FiCEP Fundamentals 2

Question 1

Which federal law requires creditors to disclose the Annual Percentage Rate (APR) to borrowers before loan consummation?

Accepted Answer

Truth in Lending Act

Answer

The Truth in Lending Act (TILA) mandates clear disclosure of credit terms including APR before a loan is finalized.

Question 2

A client has a debt-to-income (DTI) ratio of 48%. Which statement best describes their financial situation?

Accepted Answer

Their DTI exceeds the typical 43% threshold lenders prefer

Answer

A DTI above 43% is generally considered high risk and can hinder mortgage and loan approvals.

Question 3

What is the primary purpose of the Fair Credit Reporting Act (FCRA)?

Accepted Answer

To ensure accuracy and privacy of consumer credit information

Answer

The FCRA promotes accuracy, fairness, and privacy of consumer credit reports maintained by credit bureaus.

Question 4

A client wants to build an emergency fund. What is the generally recommended minimum number of months of expenses to save?

Accepted Answer

3 months

Answer

Financial counselors typically recommend saving at least 3 months of living expenses as a minimum emergency fund.

Question 5

Which type of interest calculation results in the borrower paying the most total interest over the life of a loan?

Accepted Answer

Compound interest

Answer

Compound interest accrues on both principal and accumulated interest, resulting in higher total interest paid over time.

FiCEP - Financial Counseling Certification Program Practice Test