CRU Regulatory Compliance & Legal Considerations 3 — Questions and Answers
Question 1: Under ECOA, a lender must notify an applicant of adverse action within how many days of receiving a completed application?
- 15 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
ECOA requires adverse action notice within 30 days of receiving a completed credit application.
Question 2: Which of the following is NOT one of the seven federally protected classes under the Fair Housing Act?
- Race
- Familial status
- Source of income (Correct answer)
- National origin
Correct answer: Source of income
Source of income is not a protected class under the federal Fair Housing Act, though some states and localities have enacted protections for it.
Question 3: The primary purpose of HMDA data collection is to:
- Verify borrower income for underwriting accuracy
- Identify discriminatory lending patterns and geographic redlining (Correct answer)
- Calculate individual lender CRA performance ratings
- Determine appropriate risk-based loan pricing
Correct answer: Identify discriminatory lending patterns and geographic redlining
HMDA was enacted to help regulators identify discriminatory lending patterns and ensure lenders are serving their entire communities.
Question 4: Redlining in mortgage lending is best defined as:
- Flagging high-risk loans in red on a portfolio management system
- Refusing to lend in specific geographic areas based on racial or ethnic composition (Correct answer)
- Setting higher APRs for minority borrowers on equivalent loan profiles
- Requiring larger down payments in lower-income urban neighborhoods
Correct answer: Refusing to lend in specific geographic areas based on racial or ethnic composition
Redlining is the illegal practice of denying credit or services in geographic areas based on the racial or ethnic composition of the neighborhood.
Question 5: Under ECOA, which of the following characteristics is explicitly prohibited as a basis for denying a mortgage application?
- High debt-to-income ratio
- Insufficient credit history
- Marital status (Correct answer)
- Unstable employment history
Correct answer: Marital status
ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
Question 6: Which federal agency is primarily responsible for enforcing the Fair Housing Act in residential mortgage lending?
- Federal Reserve Board
- Office of the Comptroller of the Currency
- Department of Housing and Urban Development (Correct answer)
- Federal Deposit Insurance Corporation
Correct answer: Department of Housing and Urban Development
HUD is the primary federal agency responsible for administering and enforcing the Fair Housing Act, including its lending provisions.
Question 7: Under fair lending law, 'disparate impact' theory means:
- A lender intentionally charged higher rates to a protected class
- A facially neutral policy disproportionately harms a protected class without sufficient business justification (Correct answer)
- A lender denied applications at a higher rate in minority neighborhoods
- A lender applied different underwriting standards to different loan officers
Correct answer: A facially neutral policy disproportionately harms a protected class without sufficient business justification
Disparate impact exists when a neutral policy disproportionately affects a protected class and the lender cannot demonstrate a legitimate business justification.
CRU Regulatory Compliance & Legal Considerations 3
Under ECOA, a lender must notify an applicant of adverse action within how many days of receiving a completed application?