DMV Vehicle Financing and Credit Practices

Question 1

What federal law requires auto dealers to disclose the Annual Percentage Rate (APR) and total finance charge on a retail installment sale contract?

Accepted Answer

The Truth in Lending Act (TILA / Regulation Z)

Answer

The Truth in Lending Act (TILA), implemented through Regulation Z, requires creditors and dealers to clearly disclose the APR, total finance charge, and other credit terms to consumers.

Question 2

Under the Truth in Lending Act, the Annual Percentage Rate (APR) must be disclosed to a buyer before they:

Accepted Answer

Become legally obligated on the credit transaction

Answer

TILA requires that all required credit disclosures, including the APR, be provided to the consumer before they become legally obligated on the transaction.

Question 3

A 'spot delivery' or 'conditional delivery' occurs when a dealer delivers a vehicle to a buyer before:

Accepted Answer

Final financing approval has been obtained from a lender

Answer

A spot delivery means the dealer allows the customer to take possession of the vehicle before the lender has formally approved and funded the financing.

Question 4

When a dealer assigns a retail installment sale contract to a third-party lender and the lender rejects it, who typically bears financial responsibility under a 'with recourse' agreement?

Accepted Answer

The dealer

Answer

Under a 'with recourse' agreement, if the lender rejects or charges back the contract, the dealer is financially responsible and must repurchase the contract.

Question 5

What is 'dealer reserve' (also called dealer markup or participation) in auto financing?

Accepted Answer

The difference between the buy rate offered by the lender and the higher rate charged to the customer

Answer

Dealer reserve is the additional profit a dealer earns by marking up the interest rate above the lender's buy rate; the difference is shared between the lender and the dealer.

DMV - Representative Exam Practice Test

DMV - Representative Exam Practice Test

DMV Vehicle Financing and Credit Practices