ECOA Flashcards
Within 30 days of receipt of a loan or credit application, lenders must notify consumers in writing of ?
action taken.
Within ___days of receipt of an application that lacks information”that the applicant can provide, the creditor must provide a Notice of Action or a Notice of Incompleteness.
30 days
A notice of the right to receive a copy of all written appraisals associated with the transaction.
This notice is due within ____business days of receipt of a loan application
3
A copy of all appraisals and other written valuations. These are due “promptly” after they are completed or at least ___business days prior to consummation, whichever is earlier.
3
If the creditor:
1) denies a loan application, or
2) the application is withdrawn by the consumer, the obligation to provide copies of valuations still _____.
However, the deadline is extended to ___ days after the date on which the creditor determines the transaction will not proceed
Still exists
30 days
What is the purpose of the Home Mortgage Disclosure Act (HMDA)?
To promote transparency in mortgage lending and to help identify discriminatory lending practices.
Which types of loans are reported under HMDA?
Home purchase loans, home improvement loans, and refinancing.
What kind of information must lenders disclose under HMDA?
Information about the borrower, including race, ethnicity, and sex, as well as loan details such as the amount, type, and purpose.
Who enforces the Home Mortgage Disclosure Act?
The Consumer Financial Protection Bureau (CFPB) and other federal banking regulators.
5.How is HMDA data used by regulators?
To monitor whether financial institutions are meeting:
To monitor whetherfinancial institutions are meeting:
1. `the **housing needs** of their communities,` 2. `to **identify** potential **discriminatory** lending patterns,` 3. `and to **allocate public investment**.`
- What was a significant change made to HMDA reporting requirements by the Dodd-Frank Wall Street Reform and Consumer Protection Act?
• The Dodd-Frank Act expanded the types of data that must be reported, including information like:
1. total points and fees,
2. the difference between the annual percentage rate (APR) and a benchmark rate,
3. the value of the property,
4. and the term of any prepayment penalty.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010, significantly expanded the reporting requirements under the Home Mortgage Disclosure Act (HMDA) and other regulations. This expansion aims to enhance transparency and ensure better monitoring of lending practices. Here’s a breakdown of the specific data elements you mentioned, with a focus on explaining the difference between the APR and a benchmark rate:
Data Required by Dodd-Frank Act
1. Total Points and Fees: Refers to the total costs associated with securing a mortgage, including origination fees, discount points, and other charges that the borrower must pay. 2. Difference Between the Annual Percentage Rate (APR) and a Benchmark Rate: • Annual Percentage Rate (APR): This rate includes not only the interest rate but also other costs associated with the loan, such as broker fees, interest, points, and others spread across the life of the loan. It is expressed as a percentage and gives a more complete picture of the total cost of the loan per year. • Benchmark Rate: This is typically a standard or reference interest rate used to compare the APR against. It could be based on indices like the U.S. Treasury bills, the prime rate, LIBOR (now being phased out), or other widely recognized benchmarks that reflect the general level of interest rates in the economy or specific sectors of the credit market. The difference between the APR and the benchmark rate essentially measures how much more (or less) costly the loan is compared to a typical loan. For instance, if the APR is significantly higher than the benchmark rate, it indicates higher-than-average fees or costs associated with the loan. 3. Value of the Property: This is the assessed valuation of the property being financed or used as collateral. Knowing the property value helps in determining the loan-to-value ratio, which is critical for assessing loan risk. 4. Term of Any Prepayment Penalty: This includes details about penalties the borrower might face for paying off the loan early. Prepayment penalties can affect the cost of refinancing or selling the property before the mortgage term ends.
Therefore, in every credit transaction that is secured by a dwelling, creditors are obligated to request information on the applicant’s:
ethnicity,
-race,
-sex,
-marital status,
-and age.
When requesting this information, ECOA requires creditors to explain to consumers that this is a request from the federal government in order to monitor compliance with anti-discrimination laws.
T/F?
True
When a creditor treats a loan applicant who is a member of a protected class differently from other loan applicants who are “similarly situated” but not members of a protected class, the creditor is engaging in_____________. For example, if a creditor offers a loan with a higher interest rate to a female loan applicant whose income and employment is comparable to that of a male applicant who receives an offer for a loan at a lower interest rate, a violation of ECOA has occurred. This is one of the most common forms of discrimination.
disparate treatment
ECOA is intended to protect consumers from being denied access to credit on any prohibited basis.
T/F?
True
lenders may not:
▪ Refuse to consider public assistance as income
▪ Assume a woman of childbearing age will stop working to raise children
▪ Refuse to consider income from a pension, annuity, or retirement benefit
▪ Refuse to consider regular alimony or child support (although borrowers are not required to disclose alimony and child support unless it is used as qualifying income)
True
In community property states, the creditor may deny a loan application if the applicant’s spouse refuses to sign the security agreement?
