Fair Lending Flashcards
What is one of the primary purposes of HMDA?
A. To prevent disparate treatment
B. To help public officials target public investments from the private sector to areas where they are needed
C. To identify unlawful discrimination against persons with disabilities
D. To prohibit discrimination by housing-related real estate professionals such as appraisers and real estate agents
The correct answer is b. A is incorrect because this is not a primary purpose of HMDA. C is incorrect because the ADA prohibits discrimination against persons with disabilities. D is incorrect because the FHA prohibits discrimination by housing-related real estate professionals.
As a new receptionist at the bank, Yushiko needs to comply with fair lending laws and has asked her manager for some suggestions for best practices related to her job of greeting applicants, referring applicants to the appropriate lenders, and providing brochures and information that meets the inquirers’ needs. Which answer provides the best practices that Yushiko should follow?
A. Greet each customer as soon as possible after he or she enters the lobby, inform all clients about the credit products in which they may be interested, and make appointments on a consistent basis for the inquirers to see credit officers
B. Provide brochures only to inquirers that appear serious about the products. You do not want to waste resources if the inquirers are not interested or do not look like they could qualify for the products
C. If two inquirers enter the bank lobby, quickly assess which one appears to qualify for credit and wait on that person first
D. Encourage wealthy-looking persons to make appointments with loan officers and discourage anyone that looks like they could not afford the payments from making appointments with loan officers
The correct answer is a. B, C, and D are incorrect because you should treat all inquirers the same and not make any assumptions about them.
While conducting an audit of the bank’s loan policy, the auditor discovered that it is the bank’s policy to require a minimum credit score of 550 in order to qualify for a loan. This loan policy could result in what practice?
A. Disparate treatment
B. This is not a discriminatory practice
C. Disparate Impact
D. Overt Discrimination
The correct answer is b. A, C, and D are incorrect because requiring a credit score of 550 for all applicants is not an example of a discriminatory practice.
There are certain instances when taking a prohibited basis into consideration is allowed. One example of when you may consider a prohibited basis when evaluating a credit decision would be the marital status of the applicant. Which situation best describes when you can consider marital status when evaluating a credit request?
A. You may never consider marital status when evaluating a credit request
B. You may consider marital status when it could affect your rights to any collateral for a loan
C. You may consider marital status in evaluating whether a female applicant will be starting a family soon and may quit her job and lose her income
D. You may consider marital status when determining a preferable rate structure for a loan product designed for married applicants
The correct answer is b. A is incorrect because you may consider marital status when it could affect your rights to any collateral for a loan. C is incorrect because this activity is prohibited by the FHA. D is incorrect because the ECOA only allows a bank to provide more preferable rates and terms to customers age 62 and older.
Eduardo has applied for a home equity loan of $26,000. However, he learns the lender has a real estate equity loan minimum of $50,000. What type of discrimination is possible in this situation?
A. Overt discrimination
B. Disparate impact
C. Disparate treatment
D. This is not discriminatory
The correct answer is b. A is incorrect because this is not blatant discrimination directly linked to a prohibited basis. C is incorrect because this policy is applied consistently to all applicants. D is incorrect because this practice has a potential for disparate impact.
Barry is conducting a loan interview with a client, asks these two questions: 1) What country are you from? 2) How long will you receive alimony and child support? Which statement is true regarding the legality of the questions?
A. Neither Question 1 or 2 are illegal
B. Only question 1 is illegal
C. Only question 2 is illegal
D. Both questions are illegal
The correct answer is b. A, C, and D are incorrect because the way question number one was asked, asking about which country the client is from, is illegal. The banker can, however, ask about the immigration status of a client. A Question about how long a particular source of income is expected to last is allowable as long as the customer wishes to rely on that income to qualify for the loan.
How should you best summarize the purpose of fair lending laws?
A. To provide women with fair and equal access to credit
B. To provide senior citizens with fair and equal access to credit
C. To provide people of color with fair and equal access to credit
D. To provide all persons with fair and equal access to credit
The correct answer is d. A is incorrect because persons are to be treated fairly, regardless of sex. B is incorrect because persons are to be treated fairly, regardless of age. C is incorrect because persons are to be treated fairly, regardless of color.
James is African-American. He lives in a community that is predominately African-American. At his local bank, he asked to speak to a loan officer about a car loan. The customer service representative explained that the loan officer was out to lunch and told him to come back later. James asked when would be a good time to return and the CSR replied, ‘‘I am really not sure.’’ Just as James was ready to leave, Phil, a well-dressed white man came in and asked about a loan. The CSR explained that the loan officer was out, but she expected him back in about 30 minutes. She offered to make an appointment for Phil, and to call him when the loan officer arrived. What example does the CSRs actions primarily represent?
A. Unfair treatment
B. Illegal discrimination
C. Neither unfair treatment or illegal discrimination
D. Acceptable treatment since no one was available
The correct answer is b. A is incorrect because this situation goes beyond unfair treatment. To say that it is primarily unfair treatment ignores the illegal discrimination that is evident. C is incorrect because this is definitely an example of illegal discrimination as well as unfair treatment. D is incorrect because the CSR could have been more helpful in responding to James’ query.
An applicant tells you that he is on public assistance. Under what circumstance can the receipt of public assistance income be considered as a factor when making a credit decision?
A. You may consider public assistance income if the income is a primary source of repayment, and without it, the client would not meet the debt-to-income ratio requirement
B. There are no circumstances under which a lender may ask about an applicant’s receipt of public assistance income
C. You may consider income from public assistance but you must require documentation from the state as to why the public assistance is necessary
D. If the applicant qualifies for the loan based on income other than public assistance income but tells you that he receives public assistance income, you are still required to document the amount of public assistance income received even if the applicant does not wish to provide it
The correct answer is a. B is incorrect because if public assistance income is a primary source of repayment, and without it, the client would not meet the debt-to-income ratio requirement, you may consider it when making the credit decision. C is incorrect because you may consider whether the applicant will continue to qualify for the income and the length of time public assistance income will be received, but you may not require information regarding the need for public assistance. D is incorrect because if the applicant qualifies for the loan without considering the public assistance income, the applicant is not required to provide that additional information.
With which law does a loan program comply if it is specifically designed to meet the credit needs of low and moderate income individuals?
A. Home Mortgage Disclosure Act
B. Fair Housing Act
C. Truth in Lending Act
D. Community Reinvestment Act
The correct answer is d. A is incorrect because HMDA is an information-reporting act and does not encourage any particular lending. B is incorrect because this is not an individual loan transaction. C is incorrect because the TILA does not address meeting the needs of low/mod income borrowers.
