ECOA PrepXl Flashcards
According to ECOA, discrimination is:
A.Never allowed
B.Allowed if based on income
C.Allowed if based on sex
D.Allowed if based on marital status
The answer is never allowed. A creditor may not discriminate against an applicant in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, or age, because all or part of his or her income derives from a public assistance program, or because he or she has, in good faith, exercised any right under the Consumer Credit Protection Act. The amount and probable continuance of income may be considered in evaluating an applicant’s creditworthiness; however, making a lending decision based wholly or in part on income is not discrimination.
Which of the following is true under ECOA?
A.Lenders can use racial redlining as a business practice
B.Lenders cannot request information about race unless the information is used for government monitoring purposes
C.Covered lenders must report all loan activity on an annual basis
D.Lenders must give borrowers a free copy of their credit report if requested
The answer is lenders cannot request information about race unless the information is used for government monitoring purposes.
For the sole purpose of monitoring compliance with fair lending laws, a creditor may ask about a loan applicant’s ethnicity, race, and sex. While the applicant is not required to provide that information, if he or she declines to do so, the loan originator may note that information based on visual observation of the applicant.
Why are all answers except B false?
To understand why option B is correct and the other options are false under the Equal Credit Opportunity Act (ECOA), let’s examine each statement in the context of the ECOA’s provisions:
A. Lenders can use racial redlining as a business practice
- False: Racial redlining, which involves discriminating against individuals or neighborhoods based on racial or ethnic composition without regard to the individuals’ creditworthiness, is explicitly illegal under the ECOA and other federal laws such as the Fair Housing Act. The ECOA prohibits discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because a person receives public assistance.
B. Lenders cannot request information about race unless the information is used for government monitoring purposes
- True: Under the ECOA, lenders are generally prohibited from requesting information about race, sex, or other prohibited bases in connection with a credit application. However, they may collect such information in certain contexts, such as for government monitoring purposes under the Home Mortgage Disclosure Act (HMDA) or similar regulations. This exception allows regulatory bodies to ensure compliance with fair lending laws but the information must not be used in the credit decision process.
C. Covered lenders must report all loan activity on an annual basis
- False: The ECOA itself does not require lenders to report all loan activity on an annual basis. This requirement is more closely related to the Home Mortgage Disclosure Act (HMDA), which mandates that certain financial institutions report data about home purchases, home purchase pre-approvals, home improvement loans, and refinancer loans annually. The ECOA focuses more on ensuring fair lending practices rather than on reporting loan activity.
D. Lenders must give borrowers a free copy of their credit report if requested
- False: The ECOA requires lenders to provide applicants with a notice of action taken on their credit application and, if adverse action is taken based on information in a credit report, to provide a notice that includes the name and address of the credit reporting agency that provided the report. However, it does not require lenders to provide a free copy of the credit report itself. That requirement is from the Fair Credit Reporting Act (FCRA), which allows consumers to request a free copy of their credit report annually from each of the three major credit reporting agencies.
Therefore, option B is the only true statement under the ECOA, emphasizing its role in preventing discrimination and ensuring fair treatment in the credit and lending process.
Lenders must give borrowers a free copy of their credit report if requested? That requirement is from the Fair Credit Reporting Act (FCRA), which allows consumers to request a free copy of their credit report annually from each of the three major credit reporting agencies. its not from E_____.
ECOA
The ECOA itself does not require lenders to report all loan activity on an annual basis. This requirement is more closely related to the _____________ act, which mandates that certain financial institutions report data about home purchases, home purchase pre-approvals, home improvement loans, and refinancer loans annually
Home Mortgage Disclosure Act (HMDA)
Which of the following would be an acceptable reason to decline a loan application?
A.The borrower is a member of a minority race
B.The borrower fails to disclose their race
C.The borrower has a habit of going on maternity leave
D.The mortgage loan originator feels the borrower is lying
The answer is the mortgage loan originator feels the borrower is lying. A loan originator may not discriminate in a credit transaction on the basis of race, color, religion, national origin, sex, marital status, or age, because all or part of the applicant’s income derives from a public assistance program, or because he or she has, in good faith, exercised any right under the Consumer Credit Protection Act. However, if a loan originator believes in good faith that the loan applicant is not being truthful in the application, that would constitute an acceptable reason to deny an application.
