AFIP AFIP Credit and Lending Fundamentals 3

Question 1

Which federal act requires lenders to provide borrowers with a copy of their credit report if adverse action is taken based on that report?

Accepted Answer

Fair Credit Reporting Act (FCRA)

Answer

The FCRA requires that when a lender takes adverse action based on a credit report, the consumer must be notified and provided with the name of the reporting agency.

Question 2

In an installment loan, what does 'amortization' refer to?

Accepted Answer

The gradual repayment of a loan through scheduled principal and interest payments

Answer

Amortization is the process by which a loan is paid off over time through regular payments that cover both principal reduction and interest charges.

Question 3

What is the primary purpose of a 'Red Flags Rule' compliance program in a dealership's F&I department?

Accepted Answer

To detect and prevent identity theft in credit transactions

Answer

The Red Flags Rule (under FACTA) requires financial institutions and creditors, including auto dealers, to implement programs to detect and respond to identity theft warning signs.

Question 4

What does a 'balloon payment' loan structure mean for the borrower?

Accepted Answer

A large lump-sum payment is due at the end of the loan term

Answer

A balloon payment loan has lower regular payments during the term, followed by a large final payment that covers the remaining principal balance.

Question 5

Which document in an auto finance transaction outlines the specific terms of the loan, including interest rate, payment schedule, and borrower obligations?

Accepted Answer

The retail installment sales contract (RISC)

Answer

The Retail Installment Sales Contract (RISC) is the binding legal document that specifies all loan terms, including APR, payment amounts, total finance charge, and borrower obligations.

(AFIP) Certified Association of Finance & Insurance Professionals Practice Test

(AFIP) Certified Association of Finance & Insurance Professionals Practice Test

AFIP AFIP Credit and Lending Fundamentals 3