforces fair lending laws including ECOA and the Fair Housing Act.
Question 3: 'Steering' in fair lending means:
- Directing qualified minority borrowers to higher-cost loan products (Correct answer)
- Requiring borrowers to use a specific appraiser
- Refusing to process applications from certain zip codes
- Offering rate discounts only to existing customers
Correct answer: Directing qualified minority borrowers to higher-cost loan products
Steering involves directing creditworthy borrowers who qualify for prime products into higher-cost or subprime products based on protected characteristics.
Question 4: Under HMDA (Home Mortgage Disclosure Act), financial institutions must collect and report data to:
- Identify possible discriminatory lending patterns and community credit needs (Correct answer)
- Verify borrower income and assets
- Set maximum loan amounts by geography
- Determine deposit insurance eligibility
Correct answer: Identify possible discriminatory lending patterns and community credit needs
HMDA data is used by regulators and the public to identify discriminatory lending patterns and assess whether institutions are meeting community credit needs.
Question 5: Which of the following is an example of 'disparate treatment' in lending?
- A policy requiring 20% down payment for all borrowers
- Charging minority applicants higher rates than similarly qualified non-minority applicants (Correct answer)
- A standard credit score cutoff applied to all applicants
- Requiring income verification for all mortgage applicants
Correct answer: Charging minority applicants higher rates than similarly qualified non-minority applicants
Disparate treatment involves treating similarly situated applicants differently based on a protected characteristic, such as charging higher rates to minorities.
Question 6: The CFPB's UDAP authority under Dodd-Frank prohibits:
- All forms of relationship-based pricing
- Unfair, deceptive, or abusive acts or practices (UDAAP) (Correct answer)
- Lenders from using automated underwriting systems
- Variable rate products for first-time homebuyers
Correct answer: Unfair, deceptive, or abusive acts or practices (UDAAP)
The CFPB enforces UDAAP standards, which prohibit unfair, deceptive, or abusive acts or practices in consumer financial products and services.
CRCM Fair Lending and Equal Credit Opportunity 2
What does the Community Reinvestment Act (CRA) require of depository institutions?