Regulation C requires lenders to:
A.Report the race of its borrowers to HUD
B.Provide free credit reports to declined borrowers and advise credit counseling
C.If the borrower declines to self-report, indicate the borrower’s race based on visual observation
D.Disclose the APR to the borrower three days after application
The answer is if the borrower declines to self-report, indicate the borrower’s race based on visual observation.
Regulation C (HMDA) has the purpose of identifying discrimination by requiring originators to request the race, ethnicity and sex of each applicant. If a loan applicant does not disclose his or her personal information with regards to ethnicity, race, or sex, HMDA requires a loan originator to note that information in the application based on visual observation or surname.
Regulation C (HMDA) has the purpose of identifying discrimination by requiring originators to request the race, ethnicity and sex of each applicant?
T/F
True
According to ECOA, discrimination based upon age is:
A.Allowed if the borrower does not have legal capacity
B.Allowed only if disclosed to the borrower
C.Never allowed
D.Allowed if the individual is the co-borrower rather than the borrower
The answer is never allowed.
Refusing to engage in a transaction with a consumer because he or she does not have legal capacity to engage in a contract (i.e., he or she is a minor) is not discrimination. Under the Equal Credit Opportunity Act, discrimination based on a loan applicant’s age is never permitted.
A lender is prohibited from asking about income received from alimony by:
A.The GLB Act
B.Privacy laws
C.ECOA
D.Regulation Z
The answer is ECOA.
A loan originator is precluded from making certain inquiries, in order to prevent discrimination against a loan applicant based on his or her age or marital status. Asking whether an applicant receives alimony or child support if such payments are not necessary to qualify the applicant for the loan is prohibited. However, if such payments are to be included in the applicant’s qualifying income, he or she may be asked to provide proof of its regular receipt.
A lender decides that they will only give copies of appraisals to borrowers if requested. According to ECOA:
A.This is not allowed
B.This is allowed, as long as a written disclosure is given to the borrower at some point in the loan process
C.This is allowed, as long as the borrower is given a disclosure at the time of loan application
D.This is allowed, as long as the borrower is given a disclosure within three days of the time of loan application
The answer is this is not allowed.
Pursuant to the ECOA Valuations Rule, no later than the third business day after receipt of an application for credit to be secured by a first lien mortgage, a creditor must mail or provide a notice of the applicant’s right to receive a copy of all written appraisals developed in connection with the application.
A creditor is required to provide an applicant with a copy of all appraisals and other written valuations (i.e., any estimate of the value of a dwelling) developed in connection with an application for credit that is to be secured by a first lien on a dwelling.
A copy of each appraisal must be provided the earlier of promptly upon completion or, for a closed-end loan, three business days prior to consummation.
According to ECOA, a lender may use which of the following in considering loan eligibility?
A.Citizenship status
B.Sex
C.National origin
D.Race
The answer is citizenship status. For purposes of determining creditworthiness and its rights and remedies should a prospective borrower fail to comply with the terms of a loan, a lender may inquire on an applicant’s citizenship.
According to ECOA, a residential mortgage lender may ask a borrower about which of the following for compliance monitoring purposes?
A.Child support income
B.Ethnicity
C.Alimony income
D.Separate maintenance payments
The answer is Ethnicity. In taking a loan application, a creditor may ask a loan applicant about his or her race, ethnicity and gender, provided that it is only for purposes of monitoring fair lending law compliance.
Which of the following best describes a lender’s obligation under the Equal Credit Opportunity Act?
A.The lender must deny the loan after 90 days if it has not been approved
B.The lender must notify the borrower within three days of declining a loan application
C.The lender must notify the borrower within 60 days of receipt of an application on the status of the file
D.The lender must take some form of action within 30 days of receipt of a completed application
The answer is the lender must take some form of action within 30 days of receipt of a completed application.
Pursuant to Regulation B, a creditor must, within 30 days after receipt of a completed application, advise the loan applicant of action taken, whether it is a decision to grant credit or the denial of the application. An application is considered received when it includes the consumer’s name and Social Security Number, income, the address of the property serving as collateral for the loan, an estimate of the value of the subject property, and the amount of the mortgage loan sought.
