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CRCM > ECOA > Flashcards

ECOA Flashcards

1
Q

What is ECOA and what is it’s implementing regulation?

A

Equal Credit Opportunity Act Regulation B

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2
Q

What is purpose of ECOA?

A

to prohibit discrimination in any phase of a credit transaction based on 9 established bases

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3
Q

What are the ECOA prohibited bases?

A

race - sex - marital status - color - national origin - religion - age - receipt of public assistance income - exercise of rights under the consumer credit protection act

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4
Q

Who does ECOA apply to?

A

all parties participating in the credit decision regardless of the method used to evaluate credit or the aspect of the credit decision

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5
Q

What kinds of credit does ECOA cover?

A

all types of consumer and business credit with limited exceptions for:

* public utilities credit

* securities credit

* incidental credit

* governmental credit

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6
Q

What is incidental credit?

A

Credit that

* is not a credit card account

* has no finance change

* is not payable by agreement in more than four installments

* is not public utility or securities credit

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7
Q

Must an ECOA violation be intentionally discriminatory?

A

NO

The practice in violation of ECOA may be neutral on its face but still result in a disproportionate adverse effect on a protected class.

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8
Q

What is legitimate business need?

A

legitimate business need exists when there is no reasonable alternative practice producing less disparate impact.

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9
Q

What is the three step process to show disproportionate adverse effect? (disparate impact)

A

* consumer proves unfavorable impact on a protected class

* business shows relationship between practice and creditworthiness

* consumer shows alternative policy or practice that achieves the same result without effect

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10
Q

ECOA prohibits a creditor from advertising that ________.

A

discourages a reasonable person from making or pursuing an application

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11
Q

May creditors solicit credit from traditionally disadvantaged groups?

A

YES

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12
Q

Under ECOA, what is an application?

A

an oral or written request for credit made in accordance with the creditor’s procedures for the type of credit requested

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13
Q

Even if the customer calls in and the associate enters the information into the system, is this a written application under ECOA?

A

YES

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14
Q

When does an inquiry become an application?

A

when the creditor evaluates information to make a credit determination

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15
Q

T or F

Request for written preapprovals are not considered applications?

A

FALSE

preapproval requests are considered applications

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16
Q

When does an application become ‘complete’?

A

When the bank has received all information regularly used in credit evaluation

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17
Q

If the customer enters their information directly into a system, is this a written application under ECOA?

A

YES

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18
Q

For what kind of loans are written applications required?

A

loans to purchase or refinance a principal dwelling and secured by that dwelling

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19
Q

Under ECOA, all disclosures must be _________, and most* disclosures must be ___________.

A

clear and conspicuous in a form the applicant can keep

monitoring information and alimony/child support disclosures are not included

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20
Q

Must ECOA disclosures be provided in English?

A

NO

Disclosures may be provided in any language, so long as English disclosures are available on request.

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21
Q

For applications to purchase or refinance a primary dwelling (secured by that dwelling), creditors must request what monitoring information?

A

* ethnicity and race

* sex

* marital status

* age

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22
Q

When monitoring information is required what notices must be provided to the customer?

A

* information is being requested by the federal government for monitoring purposes

* if applicant refuses, creditor is required to note information based on visual observations or surname

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23
Q

Can the bank ‘require’ the applicant to provide monitoring information?

A

NO

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24
Q

If an applicant refuses to provide required monitoring information what must the creditor do?

A

* note such on the form

* note information based on visual observations or surname

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25
Q

T or F

Banks my request monitoring information on nonmortgage applications?

A

TRUE

So long as the request is for self-testing and meets the regulatory requirements.

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26
Q

What information may be collected for ECOA self testing?

A

* race

* color

* religion

* national origin

* sex

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27
Q

When information is collected for ECOA self testing, what disclosures are required?

A

* information is being requested to test bank’s compliance with ECOA

* Federal law prohibits the creditor from discriminating based on the information or the customers refusal to provide

* if applicant refuses, creditor may note information based on visual observations or surname

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28
Q

T or F

Credit applications may require titles (Mr., Ms., etc.)

A

FALSE

courtesy titles must be optional

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29
Q

In what cases can spouse or former spouse information be requested on a credit application?

A

* the spouse will be permitted to use the account

* the spouse will be contractually liable on the account

* the applicant resides in a community property state

* the property is located in a community property state

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30
Q

When my an individual, unsecured credit application inquire about marital status?

A

when the applicant resides in a community property state OR is relying on property located in a community property state

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31
Q

When and how may an application ask about marital status?

A

*when the application is for individual, unsecured credit and the applicant resides in a community property state OR is relying on property located in a community property state

* when the application is for other than individual, unsecured credit

* only use terms married, unmarried, or separated

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32
Q

May a creditor inquire about income derived from alimony, child support, or separate maintenance?

