Loan Officer Exam Loan Officer Consumer Protection and Fair Lending 2 — Questions and Answers
Question 1: What is the Community Reinvestment Act (CRA) primarily designed to do?
- Require lenders to offer below-market rates to low-income borrowers
- Encourage depository institutions to meet the credit needs of all communities, including low- and moderate-income areas (Correct answer)
- Prohibit lending in rural communities
- Set maximum mortgage interest rates by geographic area
Correct answer: Encourage depository institutions to meet the credit needs of all communities, including low- and moderate-income areas
The CRA encourages depository institutions to meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound lending practices.
Question 2: What does 'disparate impact' mean in fair lending law?
- A lender intentionally discriminates against a protected class
- A neutral lending policy that disproportionately affects members of a protected class (Correct answer)
- The difference in mortgage rates between urban and rural areas
- A borrower who receives multiple loan offers at once
Correct answer: A neutral lending policy that disproportionately affects members of a protected class
Disparate impact occurs when a facially neutral lending policy or practice has a disproportionately negative effect on a protected class, even without discriminatory intent.
Question 3: Which agency has primary enforcement authority over fair lending compliance for non-depository mortgage lenders?
- OCC
- FDIC
- CFPB (Correct answer)
- Federal Reserve
Correct answer: CFPB
The Consumer Financial Protection Bureau (CFPB) has primary supervisory and enforcement authority over fair lending compliance for non-depository mortgage lenders and large banks.
Question 4: Under Regulation B (ECOA), a lender must notify an applicant of a credit decision within how many days of receiving a completed application?
- 10 days
- 20 days
- 30 days (Correct answer)
- 45 days
Correct answer: 30 days
Under Regulation B, lenders must notify applicants of a credit decision — approval, denial, or counteroffer — within 30 days of receiving a completed application.
Question 5: If a mortgage lender denies a loan application, what must the adverse action notice include under ECOA?
- Only the lender's contact information
- The specific reasons for the denial or notice of the right to request the reasons (Correct answer)
- The applicant's full credit report
- A list of other lenders who may approve the loan
Correct answer: The specific reasons for the denial or notice of the right to request the reasons
An adverse action notice under ECOA must state the specific reasons for denial or inform the applicant of their right to request those reasons within 60 days.
Question 6: What is 'predatory lending' in the mortgage context?
- Offering competitive rates to attract borrowers from other lenders
- Imposing unfair or abusive loan terms on borrowers, often targeting vulnerable populations (Correct answer)
- Offering loans with adjustable interest rates
- Requiring borrowers to maintain homeowners insurance
Correct answer: Imposing unfair or abusive loan terms on borrowers, often targeting vulnerable populations
Predatory lending involves imposing unfair, deceptive, or abusive loan terms on borrowers, often targeting elderly, low-income, or minority borrowers with high fees and unsuitable products.
Loan Officer Exam Loan Officer Consumer Protection and Fair Lending 2
What is the Community Reinvestment Act (CRA) primarily designed to do?