Study Session Questions

Question 1

Susan has been a member of Our Favorite Federal Credit Union for 3 years. She needs a small loan to pay off some unexpected bills. The credit union wants to offer her a loan amount of $1,000, with an interest rate of 30%, and a term of 6 months. The credit union will also charge Susan an application fee of $20 to offset the cost of processing the loan. Does this loan meet the NCUA regulations for Payday Alternative Loans?

Answer 1

No - The interest rate is too high. PAL loans must be capped at 28%

Question 2

You’ve been asked to explore the possibility of asserting the credit union’s statutory lien against a member. There is a debate about how much the lien amount is. Katie says the lien is equal to the amount the member owes the credit union. Dave says it’s equal to the total amount the member has on deposit with the credit union. Who is right?

Answer 2

Katie - the lien is equal to the amount the member owes the credit union.

Question 3

Y or N
Next, you reviewed your Member Agreement and found that the boilerplate language about the statutory lien is included. Do you need to send this member another notice?

Answer 3

No

Question 4

Is there anything that trumps this lien?

Answer 4

Maybe - other state or federal law may be superior. Consult with counsel.

Question 5

Y or N
Molly wants a loan to buy ovens for her new cupcake business. She will need a loan for approximately $45,000. Is this a commercial loan?

Answer 5

No. (not above 50K)

Question 6

The credit union makes the $45,000 loan to Molly. Molly’s business is doing well. A year later she wants a $15,000 for baking equipment. Loan 1 is paid down to $40,000 with loan 2 added to the balance, Molly will now owe the credit union $55,000. Which loan or loans are commercial loans?

Answer 6

Loan 2 -

Question 7

What is the credit union’s limit it can lend to Molly for commerical loans.

Answer 7

The greater of (i) 15% of the credit union’s net worth or (ii) $100,000 + 10% of the credit union’s net worth.

Question 8

Which member(s) loans(s) is/are exempt from the commercial loan rule?
Rick - Loan is secured by his primary residence.
Karen - loan is fully secured by her shares.
Emi - Loan is to buy farm equipment for her dairy business.
Joel - Loan is secured with his family car.

Answer 8

Rick, Karen and Joel

Question 9

The son of your credit union’s CEO is opening a new business and needs a loan in the amount of $60,000 to get started. Can the credit union make this loan. What is the reason behind this answer.

Answer 9

No - The credit union is prohibited from making commercial loans to senior management directly or indirectly involved in commercial loan underwriting, servicing, and collections and their immediate family members and any associated borrowers.
The credit union cannot make commercial loans to compensated directors unless the board approved the loan while the compensated director excuses him or herself from the discussion.

Question 10

Who is required to have a loan participation policy before entering into a transaction?
A. Selling credit unions
B. Purchasing credit unions
C. All credit unions
D. No credit unions

Answer 10

C - All Credit Unions

Question 11

You are reviewing the credit union’s overdraft policy for compliance with the NCUA’s requirements for FCUs. You found that it (i) sets a cap on the amount of overdrafts; (ii) establishes a time limit for the member to cover the overdraft; and (iii) it reflects the credit union’s overdraft fee. What is missing?
A. Limit on the number of overdrafts per member
B. Set a procedure for how a member can challenge an overdraft
C. Provide for a way to terminate membership if there are too many overdrafts
D. Nothing

Answer 11

A - Limit on the number of overdrafts per member

Question 12

Chris would like a closed end loan for $70,000 to purchase a new car for personal use. Do you need to provide him with Regulation Z disclosures?

Answer 12

No. Credit over $50,000 ($57,200 in 2019) that is not secured by real property of a dwelling is exempt from Regulation Z.
You have the option to over disclose and follow Reg Z.

Question 13

Your credit union wants to do a new loan product. The member would be approved for a fixed credit limit, and then the member would be able to take draws from the account using access checks. The credit union would charge interest on the funds advanced as well as advance fees. As the member repays the advances, the credit would not be made available to him or her again. In other words, the funds available to the member would not be replenished. Assuming this loan falls under Regulation Z, do you need to give open-end or closed-end credit disclosures?

Answer 13

Closed-end
It does not meet all three prongs of the open-end rule; therefore, it is closed-end credit. Anticipate multiple transactions, charge a finance charge, and replenish credit.

Question 14

Which charge(s) get included in the finance charge for personal line of credit?
A credit report fee
A late payment fee
An annual fee charged to participate in the plan
An application fee charged only to applicants that are approved

Answer 14

A credit report fee and an application fee charged only to applicants that are approved.

Question 15

During a quality control review of your auto loan files conducted 10 days after close, you notice that your personal line of credit product has been disclosed .25% too high. Is this an issue?
No – It was disclosed above the actual rate so you are fine. You only need to worry about under disclosing.
Yes – It is inaccurate because it is over by more than 1/8 of a percent.

Answer 15

Yes – It is inaccurate because it is over by more than 1/8 of a percent.