A

only if the creditor discloses that such income need not be revealed if the applicant does not wish it to be considered in determining creditworthiness

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33
Q

T or F

Applications may not inquire about childbearing in any way.

A

FALSE

applications may not inquire about birth control practices or child bearing intensions but may inquire about number and ages of dependents only

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34
Q

Can an application request an applicants immigration status and permanent residence?

A

YES

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35
Q

A creditor may use any information obtained in evaluating an application provided information is __________.

A

not used to discriminate on a prohibited basis

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36
Q

The creditor may use an applicant’s age as a predictive variable so long as ___________.

A

the age is not assigned a negative factor or value

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37
Q

A creditor may consider an applications age in any evaluation system so long as __________.

A

age is used to favor the elderly applicant

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38
Q

What considerations regarding public assistance income may be evaluated?

A

* length of time income will be received

* continuation of qualification for income

* whether income can be garnished

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39
Q

T or F

Lenders may not consider whether there is a telephone listing in the applicant’s name

A

TRUE

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40
Q

T or F

Lenders may not consider whether there is a telephone in the applicant’s home

A

FALSE

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41
Q

Can the lender consider information presented that indicates credit history is inaccurate or incomplete?

A

YES

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42
Q

What are the overarching requirements of a credit scoring system?

A

The system must be empirically derived and demonstrably and statistically sound

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43
Q

Credit scoring systems must be based on data that is derived from an empirical comparison of __________.

A

small groups or the population of creditworthy and noncredit worthy applicants who applied for credit within a reasonable period of time

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44
Q

Credit scoring systems must be developed for the purpose of evaluating the creditworthiness of applicants with respect to ____________.

A

the legitimate business interests of the creditor using the system

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45
Q

Credit scoring systems must be developed and validated using ____________.

A

accepted statistical principles and methodology

46
Q

Credit scoring systems should be periodically revalidated using ____________.

A

appropriate statistical principles and methodology and adjusted as necessary to maintain predictive ability

47
Q

What elements do regulatory agencies use to evaluate credit scoring systems?

A

* determine whether they are empirically derived and statistically sound

* examine the bank’s policies on use

* examine training of employees on use

* examine the number of high-side and low-side overrides of the system

48
Q

A creditor may not require the signature of a spouse or any other person if ________.

A

the applicant qualifies for credit alone

(unless it is needed on security documents)

49
Q

If the application is unqualified for credit alone, a creditor may require _________.

A

a cosigner or guarantor but may not require that it be the spouse

50
Q

When must a person’s intent to be a joint applicant be shown?

A

at the time of the application

51
Q

The credit may require signature of any person and/or on any instrument necessary if __________.

A

the signature is necessary to make secured property available to the creditor on default

52
Q

When are business-purpose loans subject to spousal signature rules?

A

when signatures are required of the spouses of officers, directors, and shareholders

53
Q

T or F

When a creditor uses an integrated promissory note and security agreement, the spouse may be asked to sign so long that the it is only to grant the security agreement and not impose personal liability.

A

TRUE

54
Q

Can creditors consider possible changes in the form of the property at the time of loan consummation?

A

NO

(for example, the possibility of a divorce)

55
Q

Can a creditor designate the name an applicant must provide?

A

Not really

The creditor must allow an applicant to designate a birth-given first name and a birth-given surname, spouse’s surname, or combination.

56
Q

T or F

A creditor may change the terms of the account when an applicant retires?

A

FALSE

Unless the applicant is unwilling or unable to pay, the creditor may not change, terminate, or require reapplication based on age, retirement, marital status, or name change.

57
Q

When may a creditor require reapplication if there is a marital status change of the applicant?

A

when the account was based in whole or in part on the income of the spouse, and the applicant does not appear to have enough income to support the account

58
Q

T or F

When a creditor requires reapplication, the account can be suspended while the application is pending?

A

FALSE

The creditor must allow full use of the account while the application is pending.

59
Q

Can the creditor use a change in marital status to trigger a request for updated information?

A

NO

The creditor may not use a prohibited basis as a trigger to request updated information.

60
Q

T or F

The creditor may terminate an account because the applicant’s age makes credit-related insurance unavailable.

A

FALSE

The creditor may not refuse credit nor terminate credit because of unavailability of credit-related insurance based on the applicant’s age.

61
Q

Special purpose credit programs can require it’s participants to share particular characteristics provided the requirement ______________.

