Certified Regulatory Compliance Manager Questions + Answers Part 1
Posted: Mon Feb 21, 2022 7:03 am
Number: CRCM Passing Score: 800 Time Limit: 120 min File Version: 1.0
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Certified Regulatory Compliance Manager Version 1.0
Exam A
QUESTION 1
Below mentioned list shows the significant risks of _______________. Borrowers with cash-flow difficulties
Borrowers with no lower-cost credit alternatives
Minimal analysis of borrower’s ability to repay the loan
Minimal review of borrower’s credit history Credit is usually unsecured
A. Payday lending B. Loan flipping C. Equity stripping D. None of these
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 2
Banks must maintain an ____________ adequate to absorb estimated credit losses from payday loans. Banks should evaluate the collectability of accrued fees and finance charges on payday loans and ensure that this income is appropriately measured.
A. TILA
B. FCRA
C. ALLL
D. A and B both
Correct Answer: C Section: (none)
Explanation Explanation/Reference:
QUESTION 3
Safety and soundness concerns in FDIC Payday Lending Guidance clearly mention that there should be adequate capital as Minimum capital requirements are not enough to offset the risks of payday loans. Banks should hold capital against its subprime portfolio in amounts:
A. That are 11⁄2 to 5 times greater than normal
B. That are 11⁄2 to 3 times greater than normal
C. That are 11⁄2 to 3 times lower than normal
D. That should be between 2-5 in comparison to normal
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 4
Compliance issues related to payday lending are all of the following EXCEPT:
A. Payday lending may adversely affect a bank’s CRA rating. Any illegal or questionable practices will negatively affect a bank’s CRA performance. A payday lending program may be inconsistent with helping to meet the community’s credit needs
B. The bank (or its third-party partner) must properly disclose all finance charges and fees to payday lending customers. Advertisements of the program are also subject to Truth-in-Lending requirements
C. Adverse action disclosures must be provided to applicants of payday loans that are denied if a consumer report (including check tracking services) was used in the credit decision
D. The bank may be subject to the FOC’s unfair or deceptive practices rules.
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 5
Which of the following comes under the heading of nontraditional mortgage product risks?
A. Reduced documentation adds risk to a mortgage loan. Institutions may rely on reduced documentation in the credit underwriting process. Income and credit verification may not be obtained. Use of reduced documentation should be subject to clear policies that require more documentation when the credit risk rises
B. Reduced documentation adds risk to a mortgage loan. Institutions may rely on reduced documentation in the credit underwriting process. Income and credit verification may not be obtained. Use of reduced documentation should be subject to clear policies that require more documentation when the credit risk rises
C. Perform due diligence before entering into third-party relationships, including a review of the third party’s General competence
Business practices and operations
Reputation
Financial capacity
Internal controls
Record of compliance with laws
D. Amounts credited as recovery on a loan must not exceed all principal, finance charges, and fees previously charged off. Amounts that exceed these must be credited as income
Correct Answer: AB Section: (none) Explanation
Explanation/Reference: QUESTION 6
In Guidance on Nontraditional Mortgage Product Risks, if the institution has a concentration in a nontraditional mortgage portfolio, the institution should:
A. Have well-developed monitoring systems and risk management practices B. Monitor by originator and key borrower and portfolio characteristics
C. Not understand the risk of payment shock and negative amortization
D. A and B
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 7
If the institution offers both full and reduced documentation loans and there is a pricing premium attached to the reduced documentation loan, the consumer should:
A. Be alerted to this fact
B. Not be alerted to this fact
C. Provide consumers with a clear statement of the options available
D. Not lead consumers with payment option ARMs to choose a non-amortizing or negatively amortizing payment
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 8
Institutions that offer nontraditional mortgage products should make sure they comply with the following, as applicable, EXCEPT:
A. Truth in Lending Act
B. FTC Act (i.e., Unfair and Deceptive Acts and Practices) C. RESTA
D. State laws prohibiting deceptive trade practices
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 9
Underwriting standards in Subprime Mortgage Lending include:
A. The borrower’s debt-to-income ratio should include the borrower’s total yearly housing-related payments as a percentage of gross monthly income
B. Institutions should have a clear policy governing the use of risk-layering features, such as reduced documentation loans or simultaneous second lien mortgages
C. Stated income and reduced documentation loans to subprime borrowers should be made only if there are clear, documented mitigating factors
D. Mitigating factors should be present when risk layering features are combined in order to support the underwriting decision and the borrower’s repayment capacity
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 10
Below mentioned is the necessary information that should be included in the ___________. Risk of payment shock—potential payment increases; how the new payment will be calculated when the introductory rate expires Ramifications of prepayment penalties—how they will be calculated, when they will be imposed Ramifications of balloon payments Ramifications of the lack of escrowing for taxes and insurance—who is responsible for paying taxes and insurance and the fact that their costs may be substantial Cost of reduced documentation loans—whether there is a pricing premium required
A. Consumer protection principles B. Underwriting standards
C. Workout arrangements
D. None of these
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 11
Supervisory review should also be the part of Subprime Mortgage Lending. It should review:
A. Regulatory agencies will continue to focus on risk management review and consumer compliance processes
B. Hiring and Training of personnel
C. Agencies will continue to take action against institutions that violate consumer protection laws or fair lending laws or that engages in unfair or deceptive acts or practices or in unsafe or unsound lending practices
D. Applicability of prepayment penalties
Correct Answer: AC Section: (none)
Explanation Explanation/Reference:
QUESTION 12
The act limited balloon payments in consumer leases and enabled consumers to compare lease terms with credit terms where appropriate. The act was implemented by Regulation M (Consumer Leasing). It requires disclosures to consumers before consummation of the lease agreement. This act is:
A. Consumer leasing act B. Risk disclosure act
C. ALLL
D. None of these
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 13
Content of segregated disclosures in Consumer Leasing Act include all of the following EXCEPT :
A. Amount due at lease signing or delivery, itemized by type and amount, including: Refundable security deposit
Advance monthly or other periodic payment
Capitalized cost reduction
An itemization of how the amount due will be paid, by type and amount (only required in a motor vehicle lease), using the model form
B. Number, amount, and due date of payments scheduled and the total amount of periodic payments
C. In an open-end lease, the descriptive statement “You will owe an additional amount if the actual value of the vehicle is less than the residual value”
D. If there are multiple items of property, the property description may be separate
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 14
In a motor vehicle lease, a mathematical progression showing how the periodic payment is derived, containing the following information:
A. Gross capitalized cost (including the agreed-on value of the vehicle)
B. Rent charge (the difference between the total of base payment over the lease term minus the depreciation and any amortized amounts) C. Itemization of other charges that are part of the periodic payment
D. All of the above
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 15
Which one of the following should be included in an early termination notice in case of the termination from consumer leasing agreement?
A. A warning to the consumer that a substantial charge may result from early termination (required only in a motor vehicle lease) B. A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term
C. The purchase option at the end of the lease term
D. The amount of any penalty or other charge for early termination (the penalty must be reasonable)
Correct Answer: ABD Section: (none) Explanation
Explanation/Reference:
QUESTION 16
In Consumer Leasing Act Content of non-segregated disclosures may be made separately or as part of another document (such as the lease agreement); however, other information cannot be stated, used, or placed so as to mislead or confuse the consumer. Other disclosures include all of the following EXCEPT:
A. A statement of the conditions under which the lessee or lessor may terminate the lease before the end of the lease term, along with the amount (or a description of the method of how the amount is determined) of any penalty or other charge for early termination
B. Whether the lessee has the option to purchase the leased property during the lease term and, if applicable, the purchase price (or method for determining it) and when the lessee may exercise it
C. The lessee’s right to an independent appraisal of the property if the lessee’s liability at the end of the lease is based on the realized value of the leased property, and that the appraisal will be binding on all parties
D. A statement of maintenance responsibilities including the counter bank responsible and a description of the responsibility
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 17
Under Renegotiations, extensions, and assumptions-12 CFR 213.5; any lease that is renegotiated or extended by longer than six months is considered to be a new lease, subject to new disclosure requirements, except when:
Explanation/Reference: QUESTION 18
A. One or more payments are deferred, whether or not there is a charge for the deferral
B. Lease property is substituted with property of substantially equivalent or greater value, if no other lease terms are changed
C. In a multiple-item lease, property is added, deleted, or substituted provided the average periodic payment does not change by more than 35 percent D. There is an agreement resulting from a pre-order
Correct Answer: AB Section: (none) Explanation
In Advertising-12 CFR 213.7, if a percentage rate is used in an advertisement, it cannot be more prominent than any other disclosure, EXCEPT:
A. For the warning regarding the limitation of the rate as a measurement of cost
B. For beginning at least 3 days before and ending at least 10 days after the broadcast C. For required disclosures in advertisements
D. For an advertisement accessed in electronic form
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 19
Under Consumer Leasing Act Enforcement-15 USC 1667d section FIRREA penalties include:
A. Penalties up to $8,500 per day for violations of laws and regulations
B. Penalties up to $37,500 per day if violations or unsafe or unsound practices are engaged in recklessly or are part of a pattern of misconduct that causes more than a minimal loss to the bank or any pecuniary gain to the parties involved
C. Penalties up to $1,375,000 per day against persons who knowingly commit a violation and knowingly or recklessly cause a substantial loss to the bank or a substantial benefit to the party
D. Penalties up to $9,500 per day for violations of laws and regulations
Correct Answer: AB Section: (none) Explanation
Explanation/Reference:
QUESTION 20
_____________ requires that a statement of purpose be obtained from borrowers whose loans are to be greater than $100,000 and that will be secured by margin stock. Loans made for the purpose of purchasing margin stock are subject to additional limitations
A. Regulation U B. Regulation V C. Regulation Z D. Regulation X
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 21
An exempted borrower is a member of a national securities exchange or a registered broker or dealer who:
A. Maintains at least 1,000 active accounts annually for persons other than brokers, dealers, and persons associated with brokers and dealers
B. Earns at least $10 million in gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with brokers and dealers, or
C. Earns at least 10 percent of its gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with brokers and dealers
D. None of these
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference: QUESTION 22
Banks may extend and maintain purpose credit without complying with Regulation U if the credit is extended:
A. To a bank auditor
B. To a qualified employee stock ownership plan running previously but not now
C. To any customer, other than a broker or dealer, to temporarily finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid in the ordinary course of business on the completion of the transaction
D. To enable a customer to meet emergency expenses not reasonably foreseen and if the bank obtains a good faith statement from the customer. Emergency expenses are ones related to unforeseen death or disability, not a chance to make a profit.
