DMV Vehicle Financing and Credit Practices 2

Question 1

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

Accepted Answer

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

Answer

Credit score and debt-to-income ratio

Answer

Employment history and income level

Answer

Number of previous vehicle purchases

Question 2

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:

Accepted Answer

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

Answer

Return the consumer's down payment immediately

Answer

Submit a report to the California DMV

Answer

Offer the consumer an alternative financing arrangement

Question 3

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

Accepted Answer

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

Answer

When the dealer owes the lender more than the vehicle's wholesale value

Answer

When a buyer's credit score is below the lender's minimum threshold

Answer

When the finance charge exceeds the vehicle's purchase price

Question 4

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

Accepted Answer

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

Answer

Mechanical failures after the manufacturer warranty expires

Answer

Dealer fraud or misrepresentation during the sale

Answer

Increases in monthly payments due to rising interest rates

Question 5

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

Accepted Answer

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

Answer

Run a credit check on all employees before hiring

Answer

Verify the vehicle identification number (VIN) against a theft database

Answer

Report all cash transactions over $10,000 to the IRS

Question 6

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

Accepted Answer

The full loan amount if the primary borrower defaults

Answer

Only the down payment portion of the transaction

Answer

Half of the outstanding loan balance

Answer

Providing insurance on the vehicle only

Question 7

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?

Accepted Answer

The buyer's order or purchase agreement

Answer

The Dealer Report of Sale (DRS)

Answer

The certificate of title

Answer

The smog certification