Reg Z

Question 1

Which statement about advertising open-end home secured credit is true?

A. Terms stated in the positive (e.g., there is a $50 credit report fee) or negative (e.g., there is no credit report fee) are not trigger terms

B. If stated in the advertisement, the APR, periodic rate, or any grace period are trigger terms

C. If an advertisement contains a statement regarding any minimum periodic payment, then the advertisement will not be required to state that a balloon payment may result, if applicable

D. Advertisements with promotional rates or payments do not have to use the term ‘‘promotional’’ to describe the rates and/or payments but can provide a toll free number where the consumer may obtain additional information

Answer 1

A. B, C, and D are incorrect because the new rules apply to home equity loans where the APR exceeds the average prime offer rate by at least 3.5 points.

Question 2

Which loan is a closed-end loan covered by Regulation Z?

A. Darrell has applied for a 5-year loan to purchase a car

B. Shanda has applied for a 3-year unsecured loan to purchase a new computer for Shanda’s Inc.

C. Bud has applied for a 10-year loan to purchase inventory for his new start-up business

D. Mr. & Mrs. Wong have applied for a 5-year $60,000 loan to purchase a new luxury vehicle

Answer 2

A. B and C are incorrect because they not covered by Reg Z because the computer and inventory are for business purposes. D is incorrect because the amount exceeds the Regulation Z limits.

Question 3

Some closed-end loans have a variable rate. If the annual percentage rate increases after consummation in a transaction not secured by the consumer’s principal dwelling or in a transaction secured by the consumer’s principal dwelling with a term of one year or less, the creditor must provide certain disclosures to the consumer. What option describes one of the disclosures?

A. The circumstances under which the rate may increase

B. A statement supporting fixed rate, closed-end loans

C. The prepayment penalty if the loan is repaid within five years

D. Private mortgage insurance options

Answer 3

is A. - B, C, and D are incorrect because they do not describe one of the disclosures a creditor is required to give to the consumer if the annual percentage rate may increase after consummation in a transaction not secured by the consumer’s principal dwelling or in a transaction secured by the consumer’s principal dwelling with a term of one year or less.

Question 4

Doreen, your customer, is interested in applying for a home equity loan. She would like to use the loan proceeds to install a swimming pool and she is not sure how to calculate the equity in her home. Which option best describes how to calculate equity?

A. Taking the appraised value of consumer’s home and adding 80 percent

B. Taking the amount of the consumer’s mortgage payments times the number of years remaining on the outstanding mortgage

C. Taking the current market value of a home and subtracting the outstanding mortgage balance

D. Taking the appraised value of similar homes in the community and deducting 80 percent

Answer 4

The correct answer is C. A, B, and D are incorrect because the equity a person has in his or her home is calculated by taking the current market value of a home and subtracting the outstanding mortgage balance.

Question 5

Carlotta is a customer who wants to purchase a car and cannot decide if she should apply for a car loan or use the equity in her home for the new car. What would you tell Carlotta is an advantage of a home equity loan?

A. A home equity loan may be used to consolidate other debts that have lower interest rates

B. Make variable payments

C. Interest on the home equity loan may be tax-deductible

D. Draw down an amount up to the total value of the line of credit

Answer 5

The correct answer is C. A is incorrect because the advantage would be that a home equity loan can be used to consolidate other debt with higher interest rates. B is incorrect because the advantage would be that the payments are fixed so the borrower knows what the payment amount will be each month. D is incorrect because that is not an advantage of a home equity loan and describes a home equity line of credit

Question 6

In general, prepayment penalties on a higher priced or HOEPA-covered loan are

A. Permitted but only if the borrower negotiated a better rate

B. Not permitted if the payment cannot change

C. Not permitted

D. Permitted if the same creditor (or its affiliate) refinances the loan

Answer 6

The correct answer is C. A, B, and D are incorrect because prepayment penalties on a higher priced or HOEPA-covered loan are not permitted.

Question 7

Which option is a characteristic of an unsecured loan?

A. The consumer offers collateral to guarantee it

B. The lender can repossess and sell the collateral if a consumer fails to repay

C. It is made solely on the borrower’s promise to repay

D. It generally carries a lower interest rate

Answer 7

The correct answer is C. A and B are incorrect because an unsecured loan does not have collateral securing it and there is no collateral to sell if the borrower defaults. D is incorrect because unsecured credit is riskier for the bank and therefore carries a higher interest rate.