Correct Answer: CD Section: (none) Explanation
Explanation/Reference: QUESTION 23
Margin stock includes:
A. Equity securities registered or having delisted trading privileges on a national securities exchange:
B. Over-the-counter (OTC) securities that do not qualify for trading in the National Market System
C. Warrants or rights to subscribe to or purchase a common stock
D. Securities issued by an investment company registered under the Investment Company Act, except for: A company licensed under the Small Business Investment Company Act
A company that has at least 95 percent of its assets continuously invested in exempted securities; or
A company that issues face-amount certificates; or
A company that is considered a money market fund under the SEC Rules
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 24
Purpose credit is credit for all of the following EXCEPT:
A. Immediate purpose of purchasing or carrying margin stock B. Incidental purpose of purchasing or carrying margin stock C. Ultimate purpose of purchasing or carrying margin stock D. Accidental purpose of purchasing or carrying margin stock
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 25
Under collateral requirements-12CFR 221.7, maximum loan value of margin stock is:
A. Currently 50 percent of the current market value B. Currently 70 percent of the current market value C. Subject to change by the Federal Reserve
D. Subject to change by the Equity Reserve
Correct Answer: AC
Section: (none) Explanation
Explanation/Reference: QUESTION 26
What is actually a Single credit rule-12 CFR 221.3(d)?
A. All purpose credit extended to a customer will be considered to be a single credit for purposes of Regulation U
B. The value of all collateral securing all-purpose loans will be aggregated to determine if it is sufficient
C. If unsecured purpose credit is extended before secured purpose credit, the loans need only be combined for purposes of applying the withdrawal and substitution rules
D. All of the above
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 27
Which one of the following types of credit may be extended in Requirements case-12 CFR 221.3, 221.7:
A. Temporary advances in payment against delivery transactions B. Capital contribution leases
C. Credit to clearing banking authorities
D. Underwriter loans
Correct Answer: AD Section: (none) Explanation
Explanation/Reference: QUESTION 28
OCC advisory on credit card practice-AL-2004-10 in credit card practices covers:
A. Finance and credit management practices that may be unfair or deceptive and expose a bank to compliance and reputation risk
B. Marketing and account management practices that may be unfair or deceptive and expose a bank to compliance and reputation risk C. Marketing and account management practices
D. Marketing and account management practices that may be fair and can’t expose a bank to compliance and reputation risk
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 29
Practice/s addressed in the guidance of OCC advisory on credit card practices-AL-2004- 10 is/are:
A. “Up-to” marketing
B. Promotional rate marketing
C. Repricing of accounts and other changes in credit terms D. Lending to insiders
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference:
QUESTION 30
Regulation O both restricts lending to insiders and requires that certain loans to insiders be disclosed. Each banking agency has adopted the provisions of Regulation O for administrative enforcement purposes. These were not found to be useful in preventing insider lending abuse. Regulation O governs which of the following areas major areas:
A. Lending to insiders
B. Disclosures of loans made to insiders C. Both of these
D. None of these
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 31
Unless excluded by a board resolution or the bylaws, the following officers will be considered to be executive officers EXCEPT:
A. Chairman of the board
B. President
C. Each vice-president and above (for example, senior vice-president, executive vice-president, and so on) D. Brokerage house’s vice president
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 32
____________ is any company of which the bank is a subsidiary or any other subsidiary of the same company of which the bank is a subsidiary.
A. Brokerage House B. Treasury
C. FDIC
D. Affiliates
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 33
It is an extension of credit will be deemed to be made to an insider if the proceeds are transferred to the insider or used for the insider’s benefit. This rule does not apply if the credit is made on substantially the same terms and conditions as those made to a noninsider and if the proceeds are used in a bona fide transaction involving the acquisition of property, goods, or services from the insider. What is it?
A. Tangible economic benefit rule012 CFR 215.3(f) B. Extension of credit-12 CFR 215.3
C. Lending restrictions
D. Intangible economic-benefit rule
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 34
Lending restrictions under requirements 12 CFR 215; 12 CFR 337, 12 CFR 349 are all of the following EXCEPT:
A. Banks may not lend to executive officers, directors, principal shareholders, or any of their related interests unless the credit is made on substantially the same terms and following credit underwriting standards that are not less stringent than those on loans to persons who are not insiders; however, if the bank has a benefit program widely available to its employees, it may lend to insiders on the same terms and conditions as it lends to its other employees, pursuant to its employee benefit program
B. Banks may not lend to any executive officer, director, or principal shareholder, and to any of their related interests, amounts that exceed the higher of $25,000 or 5 percent of the bank’s capital and unimpaired surplus (up to a maximum of $500,000) in the aggregate unless The credit is approved in advance by the board of directors The interested party has abstained from voting
C. Prior approval is not needed for each draw against a line of credit provided the line of credit was approved within the preceding 14 months, based on the then- current financial statement
D. None of these
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 35
The maximum amount of credit that a bank may extend to all of its insiders is known as the ______________and is equal to 100 percent of its unimpaired capital and surplus.
A. Aggregate lending limit
B. Loan filliping
C. Equity stripping
D. Tangible economic benefit
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 36
On a written request from a member of the public, the bank must disclose the names of each of its executive officers and principal shareholders to whom the bank had aggregate credit outstanding at the end of the latest quarter that equaled or exceeded:
A. 10 percent of the bank’s capital, and unimpaired surplus or $500,000, whichever is less; no disclosure is required if the aggregate credit was $30,000 or less. Disclosure of individual loan amounts is not required
B. 5 percent of the bank’s capital, and unimpaired surplus or $500,000, whichever is less; no disclosure is required if the aggregate credit was $25,000 or less. Disclosure of individual loan amounts is not required
C. 6 percent of the bank’s capital, and unimpaired surplus or $100,000, whichever is less; no disclosure is required if the aggregate credit was $25,000 or less. Disclosure of individual loan amounts is not required
D. 5 percent of the bank’s capital, and unimpaired surplus or $100,000, whichever is less; no disclosure is required if the aggregate credit was $35,000 or less. Disclosure of individual loan amounts is not required
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 37
Record keeping requirements-12 CFR 215.8 elaborates that:
A. Each bank must establish a recordkeeping system to keep records necessary for compliance with Regulation O
B. Banks may use any alternative recordkeeping method for insiders of affiliates if the bank’s regulatory agency determines the bank’s method is at least as effective as that required by Regulation O
C. All recordkeeping systems must Include either an annual survey of insiders to identify related interests, or a requirement as part of each extension of credit that the borrower indicates whether he or she is an insider. Provide for the maintenance of records of all credit to insiders, including the amounts and terms
D. All of these
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 38
Debt Cancellation Contracts and Debt Suspension Agreements coverage includes:
A. National banks that issue debt cancellation contracts and debt suspension agreements with borrowers in connection with loans for personal, family, or household purposes
B. A national bank may not engage in any practice, including advertising, which would cause a reasonable person to be misled with respect to DSAs and DCCs
C. A bank must provide the long-form disclosures in writing before the customer completes the purchase of a contract. If the solicitation occurs in person, the long- form disclosures must be provided at that time
D. A bank must make the short-form disclosures orally at the time the bank first solicits the contract
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 39
This is a loan term or an arrangement that modifies a loan term under which a bank agrees to cancel all or part of a customer’s loan obligation on the occurrence of a specified event. It may be included as a part of the loan documents, or it may be a separate agreement. What is it?
A. Debt suspension agreement (DSA) B. Anti-dying
C. Debt cancellation contract (DCC) D. ALLL
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 40
Short-form disclosures are required in advertisements and promotional materials unless the advertisements and promotional materials are of:
A. A general nature describing or listing the products or services offered by the bank B. A specific nature describing or listing the products or services offered by the bank C. A general nature describing or special services offered by the bank
D. A general nature describing competitive advantage of the bank
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 41
This is a loan term or an arrangement that modifies a loan term under which a bank agrees to suspend all or part of a customer’s loan obligation on the occurrence of a specified event. It May be a part of the loan itself or a separate agreement. Does not include a loan payment deferral arrangement where the borrower or the bank can unilaterally defer a payment. What is it?
A. Debt suspension agreement (DSA) B. Anti-dying
C. Debt cancellation contract (DCC) D. ALLL
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 42
Under content of disclosures long term disclosures may include the following, as applicable EXCLUDING:
A. Notification that the product is optional
B. Explanation of debt-suspension agreement C. Lump-sum payment of fee with no refund D. Refund of fee paid in lump sum
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 43
Banks must establish and maintain effective risk management and control processes over its DCCs and DSAs, including:
A. Appropriate recognition and financial reporting of income, expenses, assets, and liabilities
B. Appropriate treatment of losses associated with these products
C. Assessment of the adequacy of its internal controls and risk mitigation activities
D. Before entering into a contract, the bank must obtain the customer’s written affirmative election to enter into the contract and written acknowledgement of the receipt of the disclosures
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference:
QUESTION 44
The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to prevent discrimination in credit transactions. In 1975 the act was amended. Which of the following prohibited base/s are now included in it?