A

was not established to evade the requirements of the ECOA

62
Q

ECOA defines adverse action as:

A

* refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer that is accepted by the applicant

* termination of the account or unfavorable changes in the terms of the account (unless the change affects substantially all of the lender’s accounts of that type)

* refusal to increase the amount of credit available to an applicant who applies

* counteroffer to grant a substantially different amount or terms that is rejected by the applicant.

63
Q

T or F

A refusal to extend credit because the lender does not offer the credit type requested is not an adverse action.

A

TRUE

64
Q

T or F

Any counteroffer is an adverse action?

A

FALSE

A counteroffer to grant a substantially different amount or terms that is rejected by the applicant is an adverse action. If the applicant accepts the counter offer is not an adverse action.

65
Q

Creditors must notify an applicant of action taken on the application within 30 days __________.

A

* after receiving a completed application

* after taking adverse action on an incomplete application

* after taking adverse action on an existing account

66
Q

Creditors must notify an applicant of action taken after notification of a counteroffer that is not expressly accepted after ____ days.

A

90

67
Q

Credit approvals may be communicated in what ways?

A

* orally

* writing

* by implication

68
Q

What constitutes a withdrawn credit application and when must notice be sent?

A

* applicant expressly withdraws

* lender approves and expects but never receives applicant action

* no notice is required

69
Q

Does ECOA require notifications to joint applicants?

A

NO

but notifications must be provided to the primary applicant if known

70
Q

What are the requirements for an ECOA adverse action notice?

A

* written notice

* statement of action taken

* name and address of creditor

* ECOA language

* name and address of federal agency administering creditor’s compliance

* statement of specific reasons for adverse action OR - statement applicant can request reasons within 60 days and creditor must provide within 30 days of the request - statement applicant can request reasons must include name, address, and phone of person or office to inquire

71
Q

How many specific ECOA adverse action reasons must be provided?

A

There is no specific number under ECOA, but the regulation states that more than 4 is not likely helpful.

FCRA has additional adverse action requirements. While ECOA and FCRA adverse action notices may be combined, the requirements of one may not specifically meet the requirements of the other.

72
Q

T or F

A creditor must provide an applicant with a copy of all appraisals and other written valuations on credit secured by a first lien on a dwelling regardless if the application is denied, withdrawn, or incomplete.

A

TRUE

73
Q

When must a creditor provide appraisals and valuations under ECOA?

A

promptly upon completion or within 3 business days prior to consummation, whichever is earlier (regardless whether the credit is open or closed end)

74
Q

Can an applicant waive timing requirements for appraisals and valuations under ECOA?

A

YES

unless otherwise prohibited by law and so long as the waiver is in writing and received at least 3 business days prior to consummation

75
Q

Must a creditor still provide appraisals and valuations even if the loan is not consummated?

A

YES

no later than 30 days after the creditor determines that consummation will not occur.

76
Q

When a loan is secured by a first lien on a dwelling, ECOA requires the creditor to deliver a notice of the applicants right to ______________ no later than the _______ business day after the creditor _________________.

A

* receive a copy of all written appraisals developed in connection to the application

* third

* receives an application OR - determines a loan will be secured by a first lien in a dwelling that was not originally submitted as such

77
Q

Can a creditor charge the applicant for appraisals and valuations?

A

YES

The creditor may charge reasonable costs for the appraisals and valuations but may not charge for providing the applicant copies of the same.

78
Q

Creditors must designate any new account to reflect both spouses if _________________.

A

both are contractually liable or permitted to use the account

79
Q

Credits must designate any existing account to reflect participation of both spouses within ____ days after receiving the request.

A

90

80
Q

What is ECOA self testing?

A

*testing designed and used to determine the extent or effectiveness of a creditor’s compliance with ECOA or Reg B AND

* creates data or factual information that is unavailable and cannot be derived from loan application files or other records related to credit transactions

81
Q

ECOA’s self testing privilege does not apply to:

A

* information about whether self testing has been done

* the methodology or scope of the self test

* the time period covered

* the date it was conducted

* loan or application files or other records related to a credit transaction or information derived from such files and records (even if it has been reorganized and summarized for analysis)

82
Q

What are the standards for when ECOA self test corrective action must be taken?

A

* MUST be taken if more likely than not that a violation occurred

* MUST be reasonably likely to remedy the cause of the violation

* MAY include both prospective and remedial relief

83
Q

ECOA generally requires record retention of _______ months from the date of _________.

A

* 25 months

* action taken

84
Q

ECOA record retention for business credit applications of 1M or less is _____ months.

A

12

85
Q

ECOA record retention for business credit applications of more than 1M is _____ .

A

60 days UNLESS the applicant requests specific reasons action taken, then 12 months

86
Q

If the creditor has been notified it is under investigation for alleged ECOA violations, what are the record retention expectations?