Question 8

Which statement about advertising open-end home secured credit is true?

A. Terms stated in the positive (e.g., there is a $50 credit report fee) or negative (e.g., there is no credit report fee) are not trigger terms

B. If stated in the advertisement, the APR, periodic rate, or any grace period are trigger terms

C. If an advertisement contains a statement regarding any minimum periodic payment, then the advertisement will not be required to state that a balloon payment may result, if applicable

D. Advertisements with promotional rates or payments do not have to use the term ‘‘promotional’’ to describe the rates and/or payments but can provide a toll free number where the consumer may obtain additional information

Answer 8

The correct answer is B. A is incorrect because both are trigger terms. C is incorrect because the creditor is required to state that a balloon payment may result. D is incorrect because advertisements for promotional rates must use the term ‘‘promotional.’’

Question 9

When triggering terms are mentioned in an advertisement for open-end credit, the advertiser also must include certain disclosures. Which disclosure is not required in connection with open-end non-home secured credit?

A. Any minimum, fixed, transaction, activity, or similar charge that could be imposed

B. Any periodic rate that may be applied expressed as an annual percentage rate, if variable rate, the fact it is a variable rate

C. The fact that the borrower’s home will be collateral for the loan

D. Any membership or participation fee that could be charged

Answer 9

The correct answer is C. A, B, and D are incorrect because they are all required disclosures for open-end non-home secured credit.

Question 10

Which option is one of the seven prohibited practices when advertising a closed-end loan secured by a mortgage?

A. Using the term ‘‘fixed’’ when advertising a fixed rate loan

B. In an advertisement for a VA loan, stating that the loan is government endorsed

C. Making a loan in a foreign language and providing disclosures in that same language

D. Using the term ‘‘counselor’’ to refer to a for-profit mortgage broker or creditor

Answer 10

The correct answer is D. A is incorrect because banks are prohibited from using the term ‘‘fixed’’ when advertising a variable rate loan. B is incorrect because VA loans are government endorsed, and it is only prohibited to misrepresent a loan government endorsed if the loan is not. C is incorrect because it is prohibited to provide an advertisement in one language while providing required disclosures in another.

Question 11

Dora has created a new home equity loan advertisement for your bank. She has included the words ‘‘80% financing’’ in the ad. Because she is stating a triggering term, the advertisement must also state which option under Regulation Z’s closed-end advertising rules?

A. Great low rates

B. Terms to fit your budget

C. Excellent financing available

D. The annual percentage rate

Answer 11

The correct answer is D. A, B, and C are incorrect because they are not triggering terms under Regulation Z’s closed-end advertising rules

Question 12

Acme Bank wants to advertise its credit card for college students. Which slogan is Acme Bank prohibited from using?

A. ‘‘Apply for a credit card and get a free T-shirt!’’

B. ‘‘Apply for a credit card today!’’

C. ‘‘Apply for a credit card—and learn to use credit responsibly!’’

D. ‘‘Apply for a credit card to help pay for your college expenses!’’

Answer 12

The correct answer is A. B, C, and D are incorrect because they are not offering tangible inducements to the college students for a new credit card. Regulation Z prohibits card issuers from providing tangible inducements (such as a gift card, a t-shirt, or a magazine subscription) to college students to apply for or open an open-end consumer credit plan offered by the creditor.

Question 13

Susan is new to the bank and has been asked to create an advertisement for the bank’s new automobile loan product, which is a fixed rate loan. She really does not understand the Regulation Z rules very well yet. Which option describes the type of term in an advertisement that does not trigger any additional disclosures?

A. Easy monthly payments of $300 per month

B. Three and five year terms to fit your budget

C. Excellent financing available

D. Pay less than $500 interest

Answer 13

The correct answer is C. A, B, and D are incorrect because they are all triggering terms requiring additional disclosures

Question 14

You work for an in-store bank and have been asked to create a white board advertisement for a loan. You state in this advertisement that the loan is primarily for Hispanic applicants who are trying to establish credit. Which rule for advertising loans did you forget about when creating this advertisement?