A. National origin
B. Exercise of rights under the Consumer Credit Protection Act C. Receipt of public assistance income
D. All of these
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 45
Securities credit covers credit subject to Section 7 of the Securities Exchange Act of 1934 or credit by a broker or dealer subject to regulation under the act. The following requirements of Regulation B do not apply EXCEPT:
A. Restrictions regarding information about a spouse or former spouse, marital status, or sex of the applicant B. It is not payable by agreement in more than four installments
C. Provisions relating to furnishing credit information
D. Records retention requirements
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 46
Government credit
A. It is credit extended to governments or government agencies, instrumentalities, or subdivisions B. It has no finance charge
C. It has Records retention requirements
D. Only the general rule against discrimination applies to government credit
Correct Answer: AD Section: (none)
Explanation Explanation/Reference:
QUESTION 47
An oral or written request for credit made in accordance with the creditor’s procedures for the type of credit requested. Information entered into and retained by a computer system qualifies as a written application. It is called:
A. Credit Application
B. Credit completed application C. Initial credit approach
D. None of these
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 48
Definition of completed application—12 CFR 202.2(f) is:
A. An application for which the bank has received all the information it regularly considers in evaluation, including credit reports, verifications, and so forth B. The creditor must be reasonably diligent in collecting information to complete the application (for example, ordering credit bureau reports)
C. An inquiry becomes an application when the creditor evaluates information and decides to grant or decline the credit
D. Requests for written preapprovals to be issued by the lender are considered applications
Correct Answer: AB Section: (none) Explanation
Explanation/Reference:
QUESTION 49
Requirements—12 CFR 202.2, 202.4, 202.5, 202.6, and 202.13 say that a creditor may not request information about an application’s race, color, religion, national origin, or gender except as specifically permitted by ____________or another statute such as the Home Mortgage Disclosure Act.
A. Regulation B B. Regulation U C. Regulation Z D. Regulation A
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 50
________________is defined as every aspect of an applicant’s dealing with a creditor, beginning with information gathering and continuing through to the servicing and collection of the loan.
A. Credit terms
B. Credit rating
C. Credit transaction D. Credit application
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 51
In Processing and evaluating applications—12 CFR 202.6, protected income part is also under discussion. Which of the following considerations is NOT its part?
A. Public assistance income may not consider whether an applicant’s income is from a public assistance source
B. Public assistance income may consider as it relates to another pertinent element of creditworthiness
C. May consider length of time public assistance income will be received, whether the applicant will continue to qualify for the income, and whether the income can be garnished
D. Can discount or refuse to consider the following: Part-time income
Annuities
Pensions
Retirement benefits
Alimony, child support, and separate maintenance payments to the extent they are likely to be consistently made
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 52
Credit scoring systems:
A. Evaluate an applicant’s creditworthiness mechanically, based on key attributes of the applicant and aspects of the transaction, and determine, alone or in conjunction with an evaluation of additional information about the applicant, whether an applicant is deemed creditworthy
B. Are evaluated by regulatory agencies to determine whether they are empirically derived and statistically sound and to examine: The bank’s policies on the use of the credit scoring system
Training of bank employees on the use of the system
The number of high-side and low-side overrides of the system
C. Both of these D. None of these
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 53
Federal regulations define special-purpose credit-12 CFR 202.8 to include:
A. Any credit assistance program authorized by federal or state law for the benefit of an economically disadvantaged class of persons
B. Any credit assistance program offered by a not-for-profit organization for the benefit of its members or for the benefit of an economically disadvantaged class of person
C. A special-purpose credit program must not discriminate on a prohibited basis; however, it can require its participants to share a particular characteristic (such as race or sex) provided the requirement was not established to evade the requirements of the ECOA. If the participants must share a common characteristic, the bank may collect information on that characteristic to determine eligibility
D. If the program includes financial need as a criterion, the creditor can never request and consider information regarding the applicant
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference:
QUESTION 54
These are the definitions of _____________: The refusal to grant credit in substantially the amount or on substantially the terms requested in an application (and the applicant uses or expressly accepts the credit offered) A termination of the account or an unfavorable change in the terms of an account, unless the change affects substantially all of the lender’s accounts of that type. A refusal to increase the amount of credit available to an applicant who has made an application for an increase
A. Adverse action-12 CFR 202.2(c)
B. Special-purpose credit-12 CFR 202.8 C. Refusals- 12 CFR 202.8
D. security agreements-12 CFR 202.2(c)
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 55
FDIC guidance lists three requirements to ensure compliance with spousal signature rules include all of the following EXCEPT:
A. Review and revise policies
Eliminate policies or procedures that are inconsistent with the requirements
Expand loan policies and procedures to provide loan staff with specific guidance on state law(s) regarding requiring signatures Cover the laws of all states where the creditor institution does business Create checklists to address situations when spousal signatures can be required
B. Provide training to consumer and commercial loan staff
C. Implement monitoring and auditing programs to check for spousal signature violations
D. Must allow an applicant to designate a birth-given first name and a birth-given, surname, spouse’s surname, or combination
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 56
Content of notification to credit consumers must contain:
A. Statement of the action taken
B. Name and address of creditor
C. Statement of the specific reasons for the adverse action or a disclosure of the applicant’s right to receive the specific reasons within 30 days of a request. The request for specific reasons must be made within 60 days of the receipt of the adverse action notice.
D. Statement of the specific reasons for the adverse action or a disclosure of the applicant’s right to receive the specific reasons within 15 days of a request. The request for specific reasons must be made within 30 days of the receipt of the adverse action notice.
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference:
QUESTION 57
A bank may engage in voluntary self-testing and self-correction of its compliance with Regulation B. If the bank takes any appropriate corrective action, the reports, results, analysis, opinions, and conclusions of the self-test will be protected by a privilege. The privilege will be lost if
A. Loan and application files or other records related to a credit transaction and information derived from such files and records, even if it has been reorganized and summarized for analysis
B. The information is voluntarily disclosed to the government
C. The public or is used in any manner as a defense to a discrimination charge
D. credit information is furnished in response to inquiries concerning an account reflecting the participation of consumer
Correct Answer: BC Section: (none) Explanation
Explanation/Reference:
QUESTION 58
Creditors must retain for 25 months after the date that an offer of credit is made (12 months for business applicants with gross revenues of $1 million or less) the following items EXCEPT:
A. The text of any prescreened solicitation
B. All other written information concerning the applicant C. The list of criteria used to select recipients
D. Any record of complaints regarding the solicitation
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 59
According to FDIC Guidance on Spousal Signature Provisions, if the creditor requires the spouse’s signature on an instrument that imposes personal liability, the creditor’s belief should be:
A. Supported by a thorough review of pertinent statutes, decisional law, or an opinion of the state’s attorney general B. Supported by a thorough review of pertinent statutes
C. Supported by decisional law
D. Supported by an opinion of the state’s attorney general
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 60
A consumer reporting agency may furnish a consumer report
A. If not authorized in writing by the consumer
B. In response to a court order having jurisdiction or a subpoena issued by a federal grand jury or review or collection of an account of the consumer
C. In connection with a credit or insurance transaction
D. For employment purposes Before procuring a consumer report, an employer Must disclose to the individual in writing that a consumer report may be obtained Must obtain written authorization from the individual before procuring the report
Correct Answer: BCD Section: (none) Explanation
Explanation/Reference:
QUESTION 61
Legislation was recently enacted to reform consumer real estate protection laws, and the bank will now have to change the way it documents, discloses, and advertises real estate loans, an integral product line at your bank. What should the compliance professional do FIRST to implement the new law within the bank?
A. Read the law and write a new real estate compliance policy
B. Form a task force of the business unit managers whose departments will be affected by the law to collectively form an action plan C. Talk to the bank president about the need for more resources in compliance
D. Sign up all bank personnel affected by the changes for a seminar on the new law
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 62
A bank’s president would like to begin offering a new home equity line of credit product within two weeks. In all cases the borrower’s principal dwelling will secure the loan. The president has already launched a planned advertising campaign for the bank’s major service markets. What should the compliance professional do FIRST?
A. Hire an attorney to write the appropriate legal documents and disclosures
B. Write a memo to the president explaining why the compliance professional should have been in on the process at an earlier date C. Begin training sessions for the lending and loan operations staff on the compliance issues involved
D. Perform a risk assessment to determine the bank’s level of risk in offering this new product
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 63
A bank has a large mortgage department as well as a high HMDA error rate. An expensive software program could automate the process, but the business unit manager does not want to purchase the software because of its expense. Though it is not as efficient, the manager prefers to make some improvements to the manual process, add some more robust monitoring procedures, and opt not to purchase the software. What should the compliance professional do?
A. Elevate the issue to a higher authority to force the mortgage department unit to purchase the software
B. Nothing; the compliance professional’s job is done with the completed research
C. Document the fact that the level of risk present with manual systems is acceptable to the mortgage department business unit D. Write a memo to the president of the bank that explains the risk assessment for this area
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 64
The federal banking agencies have proposed an amendment to Regulation Z that would require a new early disclosure statement for loans secured by the borrower’s principal dwelling. After reading the proposed change, what should the compliance professional do FIRST?
