Vehicle Financing and Credit Practices Flashcards

The Equal Credit Opportunity Act (ECOA) prohibits a dealer or lender from discriminating against a credit applicant based on:

Answer: Race, color, religion, national origin, sex, marital status, or age

ECOA prohibits credit discrimination based on protected characteristics including race, color, religion, national origin, sex, marital status, and age (provided the applicant has capacity to contract).

Under the Fair Credit Reporting Act (FCRA), if a dealer takes an adverse action (denies credit) based on information in a consumer's credit report, the dealer must:

Answer: Provide the consumer with an adverse action notice including the name of the credit reporting agency used

FCRA requires that when adverse action is taken based on a credit report, the creditor must provide an adverse action notice identifying the consumer reporting agency whose report was used.

What is 'negative equity' in a vehicle financing transaction?

Answer: When the outstanding loan balance on a trade-in vehicle exceeds its market value

Negative equity (being 'upside down' or 'underwater') occurs when a buyer owes more on a trade-in vehicle than it is worth, often resulting in that balance being rolled into the new loan.

GAP (Guaranteed Asset Protection) insurance or a GAP waiver is primarily designed to protect a buyer against:

Answer: The difference between the insurance payout and the remaining loan balance if the vehicle is totaled or stolen

GAP coverage pays the difference between what a standard auto insurance policy pays (actual cash value) and the amount the buyer still owes on their loan if the vehicle is a total loss.

Under the FTC's Red Flags Rule, auto dealers who extend credit are required to:

Answer: Implement a written Identity Theft Prevention Program to detect and respond to warning signs of identity theft

The FTC's Red Flags Rule requires dealers who are creditors to develop and implement a written Identity Theft Prevention Program that identifies, detects, and responds to 'red flags' indicating potential identity theft.

When a buyer co-signs on a vehicle loan, they are legally responsible for:

Answer: The full loan amount if the primary borrower defaults

A co-signer is equally liable for the entire debt; if the primary borrower defaults, the lender can pursue the co-signer for the full remaining balance.

Which document must a California dealer provide to a buyer before the buyer signs a retail installment sale contract, showing the vehicle price, trade-in allowance, fees, and amount financed?

Answer: The buyer's order or purchase agreement

The buyer's order or purchase agreement itemizes all financial terms of the deal — price, trade-in, fees, and net amount to be financed — and must be provided before the buyer signs the retail installment contract.