A. The advertisement must not include words, symbols, or models, or other forms of communication that suggest a discriminatory preference or policy of exclusion

B. All terms advertised must be available and any conditions that may be imposed must be stated

C. When advertising a credit product you must advertise only those terms your bank is willing to offer

D. The Equal Housing Lender logo must be legible and at least half an inch high

Answer 14

The correct answer is A. B, C, and D are incorrect because although they must be kept in mind when advertising credit, they are other rules for advertising loans that do not apply to this situation.

Question 15

The rules under Regulation Z regarding higher priced or HOEPA-covered loan apply to closed-end consumer-purpose loans secured by the consumer’s principal dwelling. For home equity loans, these are loans where the APR exceeds the “average prime offer rate”

A. By at least 3.5 points

B. By more than 3.5 points

C. By less than 1.5 points

D. By at least 4.0 points

Answer 15

The correct answer is A. B, C, and D are incorrect because the new rules apply to home equity loans where the APR exceeds the average prime offer rate by at least 3.5 points.

Question 16

Which loan is a closed-end loan covered by Regulation Z?

A. Darrell has applied for a 5-year loan to purchase a car

B. Shanda has applied for a 3-year unsecured loan to purchase a new computer for Shanda’s Inc.

C. Bud has applied for a 10-year loan to purchase inventory for his new start-up business

D. Mr. & Mrs. Wong have applied for a 5-year $60,000 loan to purchase a new luxury vehicle

Answer 16

The correct answer is A. B and C are incorrect because they not covered by Reg Z because the computer and inventory are for business purposes. D is incorrect because the amount exceeds the Regulation Z limits.

Question 17

Some closed-end loans have a variable rate. If the annual percentage rate increases after consummation in a transaction not secured by the consumer’s principal dwelling or in a transaction secured by the consumer’s principal dwelling with a term of one year or less, the creditor must provide certain disclosures to the consumer. What option describes one of the disclosures?

A. The circumstances under which the rate may increase

B. A statement supporting fixed rate, closed-end loans

C. The prepayment penalty if the loan is repaid within five years

D. Private mortgage insurance options

Answer 17

The correct answer is A. B, C, and D are incorrect because they do not describe one of the disclosures a creditor is required to give to the consumer if the annual percentage rate may increase after consummation in a transaction not secured by the consumer’s principal dwelling or in a transaction secured by the consumer’s principal dwelling with a term of one year or less.

Question 18

Doreen, your customer, is interested in applying for a home equity loan. She would like to use the loan proceeds to install a swimming pool and she is not sure how to calculate the equity in her home. Which option best describes how to calculate equity?

A. Taking the appraised value of consumer’s home and adding 80 percent

B. Taking the amount of the consumer’s mortgage payments times the number of years remaining on the outstanding mortgage

C. Taking the current market value of a home and subtracting the outstanding mortgage balance

D. Taking the appraised value of similar homes in the community and deducting 80 percent

Answer 18

The correct answer is C. A, B, and D are incorrect because the equity a person has in his or her home is calculated by taking the current market value of a home and subtracting the outstanding mortgage balance.

Question 19

Carlotta is a customer who wants to purchase a car and cannot decide if she should apply for a car loan or use the equity in her home for the new car. What would you tell Carlotta is an advantage of a home equity loan?

A. A home equity loan may be used to consolidate other debts that have lower interest rates

B. Make variable payments

C. Interest on the home equity loan may be tax-deductible

D. Draw down an amount up to the total value of the line of credit

Answer 19

The correct answer is C. A is incorrect because the advantage would be that a home equity loan can be used to consolidate other debt with higher interest rates. B is incorrect because the advantage would be that the payments are fixed so the borrower knows what the payment amount will be each month. D is incorrect because that is not an advantage of a home equity loan and describes a home equity line of credit.

Question 20

In general, prepayment penalties on a higher priced or HOEPA-covered loan are

A. Permitted but only if the borrower negotiated a better rate

B. Not permitted if the payment cannot change

C. Not permitted

D. Permitted if the same creditor (or its affiliate) refinances the loan

Answer 20

The correct answer is C. A, B, and D are incorrect because prepayment penalties on a higher priced or HOEPA-covered loan are not permitted.