A. Establish a task force to study the proposed rule.
B. Contact the bank’s platform software vendor to determine whether it will be ready for the change NOTES
C. Prepare a summary document that outlines the effects the proposed rule would have on the bank’s operations D. Train bank staff on the new rule
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 65
During a recent compliance examination, regulatory examiners found that the bank was not conducting flood hazard area determinations before closing on construction loans. The compliance professional has reviewed the files and agreed with the examiners’ finding. What should be done FIRST?
A. Review the bank’s flood policies and procedures to determine where the compliance failure occurred B. Conduct a risk assessment of the flood determination requirement on construction loans
C. Prepare an analysis for bank management explaining the requirement
D. Review all construction loan files to determine the extent of the problem
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 66
During a recent compliance examination, regulators cited the bank for violations of various marketing regulations. How should the compliance professional FIRST respond?
A. Contact the bank’s marketing manager to discuss the finding
B. Develop a policy requiring that all marketing materials be reviewed and approved by compliance before being published C. Set up a training class for the marketing department
D. Review the marketing materials and applicable regulations to verify the finding.
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 67
When developing a training plan for commercial lenders, which of the following regulations is least important to include?
A. Equal Credit Opportunity, FRS Regulation B
B. Home Mortgage Disclosure, FRS Regulation C
C. Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, FRS Regulation O D. Truth in Lending Act, FRS Regulation Z
Correct Answer: D Section: (none)
Explanation Explanation/Reference:
QUESTION 68
A compliance professional is a member of the task force studying how the bank can reduce customer complaints about holding deposits. One proposed solution involves purchasing an expensive system that will reduce the number of holds placed by evaluating the customer’s history and relationship with the bank. Which of the following roles is MOST important for the compliance professional on the task force?
A. Developing training for tellers who will use the new system
B. Setting parameters for what the system should review to determine the strength of the customer relationship C. Validating the system to ensure it complies with regulatory restrictions
D. Conducting a cost-benefit analysis to determine if the system is the best solution
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 69
Of the following loans made by a national bank, which loan is NOT covered by the OCC ARM regulation?
A. A loan to purchase a single-family dwelling to be used as a residence, secured by the dwelling with an adjustable interest rate
B. A loan made to purchase a mobile home to be used as rental property, secured by the home with a variable interest rate
C. A loan made to purchase an eight-unit apartment complex, secured by the building, made payable on demand with a variable rate of interest D. A loan made to purchase a duplex, secured by the dwelling, amortized over 15 years with a 5-year maturity, at a variable rate of interest
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 70
First National Bank is a member of a multibank holding company. The bank makes ARM loans and occasionally purchases ARM loans from its affiliate national and state banks as well as from nonaffiliated banks. Which of the following practices is NOT acceptable under the OCC ARM regulation?
A. The bank purchases loans from its state affiliate banks where the index on the loan is tied to First National’s prime rate.
B. The bank makes loans to purchase single-family dwellings with interest rates that may be adjusted from time to time.
C. The bank links the interest rate indices on its own ARM loans to them national prime rate as published in The Wall Street Journal.
D. The bank requires its national bank affiliates to use the national prime rate as published in The Wall Street Journal as the index for any of the ARM loans it purchases.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 71
On which of the following adjustable-rate loans must the bank use an index beyond its control?
A. A loan to purchase a home to refurnish and resell for a profit
B. A loan to purchase a vacation home
C. A loan to purchase a duplex where the borrower will live in one of the units D. A loan to purchase a home to be used as rental property
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 72
ABC National Bank regularly purchases mortgage loans from ACME Mortgage Company, a local mortgage broker. ACME places a mandatory arbitration clause in each of its mortgage documents. ACME believes this clause is necessary because of state laws governing arbitration. Is this clause a problem for ABC National?
A. No, unless other predatory or abusive lending practices are evident in the loans sold by ACME. B. Yes, the clause is a sign of an abusive lender, and the bank should not purchase the loans.
C. Yes, the bank should make ACME strike the clause from future loans.
D. No, this is a common practice and the bank can ignore it.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 73
The OCC recommends all but one of the following actions to help prevent a national bank’s purchasing or acquiring predatory or abusive loans. Which practice is NOT recommended?
A. Establish policies on the bank’s relationship with third-party brokers and originators B. Review loan documentation
C. Audit the third-party broker
D. Require the broker to establish a reserve account for legal contingencies
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 74
Second State Bank offers a mortgage product that involves simultaneous second lien loans. These include a first lien for up to 90 percent of the purchase price and a second loan for the down payment, secured by a second lien on the property. The bank would like to be in full compliance with the Interagency Guidance on Nontraditional Mortgage Product Risks. Which of the following should Second State Bank incorporate into its loan program?
A. Risk management procedures to measure the risk of all simultaneous second lien loans and report results to management
B. A 100 percent loan loss reserve on all simultaneous second lien loans
C. A product combining simultaneous second lien loans with negative amortization features made to nonowner occupied borrowers D. A prepayment penalty on all simultaneous second lien loans
Correct Answer: A
Section: (none) Explanation
Explanation/Reference:
QUESTION 75
According to the 2007 interagency statement on subprime mortgage lending, what should an institution offering mortgage loans to subprime borrowers provide before submission of an application?
A. Information on local residential real property values B. Payment shock information
C. Truth in Lending disclosures
D. Initial escrow statements
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 76
The senior lender at ABC bank would like to make stated income mortgage loans (i.e., loans where the bank does not verify the applicant’s income) to mortgage customers, including subprime borrowers. Under the statement on subprime mortgage lending, which of the following is the best statement of the bank’s responsibility regarding this new program?
A. Due to the risks, it should not implement such a program for subprime borrowers
B. The bank should make a policy for this program that includes mitigating factors for the risks C. The bank should set stringent debt-to-income ratios for these loans
D. The bank should establish workout procedures for such loans in advance of making them.
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 77
Under Regulation M, what is a “consumer lease”?
A. Any lease of $25,000
B. A consumer lease for $25,000 or less with an option to own the property after the lease expires C. A consumer lease for $25,000 or less for the use of personal property
D. Any consumer or agricultural lease for $25,000 or less
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 78
Milton Edwards leased an automobile from First National Bank. The lease contained a provision whereby Milton would be liable for the automobile at the end of the lease based on its fair market value. At the end of the lease, the bank notified Milton that the value of the automobile, based on industry publications, was $10,500 and required him to pay that amount to obtain ownership of the property. Milton objected and requested that the car be individually appraised. What must the bank do?
A. Nothing; an estimate of the value based on industry standards is sufficient
B. Hire an independent appraiser to appraise the automobile (both parties agree to be bound by the appraisal)
C. Allow Milton to hire an independent appraiser to appraise the automobile (both parties agree to be bound by the appraisal) D. Use the average of the car value as determined by a third party appraiser Milton hires with the original bank appraisal
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 79
When must disclosures on consumer leasing transactions subject to Regulation M be made?
A. At the time of the application
B. Before the consummation of the lease
C. Before the first payment due under the lease
D. Within 10 days after consummation of the lease
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 80
A bank does not know all of the specific information to be disclosed on the lease at the time of the consummation. What may the bank do after attempting to obtain the information?
A. Omit the unknown disclosures
B. Estimate the amounts and note that the information is estimated
C. Delay consummation of the transaction until the information is ascertained
D. Estimate the information based on averages of all other leasing transactions the bank has made within the last six months
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 81
What insurance disclosures are required in the lease disclosure statement?
A. The types and amounts of coverage provided by the lessor and the cost to the lessee
B. The types, amounts, and estimated costs of recommended coverage even if not provided or paid by the lessor C. The cost to the lessee NOTES
D. No insurance disclosures are required
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 82
The initial disclosure requires that certain disclosures relating to the termination of a lease be given to the consumer. Which of these disclosures is NOT required?
A. The conditions under which the lease may be terminated before the end of its term
B. Whether or not the lessee has the option to purchase the property and at what price
C. Whether the lease may be extended at the option of the lessee
D. Whether the lessee will be liable for the difference between the estimated value of the property and its realized value at the termination or end of the lease
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 83
Roberta Milton’s car lease with First National Bank reached its termination on August 1. Roberta and the bank agreed to extend the lease on a month-to month basis without charging her a fee for doing so. What disclosure responsibilities does the bank have now?
A. None are needed now.
B. None, until after six months of the month-to-month lease
C. The bank must make an entirely new initial disclosure
D. The bank must disclose the estimated residual value at the end of six months
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 84
First National’s consumer leasing department placed an ad in the local paper that pictured a car with the caption, “Sign a lease with us and pay only $275 per month.” What other information must this ad have?
A. A statement that the transaction is not a loan
B. The total amount due at consummation or delivery, the number of payments required, and any required security deposit C. The bank’s policy regarding the purchase of the property by the lessee
D. Disclosures regarding required insurance
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 85
Records regarding compliance with Regulation M must be kept for how long?
A. Five years following consummation of the lease B. Two years after the disclosures are made
C. Twenty-five months from consummation
D. One year from the time the disclosures are made
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 86
Which of the following statements is true regarding the lessee’s ability to purchase the leased property?
A. The lessor must allow the lessee to purchase the leased property either during the lease term or at the end of the term.
B. If the lessor allows the lessee to purchase the property at the end of the lease term, the lessor may not charge more than the equivalent of 12 monthly payments for the property.
C. If the lessor allows the lessee to purchase the property at the end of the lease term, the purchase price must be disclosed in the initial disclosure statement. D. The purchase price of the leased property must be mutually agreed on by the lessor and the lessee.