Question 16

What action must the credit union take to avoid any future liability for this error?

Answer 16

Send a corrective action notice within 60 days of discovering the error and make any appropriate adjustments to the account.

Question 17

Who must the credit union discover the error before to ensure there is no further liability after this action is taken? (Corrective action notice)

Answer 17

The member and the examiner.

Question 18

The credit union would like to save paper. By eliminating the statement of billing rights from the initial disclosures for its open-end personal line of credit it can go from a two-page disclosure to a one-page disclosure. Can it do this?

Answer 18

No, the statement of billing rights is required to be give with the initial disclosures.

Question 19

T or F
When disclosing the required fees for open-end credit products, you must also disclosure the circumstances under which the charges will be imposed.

Answer 19

True

Question 20

A member sends you a valid notice of billing error informing you that there is an advance reflected on his personal unsecured line of credit that he did not take. In this writing he tells you that he is refusing to repay the advance amount and any interest that accrues on it. Can you force him to pay it?

Answer 20

No! Member may withhold payment on the disputed amount and any related finance charges.

Question 21

What three things must the credit union do in response to a valid notice of billing error.?

Answer 21

Send - response that you received the notice within 30 days.
Resolve - the dispute within 2 billing cycles or 90 days
Stop - Collection Efforts.

Question 22

You fully investigated the issue, found that the member had indeed requested the advance on the line, and you responded to the member in a timely manner. The member, not satisfied with your response, sends you a notice of billing error that is identical to the first one he sent.
Do you:
Do nothing.
SEND, RESOLVE, and STOP again.

Answer 22

Do nothing since it is identical to the first one.

Question 23

Your consumer loan originators would like to streamline the phone application process. They are proposing that rather than mail the account opening disclosures to the members after taking the application, wasting valuable time, the loan originator will simply read them to the member over the phone and note in the file the day and time that they were read to the member. Great idea, right???

Answer 23

No. It does not meet the three required components of open and closed-end account opening disclosures:
Clear and conspicuous
In writing
In a form the member can keep

Question 24

Y or N
Can you propose to them that the disclosures be made electronically?

Answer 24

Yes

Question 25

Your marketing people are re-working the “look” of the credit union’s auto loan disclosures. They think some of the writing on the disclosures look too “in your face,” specifically the APR and finance charges. Can they go ahead and un-bold them?

Answer 25

No. Finance charges and annual percentage rate must be more conspicuous than the rest of the text.

Question 26

The credit union has evaluated its credit card portfolio and decided to make changes to some of the products. It would like to increase the credit limit for members that meet certain credit criteria. Do you need to send a change in terms notice to these members?

Answer 26

No. Notice not required if benefiting the member.

Question 27

Other members will experience an increase in their APR from 12.99% to 14.99%. Do you need to send a change in terms notice to these members?

Answer 27

Yes. Increased cost to member

Question 28

How far in advance do you need to notify members of change in APR?

Answer 28

45 Days

Question 29

You have just been informed that a large amount of your archived Regulation Z disclosures have been accidently deleted from your servers after being stored for 2 ½ years despite your credit union’s policy to retain them for 5 years. Are you in violation of Regulation Z?

Answer 29

No – Regulation Z only requires you to retain records for 2 years.

Question 30

Your marketing people have come to you with a new ad for a closed-end personal loan. It only advertises the loan’s great low APR. The marketing team really wants to avoid cluttering up the ad with all the other “mumbo jumbo” you usually tell them they need to add. Can they? Is APR a trigger term here?

Answer 30

Yes, they can avoid the “mumbo jumbo” because APR is not a trigger term here. APR is only a trigger term for open-end credit.

Question 31

Which of the following is true regarding application of payments:

A. If due date is on a date when credit union doesn’t receive or accept payments by mail, it can treat a mailed payment received on next business day as late.

B. Cut off time for payments made in branch can be earlier than the close of business/5 p.m.

C. Recredit the member the finance charge during the next billing cycle if payment was received on due date at the correct address for bill payments but credit union did not credit payment until following business day.

D. The credit union can impose a separate fee to allow members to make a payment by any method.

Answer 31

C. Recredit the member the finance charge during the next billing cycle if payment was received on due date at the correct address for bill payments but credit union did not credit payment until following business day.

Question 32

What are the three general rules under Reg B?

Answer 32

Cannot discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction.

Cannot discourage an applicant from applying for credit on a prohibited basis.

Requires clear and conspicuous, retainable disclosures.

Question 33

What are the three basic types of discrimination prohibited by the ECOA?

Answer 33

Overt - Blatant discrimination on a prohibited basis.
Disparate Treatment - Applicants are treated differently based on a prohibited factor (no credible, nondiscriminatory explanation)
Disparate Impact - Practice is applied to uniformly, but has a discriminatory effect tied to a prohibited factor and is not justified by business need.