T/F
True
Without the spouse’s _______
a creditor may not be able to create a valid lien against the home securing the mortgage loan.
Signature
ECOA authorizes actual and punitive damages.
Regulation B limits punitive damages to:
▪ $______for individual actions
▪ The lesser of ______or 1% of a creditor’s net worth in class actions
$10,000
$500,000
The statute of limitations for an individual to file a claim for a violation of ECOA is ______ years from the date on which the alleged violation occurred.
5 years
What is the primary purpose of the Equal Credit Opportunity Act (ECOA)?
a. To regulate interest rates on mortgage loans
b. To eliminate discriminatory treatment of credit applicants
c. To provide consumers with free credit reports
d. To oversee real estate transactions
B
Which of the following is considered an “adverse action” under ECOA?
a. Offering credit with a lower interest rate than requested
b. Refusing to offer credit in the amount requested
c. Granting a loan without an appraisal
d. Providing a loan with no origination feed
B
ECOA prohibits discrimination based on which of the following characteristics?
A. Employment status
b. Education level
c. Marital status
d. Number of dependents
Within how many days must a creditor provide a Notice of Action Taken after receiving a loan application?
a. 15 days
b. 30 days
c. 45 days
d. 60 days
30 days
Which of the following is an acceptable reason for denying a mortgage loan application under ECOA?
a. The applicant’s race
b. The applicant’s receipt of public assistance income
c. The applicant is not of legal age to enter into a contract
d. The applicant’s marital status
C - not of legal age
- Under ECOA, creditors must provide a copy of all appraisals and other written valuations:
a. Within 3 business days of receiving a loan application
b. At settlement or within 45 days of settlement
c. Promptly after they are completed or at least 3 business days before consummation
d. Only if the applicant requests them
C
- ECOA prohibits creditors from requiring the signature of an applicant’s spouse if the individual qualifies for credit on their own.
T/F?
True
ECOA applies to extensions of credit for both personal and commercial purposes? T/F ?
True
If a loan application is denied or withdrawn, creditors are no longer obligated to provide copies of valuations to the applicant.
T/F ?
False
Explain the concept of “disparate impact” under ECOA and provide an example
It occurs when a creditor adopts a _______ policy that unintentionally has a discriminatory effect on a protected class.
Disparate impact occurs when a creditor adopts a neutral policy that unintentionally has a discriminatory effect on a protected class. For example, if a lender has a policy of only approving loans for properties above $250,000, this may disproportionately affect minority applicants who are more likely to seek lower-value loans, leading to potential discrimination claims even though the policy itself is not overtly discriminatory.
What information must be retained by creditors for at least 25 months after notifying an applicant of action taken or incompleteness?
Creditors must retain:
1) any application received
2) any information obtained concerning the applicant’s characteristics for ECOA compliance
3) any other written or recorded information used in evaluating the application
4) a copy of the Notice of Action Taken,
5) the statement of specific reasons for adverse action taken
6) any written statement submitted by the applicant alleging a violation of ECOA or Regulation B.
Describe the steps a creditor must take to comply with the valuation disclosure (think value , appraisal) requirements under ECOA for a mortgage loan secured by a first lien on a dwelling.
Creditors must provide the loan applicant with a notice of the right to receive a copy of all written appraisals within ____ business days of receiving a loan application
3 business days of receiving a loan application
Prohibited Discriminatory Factors
- Lenders cannot discriminate based on:
- Age
- Race
- Sex
- Nationality
- Color
- Religion
- Marital status
- Receipt of public assistance
- Exercising rights under the Consumer Credit Protection Act
Equal Credit Opportunity Act (ECOA) purpose:
- Purpose: Ensure all applicants have a fair chance of obtaining credit based on creditworthiness, not personal characteristics.
- Lenders gather race and personal information to demonstrate compliance with anti-discrimination laws.
- Lenders cannot charge higher rates based on prohibited factors.
Acceptable Reasons to Deny Credit
- Poor credit history
- High current credit obligations
- Insufficient income or employment history
- Inadequate property condition
- Missing critical application information
- Risk of the applicant not repaying due to residency status
Handling Incomplete Applications
Notify applicants within _____ days of action taken or request missing information.
- Send _______ requests if no response to oral requests.
- Terminate applications if information is not provided, with appropriate notice.
- Notify applicants within 30 days of action taken or request missing information.
- Send written requests if no response to oral requests.
- Terminate applications if information is not provided, with appropriate notice.