Correct Answer: C Section: (none)
CRCM.exam
ABA
CRCM
Certified Regulatory Compliance Manager Version 1.0
Exam A
QUESTION 1
Below mentioned list shows the significant risks of _______________. Borrowers with cash-flow difficulties
Borrowers with no lower-cost credit alternatives
Minimal analysis of borrower’s ability to repay the loan
Minimal review of borrower’s credit history Credit is usually unsecured
A. Payday lending B. Loan flipping C. Equity stripping D. None of these
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 2
Banks must maintain an ____________ adequate to absorb estimated credit losses from payday loans. Banks should evaluate the collectability of accrued fees and finance charges on payday loans and ensure that this income is appropriately measured.
A. TILA
B. FCRA
C. ALLL
D. A and B both
Correct Answer: C Section: (none)
Explanation Explanation/Reference:
QUESTION 3
Safety and soundness concerns in FDIC Payday Lending Guidance clearly mention that there should be adequate capital as Minimum capital requirements are not enough to offset the risks of payday loans. Banks should hold capital against its subprime portfolio in amounts:
A. That are 11⁄2 to 5 times greater than normal
B. That are 11⁄2 to 3 times greater than normal
C. That are 11⁄2 to 3 times lower than normal
D. That should be between 2-5 in comparison to normal
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 4
Compliance issues related to payday lending are all of the following EXCEPT:
A. Payday lending may adversely affect a bank’s CRA rating. Any illegal or questionable practices will negatively affect a bank’s CRA performance. A payday lending program may be inconsistent with helping to meet the community’s credit needs
B. The bank (or its third-party partner) must properly disclose all finance charges and fees to payday lending customers. Advertisements of the program are also subject to Truth-in-Lending requirements
C. Adverse action disclosures must be provided to applicants of payday loans that are denied if a consumer report (including check tracking services) was used in the credit decision
D. The bank may be subject to the FOC’s unfair or deceptive practices rules.
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 5
Which of the following comes under the heading of nontraditional mortgage product risks?
A. Reduced documentation adds risk to a mortgage loan. Institutions may rely on reduced documentation in the credit underwriting process. Income and credit verification may not be obtained. Use of reduced documentation should be subject to clear policies that require more documentation when the credit risk rises
B. Reduced documentation adds risk to a mortgage loan. Institutions may rely on reduced documentation in the credit underwriting process. Income and credit verification may not be obtained. Use of reduced documentation should be subject to clear policies that require more documentation when the credit risk rises
C. Perform due diligence before entering into third-party relationships, including a review of the third party’s General competence
Business practices and operations
Reputation
Financial capacity
Internal controls
Record of compliance with laws
D. Amounts credited as recovery on a loan must not exceed all principal, finance charges, and fees previously charged off. Amounts that exceed these must be credited as income
Correct Answer: AB Section: (none) Explanation
Explanation/Reference: QUESTION 6
In Guidance on Nontraditional Mortgage Product Risks, if the institution has a concentration in a nontraditional mortgage portfolio, the institution should:
A. Have well-developed monitoring systems and risk management practices B. Monitor by originator and key borrower and portfolio characteristics
C. Not understand the risk of payment shock and negative amortization
D. A and B
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 7
If the institution offers both full and reduced documentation loans and there is a pricing premium attached to the reduced documentation loan, the consumer should:
A. Be alerted to this fact
B. Not be alerted to this fact
C. Provide consumers with a clear statement of the options available
D. Not lead consumers with payment option ARMs to choose a non-amortizing or negatively amortizing payment
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 8
Institutions that offer nontraditional mortgage products should make sure they comply with the following, as applicable, EXCEPT:
A. Truth in Lending Act
B. FTC Act (i.e., Unfair and Deceptive Acts and Practices) C. RESTA
D. State laws prohibiting deceptive trade practices
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 9
Underwriting standards in Subprime Mortgage Lending include:
A. The borrower’s debt-to-income ratio should include the borrower’s total yearly housing-related payments as a percentage of gross monthly income
B. Institutions should have a clear policy governing the use of risk-layering features, such as reduced documentation loans or simultaneous second lien mortgages
C. Stated income and reduced documentation loans to subprime borrowers should be made only if there are clear, documented mitigating factors
D. Mitigating factors should be present when risk layering features are combined in order to support the underwriting decision and the borrower’s repayment capacity
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 10
Below mentioned is the necessary information that should be included in the ___________. Risk of payment shock—potential payment increases; how the new payment will be calculated when the introductory rate expires Ramifications of prepayment penalties—how they will be calculated, when they will be imposed Ramifications of balloon payments Ramifications of the lack of escrowing for taxes and insurance—who is responsible for paying taxes and insurance and the fact that their costs may be substantial Cost of reduced documentation loans—whether there is a pricing premium required
A. Consumer protection principles B. Underwriting standards
C. Workout arrangements
D. None of these
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 11
Supervisory review should also be the part of Subprime Mortgage Lending. It should review:
A. Regulatory agencies will continue to focus on risk management review and consumer compliance processes
B. Hiring and Training of personnel
C. Agencies will continue to take action against institutions that violate consumer protection laws or fair lending laws or that engages in unfair or deceptive acts or practices or in unsafe or unsound lending practices
D. Applicability of prepayment penalties
Correct Answer: AC Section: (none)
Explanation Explanation/Reference:
QUESTION 12
The act limited balloon payments in consumer leases and enabled consumers to compare lease terms with credit terms where appropriate. The act was implemented by Regulation M (Consumer Leasing). It requires disclosures to consumers before consummation of the lease agreement. This act is:
A. Consumer leasing act B. Risk disclosure act
C. ALLL
D. None of these
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 13
Content of segregated disclosures in Consumer Leasing Act include all of the following EXCEPT :
A. Amount due at lease signing or delivery, itemized by type and amount, including: Refundable security deposit
Advance monthly or other periodic payment
Capitalized cost reduction
An itemization of how the amount due will be paid, by type and amount (only required in a motor vehicle lease), using the model form
B. Number, amount, and due date of payments scheduled and the total amount of periodic payments
C. In an open-end lease, the descriptive statement “You will owe an additional amount if the actual value of the vehicle is less than the residual value”
D. If there are multiple items of property, the property description may be separate
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 14
In a motor vehicle lease, a mathematical progression showing how the periodic payment is derived, containing the following information:
A. Gross capitalized cost (including the agreed-on value of the vehicle)
B. Rent charge (the difference between the total of base payment over the lease term minus the depreciation and any amortized amounts) C. Itemization of other charges that are part of the periodic payment
D. All of the above
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 15
Which one of the following should be included in an early termination notice in case of the termination from consumer leasing agreement?
A. A warning to the consumer that a substantial charge may result from early termination (required only in a motor vehicle lease) B. A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term
C. The purchase option at the end of the lease term
D. The amount of any penalty or other charge for early termination (the penalty must be reasonable)
Correct Answer: ABD Section: (none) Explanation
Explanation/Reference:
QUESTION 16
In Consumer Leasing Act Content of non-segregated disclosures may be made separately or as part of another document (such as the lease agreement); however, other information cannot be stated, used, or placed so as to mislead or confuse the consumer. Other disclosures include all of the following EXCEPT:
A. A statement of the conditions under which the lessee or lessor may terminate the lease before the end of the lease term, along with the amount (or a description of the method of how the amount is determined) of any penalty or other charge for early termination
B. Whether the lessee has the option to purchase the leased property during the lease term and, if applicable, the purchase price (or method for determining it) and when the lessee may exercise it
C. The lessee’s right to an independent appraisal of the property if the lessee’s liability at the end of the lease is based on the realized value of the leased property, and that the appraisal will be binding on all parties
D. A statement of maintenance responsibilities including the counter bank responsible and a description of the responsibility
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 17
Under Renegotiations, extensions, and assumptions-12 CFR 213.5; any lease that is renegotiated or extended by longer than six months is considered to be a new lease, subject to new disclosure requirements, except when:
Explanation/Reference: QUESTION 18
A. One or more payments are deferred, whether or not there is a charge for the deferral
B. Lease property is substituted with property of substantially equivalent or greater value, if no other lease terms are changed
C. In a multiple-item lease, property is added, deleted, or substituted provided the average periodic payment does not change by more than 35 percent D. There is an agreement resulting from a pre-order
Correct Answer: AB Section: (none) Explanation
In Advertising-12 CFR 213.7, if a percentage rate is used in an advertisement, it cannot be more prominent than any other disclosure, EXCEPT:
A. For the warning regarding the limitation of the rate as a measurement of cost
B. For beginning at least 3 days before and ending at least 10 days after the broadcast C. For required disclosures in advertisements
D. For an advertisement accessed in electronic form
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 19
Under Consumer Leasing Act Enforcement-15 USC 1667d section FIRREA penalties include:
A. Penalties up to $8,500 per day for violations of laws and regulations
B. Penalties up to $37,500 per day if violations or unsafe or unsound practices are engaged in recklessly or are part of a pattern of misconduct that causes more than a minimal loss to the bank or any pecuniary gain to the parties involved
C. Penalties up to $1,375,000 per day against persons who knowingly commit a violation and knowingly or recklessly cause a substantial loss to the bank or a substantial benefit to the party
D. Penalties up to $9,500 per day for violations of laws and regulations
Correct Answer: AB Section: (none) Explanation
Explanation/Reference:
QUESTION 20
_____________ requires that a statement of purpose be obtained from borrowers whose loans are to be greater than $100,000 and that will be secured by margin stock. Loans made for the purpose of purchasing margin stock are subject to additional limitations
A. Regulation U B. Regulation V C. Regulation Z D. Regulation X
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 21
An exempted borrower is a member of a national securities exchange or a registered broker or dealer who:
A. Maintains at least 1,000 active accounts annually for persons other than brokers, dealers, and persons associated with brokers and dealers
B. Earns at least $10 million in gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with brokers and dealers, or
C. Earns at least 10 percent of its gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with brokers and dealers
D. None of these
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference: QUESTION 22
Banks may extend and maintain purpose credit without complying with Regulation U if the credit is extended:
A. To a bank auditor
B. To a qualified employee stock ownership plan running previously but not now
C. To any customer, other than a broker or dealer, to temporarily finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid in the ordinary course of business on the completion of the transaction
D. To enable a customer to meet emergency expenses not reasonably foreseen and if the bank obtains a good faith statement from the customer. Emergency expenses are ones related to unforeseen death or disability, not a chance to make a profit.