Question 34

Your credit union has been sued by a member for a discriminatory criteria/practice. In order for the member to win their lawsuit they must prove:
A. The practice has a disproportionate impact on a protected class.
B. There is a viable alternative criteria or practice available with less adverse impact.
C. Both A and B
D. It doesn’t matter, if the credit union can show they have a legitimate business need for the criteria or practice they will not be found to violate the Act.

Answer 34

C- Both A and B
Disproportionate impact on a protected class and viable alternative criteria or practice available.

Question 35

The credit union wants to remove the loan officer’s contact information and signature from their adverse action notice. Is this permitted under Regulation B?

Answer 35

Yes, you are not required to include the loan officer making the credit decision’s information or signature on the Adverse Action Notice (AAN).

Question 36

The credit union wants to update its loan application process. They provide you a list of questions they want to ask. Which of the following questions can the credit union ask under the ECOA on an individual’s loan application?
A. What country were you born in?
B. Are you pregnant or intending to become pregnant?
C. What is your spouse’s income?
D. Is your spouse a joint applicant?

Answer 36

D. Is your spouse a joint applicant?

Question 37

The credit union’s policy is to send an adverse action notice “promptly” after making a credit decision. Does this meet the regulation’s requirements?

Answer 37

No, must be sent within 30 days of receiving the completed application.

Question 38

The credit union does annual written and recorded self-testing. You find out the credit union has been destroying your records, both written and recorded, after 24 months. Is this a violation of ECOA?

Answer 38

Yes, must retain 25 months.

Question 39

The credit union wants to update its lending policy to state it will not consider any type of protected income (alimony, child support, pensions, public assistance, etc.) to assess creditworthiness/underwrite loans. Is this permitted under the Regulation?

Answer 39

No, the credit union is prohibited from automatically discounting or ignoring protected income during underwriting if it is disclosed on the application.

Question 40

George comes into your branch, requests relief under the SCRA but is denied. Why?
A. George is retired from the Army.
B. George has not been on active-duty military service for at least 180 days.
C. He has not been “materially affected” by his active duty status.
D. All of the above

Answer 40

D. All of the above.

Question 41

An employee of the credit union asks George for his Military ID to verify his service. Is this a valid method for determining SCRA protections?

Answer 41

No, verifying ID is not a valid method. You can ask the member about their status to verify.

Question 42

A member called up on active duty provides your credit union with written notice and a copy of their military orders and requests SCRA protections. The credit union can:
A. Lower their rate on all existing balances and new advances to 6%
B. Lower their rate on all balances prior to active duty to 8%
C. Lower their rate on all balances prior to active duty to 6%
D. Lower their rate to 6% on all new advances.

Answer 42

C. Lower their rate on all balances prior to active duty to 6%

Question 43

A member uses her credit card to purchase multiple large ticket items while on active duty and calls to complain the interest was not reduced to 6%. Is the credit union obligated to lower the interest rate to 6% for these
purchases?

Yes, the credit card interest rate cannot exceed 6%.

No, the lower interest rate only applies to credit card balances prior to the first date of active duty.

Answer 43

No, the lower interest rate only applies to credit card balances prior to the first date of active duty.

Question 44

Does the credit union have an obligation to reduce interest rates if a member does not notify them, they are on active-duty status?

Answer 44

No, there is no general obligation to research the military status under the SCRA.

Question 45

“Interest” under the SCRA includes:
A. Debt cancellation products
B. Debt suspension agreements
C. Renewal charges
D. Only simple interest

Answer 45

C. Renewal Charges

Question 46

T or F
The credit union can raise the protected member’s interest rate the day the member goes off active duty.

Answer 46

True (Unless you are talking about a mortgage, then it is 1 year later)

Question 47

T or F
The credit union can make up lost interest by adding it to the existing debt after the member is no longer on active duty.

Answer 47

False

Question 48

T or F
The credit union can take a protected member to court if they do not believe the member has been materially affected by active duty.

Answer 48

True

Question 49

Adverse Action Notice includes what five components:
A. Credit Score, Social Security number, marital status, key factors, date created.
B. Credit Score, range of possible scores, key factors, date created entity that provided the score.
C. Credit score, full credit report, entity that provided the score, range of possible scores, Social Security Number
D. Credit score, range of possible scores, key factors, employment history, entity that provided the score.

Answer 49

B - Credit Score, range of possible scores, key factors, date created entity that provided the score.

Question 50

T or F
A credit union can become a consumer-reporting agency if it provides member transaction information that it received from a third party.

Answer 50

True

Question 51

T or F
A credit union has no obligations to correct inaccurate information it has previously reported to credit reporting agencies.

Answer 51

False

Question 52

T or F
A credit union can require a member to remove a fraud alert from their report before extending new credit.

Answer 52

False

Question 53

What are examples of permissible uses of a credit report?

Answer 53

• Court order/subpoena
• Written instruction from the consumer
• Employment purposes
• Credit transactions
• Review existing accounts
• Prescreened offers of credit
• Business Transaction initiated by the consumer
• Underwriting Insurance