A

the creditor must keep all documents until final disposition of such investigation or proceeding

87
Q

What is the civil liability for an ECOA violation?

A

* actual damages

* punitive damages - $10,000 in individual cases - lesser of $500,000 or 1% of creditors net worth in class action

* attorneys fees

88
Q

Counteroffers must include what 3 basic elements?

A

1) statement of action taken
2) description of counteroffer terms
3) deadline of accepting and address to do so

89
Q

Can the bank assume an application is for joint credit when joint financial information is submitted?

A

NO

A person’s intent to be a joint applicant must be shown at the time of application and must be distinct from the means used to affirm accuracy of information. Submission of a joint financial statement alone is not evidence of intent to apply jointly.

90
Q

In a judgmental credit evaluation system, a creditor may consider age ______________.

A

as it relates to another pertinent element of creditworthiness such as applicant’s length of time until retirement to determine whether the applicant will have sufficient income for repayment

91
Q

A creditor must designate accounts to show participation by _____________ except _______.

A

all liable parties

guarantors

92
Q

What are the FDIC requirements to ensure compliance with spousal signature rules?

A

1) review and revise policies (including state law requirements for where the creditor does business)
2) provide training to consumer and commercial loan staff
3) implement monitoring and auditing programs to check for spousal signature violations

93
Q

What evaluation criteria is used to determine whether a bank must give a written adverse action notice to a business loan applicant?

A

gross revenue for the preceding fiscal year

94
Q

The bank must retain records for 12 months if a written statement of adverse action is requested within 60 days after notifying the applicant of the action taken for what kind of applicant?

A

business credit application with annual gross revenue over $1,000,000

95
Q

Can the bank use the fact that an application was submitted by web site and the customer provided their email address as consent to send the adverse action to that email?

A

NO

The creditor must obtain the applicant’s affirmative consent before sending disclosures electronically.

96
Q

When may a creditor give a disclosure of the applicant’s right to receive a statement of reasons at the time of the application instead of at the time of the adverse action?

A

when the application for credit is from a business with gross revenue of $1 million or less the disclosure can be given at the time of application or at the time of adverse action, orally or in writing, and the ECOA notice does not have to be given if the application is made by telephone and the notice of adverse action is oral

97
Q

T or F

Reg B defines ‘elderly’ as having attained an age of 55?

A

FALSE

‘elderly’ is defined as reaching the age of 62

98
Q

Once a creditor sends a counteroffer letter, does the creditor have any additional obligations?

A

YES

A creditor must send an adverse action notice within 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit ordered. However, the counteroffer and adverse action can be combined.

99
Q

Adverse action notice requirements apply only to what types of credit?

A

*personal, family, and household purposes

*credit extended to businesses that have $1 million or less in gross revenues

100
Q

When may a creditor ask for the signature of another person applying for unsecured individual credit?

A

if the applicant is relying on property that is jointly owned by another person, the person does not qualify without a grantor, or the applicant lives in a community property state

101
Q

Can a bank deny a loan soley based on the fact that a consumer has a fraud alert on their credit report?

A

NO

Reg B prohibits descrimination based on the exerise of a right under another federal law.

102
Q

What aspect of the loan does ECOA/Reg B apply to?

A

Every aspect - cradle to grave

103
Q

What is overt discrimination?

A

obvious discrimination based on a protected bases (intent required)

104
Q

What is disparate treatment?

A

treating members of a protected class less favorably (intent required)

105
Q

What is disparate impact?

A

applicaton of an otherwise neutral policy that disporportinoalty negeativly effects members of a protected class (does not require intent)

106
Q

In what case does Reg B require a written application?

A

if the purpose of the loan is the purchase or refinance the borrower’s primary residence and the loan is secured by that residence (this ensures GMI can be collected)

107
Q

Whether or not a customer inquiry results in an adverse action depends on what?

A

the response to the inquiry, not the questions

(customer just had a bankruptcy and wants to inquire about rates but associate says no - adverse action even without formal application)

108
Q

Is it an adverse action if the bank does not offer the term option requested by the customer?

A

YES

adverse action exceptions include failure to offer the type of credit requested but do not include failure to offer the term requested

109
Q

T or F

Banks do not have to provide the customer with a copy of appraisals and valuations not used in making the credit determination.

A

FALSE

Banks must provide applicants a copy of ALL written appraisals and valuations ‘developed’ promptly after receiving them whether used in the credit determination or not

110
Q

T or F

Reg B self test privilege applies to the methodology used in the self test.

A

FALSE

The self test privilege under Regulation B applies to factual information created by the self test but not to the methodology, time period, or summaries of the self test results provided to third parties.

CRCM (33 decks)

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