Correct Answer: CD Section: (none) Explanation
Explanation/Reference: QUESTION 23
Margin stock includes:
A. Equity securities registered or having delisted trading privileges on a national securities exchange:
B. Over-the-counter (OTC) securities that do not qualify for trading in the National Market System
C. Warrants or rights to subscribe to or purchase a common stock
D. Securities issued by an investment company registered under the Investment Company Act, except for: A company licensed under the Small Business Investment Company Act
A company that has at least 95 percent of its assets continuously invested in exempted securities; or
A company that issues face-amount certificates; or
A company that is considered a money market fund under the SEC Rules
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 24
Purpose credit is credit for all of the following EXCEPT:
A. Immediate purpose of purchasing or carrying margin stock B. Incidental purpose of purchasing or carrying margin stock C. Ultimate purpose of purchasing or carrying margin stock D. Accidental purpose of purchasing or carrying margin stock
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 25
Under collateral requirements-12CFR 221.7, maximum loan value of margin stock is:
A. Currently 50 percent of the current market value B. Currently 70 percent of the current market value C. Subject to change by the Federal Reserve
D. Subject to change by the Equity Reserve
Correct Answer: AC
Section: (none) Explanation
Explanation/Reference: QUESTION 26
What is actually a Single credit rule-12 CFR 221.3(d)?
A. All purpose credit extended to a customer will be considered to be a single credit for purposes of Regulation U
B. The value of all collateral securing all-purpose loans will be aggregated to determine if it is sufficient
C. If unsecured purpose credit is extended before secured purpose credit, the loans need only be combined for purposes of applying the withdrawal and substitution rules
D. All of the above
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 27
Which one of the following types of credit may be extended in Requirements case-12 CFR 221.3, 221.7:
A. Temporary advances in payment against delivery transactions B. Capital contribution leases
C. Credit to clearing banking authorities
D. Underwriter loans
Correct Answer: AD Section: (none) Explanation
Explanation/Reference: QUESTION 28
OCC advisory on credit card practice-AL-2004-10 in credit card practices covers:
A. Finance and credit management practices that may be unfair or deceptive and expose a bank to compliance and reputation risk
B. Marketing and account management practices that may be unfair or deceptive and expose a bank to compliance and reputation risk C. Marketing and account management practices
D. Marketing and account management practices that may be fair and can’t expose a bank to compliance and reputation risk
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 29
Practice/s addressed in the guidance of OCC advisory on credit card practices-AL-2004- 10 is/are:
A. “Up-to” marketing
B. Promotional rate marketing
C. Repricing of accounts and other changes in credit terms D. Lending to insiders
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference:
QUESTION 30
Regulation O both restricts lending to insiders and requires that certain loans to insiders be disclosed. Each banking agency has adopted the provisions of Regulation O for administrative enforcement purposes. These were not found to be useful in preventing insider lending abuse. Regulation O governs which of the following areas major areas:
A. Lending to insiders
B. Disclosures of loans made to insiders C. Both of these
D. None of these
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 31
Unless excluded by a board resolution or the bylaws, the following officers will be considered to be executive officers EXCEPT:
A. Chairman of the board
B. President
C. Each vice-president and above (for example, senior vice-president, executive vice-president, and so on) D. Brokerage house’s vice president
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 32
____________ is any company of which the bank is a subsidiary or any other subsidiary of the same company of which the bank is a subsidiary.
A. Brokerage House B. Treasury
C. FDIC
D. Affiliates
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 33
It is an extension of credit will be deemed to be made to an insider if the proceeds are transferred to the insider or used for the insider’s benefit. This rule does not apply if the credit is made on substantially the same terms and conditions as those made to a noninsider and if the proceeds are used in a bona fide transaction involving the acquisition of property, goods, or services from the insider. What is it?
A. Tangible economic benefit rule012 CFR 215.3(f) B. Extension of credit-12 CFR 215.3
C. Lending restrictions
D. Intangible economic-benefit rule
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 34
Lending restrictions under requirements 12 CFR 215; 12 CFR 337, 12 CFR 349 are all of the following EXCEPT:
A. Banks may not lend to executive officers, directors, principal shareholders, or any of their related interests unless the credit is made on substantially the same terms and following credit underwriting standards that are not less stringent than those on loans to persons who are not insiders; however, if the bank has a benefit program widely available to its employees, it may lend to insiders on the same terms and conditions as it lends to its other employees, pursuant to its employee benefit program
B. Banks may not lend to any executive officer, director, or principal shareholder, and to any of their related interests, amounts that exceed the higher of $25,000 or 5 percent of the bank’s capital and unimpaired surplus (up to a maximum of $500,000) in the aggregate unless The credit is approved in advance by the board of directors The interested party has abstained from voting
C. Prior approval is not needed for each draw against a line of credit provided the line of credit was approved within the preceding 14 months, based on the then- current financial statement
D. None of these
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 35
The maximum amount of credit that a bank may extend to all of its insiders is known as the ______________and is equal to 100 percent of its unimpaired capital and surplus.
A. Aggregate lending limit
B. Loan filliping
C. Equity stripping
D. Tangible economic benefit
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 36
On a written request from a member of the public, the bank must disclose the names of each of its executive officers and principal shareholders to whom the bank had aggregate credit outstanding at the end of the latest quarter that equaled or exceeded:
A. 10 percent of the bank’s capital, and unimpaired surplus or $500,000, whichever is less; no disclosure is required if the aggregate credit was $30,000 or less. Disclosure of individual loan amounts is not required
B. 5 percent of the bank’s capital, and unimpaired surplus or $500,000, whichever is less; no disclosure is required if the aggregate credit was $25,000 or less. Disclosure of individual loan amounts is not required
C. 6 percent of the bank’s capital, and unimpaired surplus or $100,000, whichever is less; no disclosure is required if the aggregate credit was $25,000 or less. Disclosure of individual loan amounts is not required
D. 5 percent of the bank’s capital, and unimpaired surplus or $100,000, whichever is less; no disclosure is required if the aggregate credit was $35,000 or less. Disclosure of individual loan amounts is not required
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 37
Record keeping requirements-12 CFR 215.8 elaborates that:
A. Each bank must establish a recordkeeping system to keep records necessary for compliance with Regulation O
B. Banks may use any alternative recordkeeping method for insiders of affiliates if the bank’s regulatory agency determines the bank’s method is at least as effective as that required by Regulation O
C. All recordkeeping systems must Include either an annual survey of insiders to identify related interests, or a requirement as part of each extension of credit that the borrower indicates whether he or she is an insider. Provide for the maintenance of records of all credit to insiders, including the amounts and terms
D. All of these
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 38
Debt Cancellation Contracts and Debt Suspension Agreements coverage includes:
A. National banks that issue debt cancellation contracts and debt suspension agreements with borrowers in connection with loans for personal, family, or household purposes
B. A national bank may not engage in any practice, including advertising, which would cause a reasonable person to be misled with respect to DSAs and DCCs
C. A bank must provide the long-form disclosures in writing before the customer completes the purchase of a contract. If the solicitation occurs in person, the long- form disclosures must be provided at that time
D. A bank must make the short-form disclosures orally at the time the bank first solicits the contract
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 39
This is a loan term or an arrangement that modifies a loan term under which a bank agrees to cancel all or part of a customer’s loan obligation on the occurrence of a specified event. It may be included as a part of the loan documents, or it may be a separate agreement. What is it?
A. Debt suspension agreement (DSA) B. Anti-dying
C. Debt cancellation contract (DCC) D. ALLL
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 40
Short-form disclosures are required in advertisements and promotional materials unless the advertisements and promotional materials are of:
A. A general nature describing or listing the products or services offered by the bank B. A specific nature describing or listing the products or services offered by the bank C. A general nature describing or special services offered by the bank
D. A general nature describing competitive advantage of the bank
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 41
This is a loan term or an arrangement that modifies a loan term under which a bank agrees to suspend all or part of a customer’s loan obligation on the occurrence of a specified event. It May be a part of the loan itself or a separate agreement. Does not include a loan payment deferral arrangement where the borrower or the bank can unilaterally defer a payment. What is it?
A. Debt suspension agreement (DSA) B. Anti-dying
C. Debt cancellation contract (DCC) D. ALLL
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 42
Under content of disclosures long term disclosures may include the following, as applicable EXCLUDING:
A. Notification that the product is optional
B. Explanation of debt-suspension agreement C. Lump-sum payment of fee with no refund D. Refund of fee paid in lump sum
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 43
Banks must establish and maintain effective risk management and control processes over its DCCs and DSAs, including:
A. Appropriate recognition and financial reporting of income, expenses, assets, and liabilities
B. Appropriate treatment of losses associated with these products
C. Assessment of the adequacy of its internal controls and risk mitigation activities
D. Before entering into a contract, the bank must obtain the customer’s written affirmative election to enter into the contract and written acknowledgement of the receipt of the disclosures
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference:
QUESTION 44
The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to prevent discrimination in credit transactions. In 1975 the act was amended. Which of the following prohibited base/s are now included in it?