Question 21

Which option is a characteristic of an unsecured loan?

A. The consumer offers collateral to guarantee it

B. The lender can repossess and sell the collateral if a consumer fails to repay

C. It is made solely on the borrower’s promise to repay

D. It generally carries a lower interest rate

Answer 21

The correct answer is C. A and B are incorrect because an unsecured loan does not have collateral securing it and there is no collateral to sell if the borrower defaults. D is incorrect because unsecured credit is riskier for the bank and therefore carries a higher interest rate

Question 22

A written change-in-terms notice must be provided in advance if certain significant changes are made to the account. Which statement below is true?

A. A change-in-terms notice must always be presented in a tabular format

B. A change-in-terms notice is not required if the APR is increased

C. A change-in-terms notice is required when an account is closed.

D. A change-in-terms notice must be provided when any increase in the minimum periodic payment is made.

Answer 22

The correct answer is D. A is incorrect because only items that originally appeared in a tabular format must be disclosed in this manner. B is incorrect because you must provide the notice if the APR is increased. C is incorrect because when customers no longer qualify for the account or limit may incur debt they do not have the ‘‘ability to repay’’ if there is a delay lowering the limit or closing the account, therefore no advance notice is required.

Question 23

Penalties for failure to comply with the periodic statement rules are severe. Which option is not one of those penalties?

A. Actual damage amounts suffered by the borrower as a result of the failure

B. Revocation of the bank’s charter and insurance certificate

C. Twice the amount of any finance charge in connection with the transaction between $100 and $1,000

D. Any reasonable attorneys’ fees and costs incurred by the borrower as part of a successful legal action

Answer 23

The correct answer is B. A, C, and D are incorrect because they are all penalties that a bank could incur.

Question 24

. For all forms of non-home equity open-end credit, creditors must treat a payment as timely if it is received:

A. By 5 p.m. on the due date as timely whether the payment is received by mail, electronically, by telephone, or in person

B. By 3 p.m. on the due date as timely when made by ACH or electronic transfer

C. By 5 p.m. on the due date as timely when made Monday–Friday, electronically or in person

D. By 6 p.m. on the due date as timely when made electronically only

Answer 24

The correct answer is A. B, C, and D are incorrect because for all forms of non-home equity open-end credit, creditors must treat a payment received by 5 p.m. on the due date as timely whether the payment is received by mail, electronically, by telephone or in person.

Question 25

Certain fees do not need to be disclosed in the account opening table, such as a fee to receive a copy of an old periodic statement. When does the creditor need to disclose these types of fees?

A. At account opening or when the consumer requests the service

B. On the periodic statement

C. At application

D. As part of the loan agreement

Answer 25

The correct answer is A. B, C, and D are incorrect because these disclosures may be made orally or in writing at application or at the time the consumer requests the service.

Question 26

Which statement would you use to describe a benefit of an open-end line of credit?

A. Borrowers will be provided a fixed amount of money at loan closing and can pay it back over a specified period in fixed monthly payments

B. Borrowers have the option of paying off the total amount used each month or making payments

C. Interest accrues on the entire amount

D. Once it is paid off, borrowers will have to re-apply if they need credit again

Answer 26

The correct answer is B. A, C, and D are incorrect because they not benefits of open-end lines of credit.

Question 27

Luis and Maria Delgado are at your desk opening an open-ended consumer credit line with your bank. You must disclose items to the Delgados, to the extent that they apply to this particular type of account. Which option is not one of the required disclosures for an unsecured open-end line of credit?

A. A notification that the security interest has been or will be taken

B. Any late payment fees

C. Any returned payment fees

D. The Annual Percentage Rate (APR)

Answer 27

. The correct answer is A. B, C, and D are incorrect because they are all required disclosures for an unsecured line of credit. A statement giving notice regarding a security interest is not required if the line is unsecured

Question 28

Creditors may impose reasonable payment requirements that enable most consumers to make conforming payments. Which example is a reasonable payment requirement?

A. Requiring that payments be accompanied by the account number or payment stub

B. Setting a reasonable cut-off time of 10 a.m. for payments to be received by mail, by electronic means, by telephone, and in person

C. Specifying that payment must be made in foreign currency

D. Specifying that consumers paying by check must include their social security number on the check

Answer 28

The correct answer is A. B, C, and D are incorrect because they not reasonable measures that a creditor is allowed to use.