A. National origin
B. Exercise of rights under the Consumer Credit Protection Act C. Receipt of public assistance income
D. All of these
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 45
Securities credit covers credit subject to Section 7 of the Securities Exchange Act of 1934 or credit by a broker or dealer subject to regulation under the act. The following requirements of Regulation B do not apply EXCEPT:
A. Restrictions regarding information about a spouse or former spouse, marital status, or sex of the applicant B. It is not payable by agreement in more than four installments
C. Provisions relating to furnishing credit information
D. Records retention requirements
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 46
Government credit
A. It is credit extended to governments or government agencies, instrumentalities, or subdivisions B. It has no finance charge
C. It has Records retention requirements
D. Only the general rule against discrimination applies to government credit
Correct Answer: AD Section: (none)
Explanation Explanation/Reference:
QUESTION 47
An oral or written request for credit made in accordance with the creditor’s procedures for the type of credit requested. Information entered into and retained by a computer system qualifies as a written application. It is called:
A. Credit Application
B. Credit completed application C. Initial credit approach
D. None of these
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 48
Definition of completed application—12 CFR 202.2(f) is:
A. An application for which the bank has received all the information it regularly considers in evaluation, including credit reports, verifications, and so forth B. The creditor must be reasonably diligent in collecting information to complete the application (for example, ordering credit bureau reports)
C. An inquiry becomes an application when the creditor evaluates information and decides to grant or decline the credit
D. Requests for written preapprovals to be issued by the lender are considered applications
Correct Answer: AB Section: (none) Explanation
Explanation/Reference:
QUESTION 49
Requirements—12 CFR 202.2, 202.4, 202.5, 202.6, and 202.13 say that a creditor may not request information about an application’s race, color, religion, national origin, or gender except as specifically permitted by ____________or another statute such as the Home Mortgage Disclosure Act.
A. Regulation B B. Regulation U C. Regulation Z D. Regulation A
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 50
________________is defined as every aspect of an applicant’s dealing with a creditor, beginning with information gathering and continuing through to the servicing and collection of the loan.
A. Credit terms
B. Credit rating
C. Credit transaction D. Credit application
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 51
In Processing and evaluating applications—12 CFR 202.6, protected income part is also under discussion. Which of the following considerations is NOT its part?
A. Public assistance income may not consider whether an applicant’s income is from a public assistance source
B. Public assistance income may consider as it relates to another pertinent element of creditworthiness
C. May consider length of time public assistance income will be received, whether the applicant will continue to qualify for the income, and whether the income can be garnished
D. Can discount or refuse to consider the following: Part-time income
Annuities
Pensions
Retirement benefits
Alimony, child support, and separate maintenance payments to the extent they are likely to be consistently made
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 52
Credit scoring systems:
A. Evaluate an applicant’s creditworthiness mechanically, based on key attributes of the applicant and aspects of the transaction, and determine, alone or in conjunction with an evaluation of additional information about the applicant, whether an applicant is deemed creditworthy
B. Are evaluated by regulatory agencies to determine whether they are empirically derived and statistically sound and to examine: The bank’s policies on the use of the credit scoring system
Training of bank employees on the use of the system
The number of high-side and low-side overrides of the system
C. Both of these D. None of these
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 53
Federal regulations define special-purpose credit-12 CFR 202.8 to include:
A. Any credit assistance program authorized by federal or state law for the benefit of an economically disadvantaged class of persons
B. Any credit assistance program offered by a not-for-profit organization for the benefit of its members or for the benefit of an economically disadvantaged class of person
C. A special-purpose credit program must not discriminate on a prohibited basis; however, it can require its participants to share a particular characteristic (such as race or sex) provided the requirement was not established to evade the requirements of the ECOA. If the participants must share a common characteristic, the bank may collect information on that characteristic to determine eligibility
D. If the program includes financial need as a criterion, the creditor can never request and consider information regarding the applicant
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference:
QUESTION 54
These are the definitions of _____________: The refusal to grant credit in substantially the amount or on substantially the terms requested in an application (and the applicant uses or expressly accepts the credit offered) A termination of the account or an unfavorable change in the terms of an account, unless the change affects substantially all of the lender’s accounts of that type. A refusal to increase the amount of credit available to an applicant who has made an application for an increase
A. Adverse action-12 CFR 202.2(c)
B. Special-purpose credit-12 CFR 202.8 C. Refusals- 12 CFR 202.8
D. security agreements-12 CFR 202.2(c)
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 55
FDIC guidance lists three requirements to ensure compliance with spousal signature rules include all of the following EXCEPT:
A. Review and revise policies
Eliminate policies or procedures that are inconsistent with the requirements
Expand loan policies and procedures to provide loan staff with specific guidance on state law(s) regarding requiring signatures Cover the laws of all states where the creditor institution does business Create checklists to address situations when spousal signatures can be required
B. Provide training to consumer and commercial loan staff
C. Implement monitoring and auditing programs to check for spousal signature violations
D. Must allow an applicant to designate a birth-given first name and a birth-given, surname, spouse’s surname, or combination
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 56
Content of notification to credit consumers must contain:
A. Statement of the action taken
B. Name and address of creditor
C. Statement of the specific reasons for the adverse action or a disclosure of the applicant’s right to receive the specific reasons within 30 days of a request. The request for specific reasons must be made within 60 days of the receipt of the adverse action notice.
D. Statement of the specific reasons for the adverse action or a disclosure of the applicant’s right to receive the specific reasons within 15 days of a request. The request for specific reasons must be made within 30 days of the receipt of the adverse action notice.
Correct Answer: ABC Section: (none) Explanation
Explanation/Reference:
QUESTION 57
A bank may engage in voluntary self-testing and self-correction of its compliance with Regulation B. If the bank takes any appropriate corrective action, the reports, results, analysis, opinions, and conclusions of the self-test will be protected by a privilege. The privilege will be lost if
A. Loan and application files or other records related to a credit transaction and information derived from such files and records, even if it has been reorganized and summarized for analysis
B. The information is voluntarily disclosed to the government
C. The public or is used in any manner as a defense to a discrimination charge
D. credit information is furnished in response to inquiries concerning an account reflecting the participation of consumer
Correct Answer: BC Section: (none) Explanation
Explanation/Reference:
QUESTION 58
Creditors must retain for 25 months after the date that an offer of credit is made (12 months for business applicants with gross revenues of $1 million or less) the following items EXCEPT:
A. The text of any prescreened solicitation
B. All other written information concerning the applicant C. The list of criteria used to select recipients
D. Any record of complaints regarding the solicitation
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 59
According to FDIC Guidance on Spousal Signature Provisions, if the creditor requires the spouse’s signature on an instrument that imposes personal liability, the creditor’s belief should be:
A. Supported by a thorough review of pertinent statutes, decisional law, or an opinion of the state’s attorney general B. Supported by a thorough review of pertinent statutes
C. Supported by decisional law
D. Supported by an opinion of the state’s attorney general
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 60
A consumer reporting agency may furnish a consumer report
A. If not authorized in writing by the consumer
B. In response to a court order having jurisdiction or a subpoena issued by a federal grand jury or review or collection of an account of the consumer
C. In connection with a credit or insurance transaction
D. For employment purposes Before procuring a consumer report, an employer Must disclose to the individual in writing that a consumer report may be obtained Must obtain written authorization from the individual before procuring the report
Correct Answer: BCD Section: (none) Explanation
Explanation/Reference:
QUESTION 61
Legislation was recently enacted to reform consumer real estate protection laws, and the bank will now have to change the way it documents, discloses, and advertises real estate loans, an integral product line at your bank. What should the compliance professional do FIRST to implement the new law within the bank?
A. Read the law and write a new real estate compliance policy
B. Form a task force of the business unit managers whose departments will be affected by the law to collectively form an action plan C. Talk to the bank president about the need for more resources in compliance
D. Sign up all bank personnel affected by the changes for a seminar on the new law
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 62
A bank’s president would like to begin offering a new home equity line of credit product within two weeks. In all cases the borrower’s principal dwelling will secure the loan. The president has already launched a planned advertising campaign for the bank’s major service markets. What should the compliance professional do FIRST?
A. Hire an attorney to write the appropriate legal documents and disclosures
B. Write a memo to the president explaining why the compliance professional should have been in on the process at an earlier date C. Begin training sessions for the lending and loan operations staff on the compliance issues involved
D. Perform a risk assessment to determine the bank’s level of risk in offering this new product
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 63
A bank has a large mortgage department as well as a high HMDA error rate. An expensive software program could automate the process, but the business unit manager does not want to purchase the software because of its expense. Though it is not as efficient, the manager prefers to make some improvements to the manual process, add some more robust monitoring procedures, and opt not to purchase the software. What should the compliance professional do?
A. Elevate the issue to a higher authority to force the mortgage department unit to purchase the software
B. Nothing; the compliance professional’s job is done with the completed research
C. Document the fact that the level of risk present with manual systems is acceptable to the mortgage department business unit D. Write a memo to the president of the bank that explains the risk assessment for this area
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 64
The federal banking agencies have proposed an amendment to Regulation Z that would require a new early disclosure statement for loans secured by the borrower’s principal dwelling. After reading the proposed change, what should the compliance professional do FIRST?
A. Establish a task force to study the proposed rule.
B. Contact the bank’s platform software vendor to determine whether it will be ready for the change NOTES
C. Prepare a summary document that outlines the effects the proposed rule would have on the bank’s operations D. Train bank staff on the new rule
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 65
During a recent compliance examination, regulatory examiners found that the bank was not conducting flood hazard area determinations before closing on construction loans. The compliance professional has reviewed the files and agreed with the examiners’ finding. What should be done FIRST?
A. Review the bank’s flood policies and procedures to determine where the compliance failure occurred B. Conduct a risk assessment of the flood determination requirement on construction loans
C. Prepare an analysis for bank management explaining the requirement
D. Review all construction loan files to determine the extent of the problem
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 66
During a recent compliance examination, regulators cited the bank for violations of various marketing regulations. How should the compliance professional FIRST respond?
A. Contact the bank’s marketing manager to discuss the finding
B. Develop a policy requiring that all marketing materials be reviewed and approved by compliance before being published C. Set up a training class for the marketing department
D. Review the marketing materials and applicable regulations to verify the finding.
Correct Answer: D Section: (none) Explanation
Explanation/Reference: QUESTION 67
When developing a training plan for commercial lenders, which of the following regulations is least important to include?
A. Equal Credit Opportunity, FRS Regulation B
B. Home Mortgage Disclosure, FRS Regulation C
C. Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, FRS Regulation O D. Truth in Lending Act, FRS Regulation Z
Correct Answer: D Section: (none)
Explanation Explanation/Reference:
QUESTION 68
A compliance professional is a member of the task force studying how the bank can reduce customer complaints about holding deposits. One proposed solution involves purchasing an expensive system that will reduce the number of holds placed by evaluating the customer’s history and relationship with the bank. Which of the following roles is MOST important for the compliance professional on the task force?
A. Developing training for tellers who will use the new system
B. Setting parameters for what the system should review to determine the strength of the customer relationship C. Validating the system to ensure it complies with regulatory restrictions
D. Conducting a cost-benefit analysis to determine if the system is the best solution
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 69
Of the following loans made by a national bank, which loan is NOT covered by the OCC ARM regulation?
A. A loan to purchase a single-family dwelling to be used as a residence, secured by the dwelling with an adjustable interest rate
B. A loan made to purchase a mobile home to be used as rental property, secured by the home with a variable interest rate
C. A loan made to purchase an eight-unit apartment complex, secured by the building, made payable on demand with a variable rate of interest D. A loan made to purchase a duplex, secured by the dwelling, amortized over 15 years with a 5-year maturity, at a variable rate of interest
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 70
First National Bank is a member of a multibank holding company. The bank makes ARM loans and occasionally purchases ARM loans from its affiliate national and state banks as well as from nonaffiliated banks. Which of the following practices is NOT acceptable under the OCC ARM regulation?
A. The bank purchases loans from its state affiliate banks where the index on the loan is tied to First National’s prime rate.
B. The bank makes loans to purchase single-family dwellings with interest rates that may be adjusted from time to time.
C. The bank links the interest rate indices on its own ARM loans to them national prime rate as published in The Wall Street Journal.
D. The bank requires its national bank affiliates to use the national prime rate as published in The Wall Street Journal as the index for any of the ARM loans it purchases.
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 71
On which of the following adjustable-rate loans must the bank use an index beyond its control?
A. A loan to purchase a home to refurnish and resell for a profit
B. A loan to purchase a vacation home
C. A loan to purchase a duplex where the borrower will live in one of the units D. A loan to purchase a home to be used as rental property
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 72
ABC National Bank regularly purchases mortgage loans from ACME Mortgage Company, a local mortgage broker. ACME places a mandatory arbitration clause in each of its mortgage documents. ACME believes this clause is necessary because of state laws governing arbitration. Is this clause a problem for ABC National?
A. No, unless other predatory or abusive lending practices are evident in the loans sold by ACME. B. Yes, the clause is a sign of an abusive lender, and the bank should not purchase the loans.
C. Yes, the bank should make ACME strike the clause from future loans.
D. No, this is a common practice and the bank can ignore it.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 73
The OCC recommends all but one of the following actions to help prevent a national bank’s purchasing or acquiring predatory or abusive loans. Which practice is NOT recommended?
A. Establish policies on the bank’s relationship with third-party brokers and originators B. Review loan documentation
C. Audit the third-party broker
D. Require the broker to establish a reserve account for legal contingencies
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 74
Second State Bank offers a mortgage product that involves simultaneous second lien loans. These include a first lien for up to 90 percent of the purchase price and a second loan for the down payment, secured by a second lien on the property. The bank would like to be in full compliance with the Interagency Guidance on Nontraditional Mortgage Product Risks. Which of the following should Second State Bank incorporate into its loan program?
A. Risk management procedures to measure the risk of all simultaneous second lien loans and report results to management
B. A 100 percent loan loss reserve on all simultaneous second lien loans
C. A product combining simultaneous second lien loans with negative amortization features made to nonowner occupied borrowers D. A prepayment penalty on all simultaneous second lien loans
Correct Answer: A
Section: (none) Explanation
Explanation/Reference:
QUESTION 75
According to the 2007 interagency statement on subprime mortgage lending, what should an institution offering mortgage loans to subprime borrowers provide before submission of an application?
A. Information on local residential real property values B. Payment shock information
C. Truth in Lending disclosures
D. Initial escrow statements
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 76
The senior lender at ABC bank would like to make stated income mortgage loans (i.e., loans where the bank does not verify the applicant’s income) to mortgage customers, including subprime borrowers. Under the statement on subprime mortgage lending, which of the following is the best statement of the bank’s responsibility regarding this new program?
A. Due to the risks, it should not implement such a program for subprime borrowers
B. The bank should make a policy for this program that includes mitigating factors for the risks C. The bank should set stringent debt-to-income ratios for these loans
D. The bank should establish workout procedures for such loans in advance of making them.
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 77
Under Regulation M, what is a “consumer lease”?
A. Any lease of $25,000
B. A consumer lease for $25,000 or less with an option to own the property after the lease expires C. A consumer lease for $25,000 or less for the use of personal property
D. Any consumer or agricultural lease for $25,000 or less
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 78
Milton Edwards leased an automobile from First National Bank. The lease contained a provision whereby Milton would be liable for the automobile at the end of the lease based on its fair market value. At the end of the lease, the bank notified Milton that the value of the automobile, based on industry publications, was $10,500 and required him to pay that amount to obtain ownership of the property. Milton objected and requested that the car be individually appraised. What must the bank do?
A. Nothing; an estimate of the value based on industry standards is sufficient
B. Hire an independent appraiser to appraise the automobile (both parties agree to be bound by the appraisal)
C. Allow Milton to hire an independent appraiser to appraise the automobile (both parties agree to be bound by the appraisal) D. Use the average of the car value as determined by a third party appraiser Milton hires with the original bank appraisal
Correct Answer: C Section: (none) Explanation
Explanation/Reference: QUESTION 79
When must disclosures on consumer leasing transactions subject to Regulation M be made?
A. At the time of the application
B. Before the consummation of the lease
C. Before the first payment due under the lease
D. Within 10 days after consummation of the lease
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 80
A bank does not know all of the specific information to be disclosed on the lease at the time of the consummation. What may the bank do after attempting to obtain the information?
A. Omit the unknown disclosures
B. Estimate the amounts and note that the information is estimated
C. Delay consummation of the transaction until the information is ascertained
D. Estimate the information based on averages of all other leasing transactions the bank has made within the last six months
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 81
What insurance disclosures are required in the lease disclosure statement?
A. The types and amounts of coverage provided by the lessor and the cost to the lessee
B. The types, amounts, and estimated costs of recommended coverage even if not provided or paid by the lessor C. The cost to the lessee NOTES
D. No insurance disclosures are required
Correct Answer: A Section: (none) Explanation
Explanation/Reference: QUESTION 82
The initial disclosure requires that certain disclosures relating to the termination of a lease be given to the consumer. Which of these disclosures is NOT required?
A. The conditions under which the lease may be terminated before the end of its term
B. Whether or not the lessee has the option to purchase the property and at what price
C. Whether the lease may be extended at the option of the lessee
D. Whether the lessee will be liable for the difference between the estimated value of the property and its realized value at the termination or end of the lease
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 83
Roberta Milton’s car lease with First National Bank reached its termination on August 1. Roberta and the bank agreed to extend the lease on a month-to month basis without charging her a fee for doing so. What disclosure responsibilities does the bank have now?
A. None are needed now.
B. None, until after six months of the month-to-month lease
C. The bank must make an entirely new initial disclosure
D. The bank must disclose the estimated residual value at the end of six months
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 84
First National’s consumer leasing department placed an ad in the local paper that pictured a car with the caption, “Sign a lease with us and pay only $275 per month.” What other information must this ad have?
A. A statement that the transaction is not a loan
B. The total amount due at consummation or delivery, the number of payments required, and any required security deposit C. The bank’s policy regarding the purchase of the property by the lessee
D. Disclosures regarding required insurance
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 85
Records regarding compliance with Regulation M must be kept for how long?
A. Five years following consummation of the lease B. Two years after the disclosures are made
C. Twenty-five months from consummation
D. One year from the time the disclosures are made
Correct Answer: B Section: (none) Explanation
Explanation/Reference: QUESTION 86
Which of the following statements is true regarding the lessee’s ability to purchase the leased property?
A. The lessor must allow the lessee to purchase the leased property either during the lease term or at the end of the term.
B. If the lessor allows the lessee to purchase the property at the end of the lease term, the lessor may not charge more than the equivalent of 12 monthly payments for the property.
C. If the lessor allows the lessee to purchase the property at the end of the lease term, the purchase price must be disclosed in the initial disclosure statement. D. The purchase price of the leased property must be mutually agreed on by the lessor and the lessee.
Correct Answer: C Section: (none)