Question 29

Which statement about the disclosure requirements for a reverse mortgage is true?

A. Reverse mortgage disclosures are required to be made at least seven days before a loan transaction takes place

B. The borrower does not have to go through with the loan just because he or she has received the disclosure

C. Disclosures may be given orally

D. Disclosures must be given to family members whose interest in the estate is affected by the reverse mortgage

Answer 29

The correct answer is B. A is incorrect because disclosures must be given three days before a loan transaction takes place. C is incorrect because disclosures must be given in writing and in a form the consumer may keep. D is incorrect because disclosures do not have to be provided to family members not on the loan.

Question 30

A reverse mortgage provides a borrower with choices in how they will access the funds. Which statement is true about the choices borrowers are provided?

A. Borrowers may take out a single lump sum payment if the amount does not exceed a specified percentage

B. Borrowers may elect a regular fixed quarterly payment

C. Borrowers may not combine any of the available access options

D. Borrowers may access the funds as a line of credit that is available as needed

Answer 30

The correct answer is D. A is incorrect because there is no specified percentage limitation for a single lump sum payment. B is incorrect because borrowers may elect a regular fixed monthly, not quarterly, payment. C is incorrect because borrowers may elect any combination of the lump sum, monthly payment, and line of credit options for access.

Question 31

A reverse mortgage is a special type of home loan that allows older individuals to convert a portion of their home equity into cash. Which option is a characteristic of a reverse mortgage?

A. Low interest loan that uses the home’s market value as collateral

B. Loan amount is a percentage that is determined by the youngest homeowner’s age

C. Low monthly payments due until the borrower dies or sells the house

D. Borrowers are eligible when they no longer use a home as their principal residence

Answer 31

The correct answer is B. A is incorrect because reverse mortgages use a home’s equity as collateral. C is incorrect because repayment is not required until the borrowers no longer use the home as their principal residence, fail to meet the obligations of the mortgage, or pass away. D is incorrect because the reverse mortgage requires the home to be the principal residence.

Question 32

If the 4 percent total annual loan cost (TALC) rate is the most probable outcome, why must banks disclose the zero percent and 8 percent figures?

A. To demonstrate the way costs change if the borrower took a home equity line of credit (HELOC) instead of a home equity conversion mortgage (HECM)

B. To convince potential borrowers that this loan may not be right for them

C. To help borrowers select the applied property appreciation rate

D. To exemplify the way different property appreciation rates affect the ultimate cost of the loan

Answer 32

The correct answer is D. A, B, and C are incorrect because these are not purposes of the TALC rate examples.

Question 33

Mr. and Mrs. Kensky are retired on a fixed income and own their home. They have seen advertisements in their senior newspaper for reverse mortgages. What is the most likely reason why the Kenskys would want a reverse mortgage?

A. Family vacation

B. College tuition

C. Keep the kids from fighting over the equity in the home

D. Monthly income

Answer 33

The correct answer is D. A, B, and C are incorrect because they are not likely reasons the Kenskys would want a reverse mortgage.

Question 34

Your customer, Tamara Jonas, is interested in learning more about reverse mortgages. She has heard about the advantages, but wants to know about the disadvantages of this type of loan. Which description is a disadvantage of a reverse mortgage?

A. Higher up front costs and higher interest

B. Gives the borrower a stream of income

C. Borrower does not have to make payments

D. The borrower has a choice about how to receive the proceeds

Answer 34

The correct answer is A. B, C, and D are incorrect because they are all advantages of a reverse mortgage.

Question 35

Following the 2009 crisis, the home equity conversion mortgages (HECM) program experienced increased risk of losses to the program, so the U.S. Department of Housing and Urban Development (HUD) issued new rules covering this mortgage program. What is a major change made by HUD?

A. Baby boomers can qualify earlier than their processors

B. Borrowers with HECM reverse mortgages can no longer qualify for Social Security

C. Income and creditworthiness now must be taken into consideration

D. A portion of the proceeds must be repaid within 5 years

Answer 35

The correct answer is C. A, B, and D are incorrect because they are not changes made by HUD.