TILA Truth in Lending Act

Question 1

In which of the following transactions is a disclosure statement to the consumer required?
a. A $125,000 loan to purchase and secured by an unimproved lot on which the borrower eventually plans to build a home for retirement
b. A $100,000 loan made to a physician for a recreational vehicle, secured by the physician’s business equipment
c. A $75,000 loan to purchase a speedboat
d. A $200,000 unsecured loan to purchase a residence

Answer 1

a. A $125,000 loan to purchase and secured by an unimproved lot on which the borrower eventually plans to build a home for retirement

Question 2

Which of the following charges is generally considered to be a prepaid finance charge?
a. Points paid by the borrower in cash at closing
b. An application fee of $250 paid in cash at the time of application and collected from all applicants whether or not the application is approved.
C. A $300 fee for an appraisal in a real estate transaction
d. A $750 fee for a title policy in a real estate transaction

Answer 2

a. Points paid by the borrower in cash at closing

Question 3

Which of these transactions requires the earliest disclosure?
a. A $60,000 loan with a variable interest rate to purchase part of a municipal bond issue
b. A $15,000 unsecured closed-end loan with a fixed interest rate to build aswimming pool at the borrower’s residence
c. A $150,000 loan with a fixed interest rate to purchase a residence secured by the residence
d. A $200,000 loan with a variable interest rate to purchase a residence secured by the residence

Answer 3

d. A $200,000 loan with a variable interest rate to purchase a residence secured by the residence

Question 4

If an advertisement for a lender’s mortgage loan product states that “we offer 15- and 30-year loans,” what additional disclosures are required by Regulation Z?
a. The terms of repayment, amount of the down payment in a credit sale), and the APR
b. The APR and an example based on a $10,000 purchase price
c. The monthly payment amount based on a $10,000 purchase price and a maturity recently offered by the bank
d. No additional disclosures are required

Answer 4

a. The terms of repayment, amount of the down payment in a credit sale), and the APR

Question 5

For how long must a lender retain evidence of compliance with the Truth in Lending Act?
a. One year following consummation of the transaction for all transactions
b. Twenty-five months from the date of the application, except for mortgages, which have a five-year retention requirement
c. Six months from the date the loan is repaid, except for mortgages, which have a five-year retention requirement
d. Two years after the disclosures are required to be made, except for mortgages, which have a five-year retention requirement

Answer 5

d. Two years after the disclosures are required to be made, except for mortgages, which have a five-year retention requirement

Question 6

Which of the following closed-end loans is subject to the right of rescission?
a. A loan to purchase a vacation home, secured by the vacation home itself
b. A loan to purchase a principal residence, secured by the residence
c. A loan to purchase furniture for use in a principal dwelling, secured by the furniture
d. A home improvement loan for the borrower’s principal dwelling, secured by the dwelling

Answer 6

d. A home improvement loan for the borrower’s principal dwelling, secured by the dwelling

Question 7

For how long may consumers exercise the right to rescind transactions in closed-end loans?
a. Three years after the consummation of the transaction
b. Three calendar days after the consummation of the transaction or the receipt of notice of the right to rescind, whichever is later
c. Three business days after the later of the consummation, delivery of notice of the right to rescind, or delivery of required disclosures
d. Three business days after the receipt of the early disclosures

Answer 7

c. Three business days after the later of the consummation, delivery of notice of the right to rescind, or delivery of required disclosures

Question 8

Which of the following disclosures is NOT required on the itemization of amount financed?
a. The amount of proceeds distributed directly to the borrower
b. The amounts paid to others on behalf of the borrower
c. An itemization of the various types of finance charges
d. The persons to whom amounts are paid on the borrower’s behalf

Answer 8

c. An itemization of the various types of finance charges

Question 9

Borrower A has a variable rate loan secured by his principal dwelling for a term of 10 years. Which of the following is NOT a Truth in Lending requirement for his loan?
a. Providing a variable rate disclosure of certain terms of the loan program at the earlier of the application time or before a nonrefundable fee is paid
b. Limiting the number of interest rate increases in each calendar year
c. Including an interest rate cap in the loan contract
d. Providing a consumer handbook on adjustable-rate mortgages to the borrower

Answer 9

b. Limiting the number of interest rate increases in each calendar year

Question 10

The State National Bank credit card program includes an annual fee that equals a percentage of the average balance of the account during the previous year. Of the following statements, which is true regarding the Truth in Lending requirements applicable to this fee?
a. Truth in Lending prohibits charging a fee based on a percentage of a balance.
b. The bank must disclose in the initial application or solicitation either the fee amount or the percentage amount and identify the amount against which the percentage is based.
C. The consumer must affirmatively agree in writing to pay this fee before the bank can charge it.
d. The bank must give the consumer 30 days’ notice every year before the fee is charged and allow the consumer to cancel the account before it is assessed.

Answer 10

b. The bank must disclose in the initial application or solicitation either the fee amount or the percentage amount and identify the amount against which the percentage is based.

Question 11

Which statement is NOT true regarding the application disclosure made by the lender on a home equity open-end plan?
a. Disclosure must be made at the time the application is provided
b. Disclosure must be in a form the borrower can keep
c. Disclosure must describe the security interest and warn that in the event of default the borrower could lose the dwelling
d. Disclosure must describe payment terms

Answer 11

b. Disclosure must be in a form the borrower can keep

Question 12

In an open-end account that is NOT a home equity plan, which of the following does NOT have to be provided to the consumer?
a. An initial disclosure statement
b. A brochure with a transaction example of a $1,000 balance for six months
c. A periodic statement
d. A statement of billing rights

Answer 12

b. A brochure with a transaction example of a $1,000 balance for six months

Question 13

When must a notice be received from a consumer in order to be considered a “billing error notice”?
a. Within 30 days after the transaction that is the subject of the alleged error
b. Within 90 days after the first statement that reflected the error
C. Within 60 days after the transaction that is the subject of the alleged error
d. Within 60 days after the first statement that reflected the error

Answer 13

d. Within 60 days after the first statement that reflected the error

Question 14

Which statement is true regarding a consumer’s right to rescind an open-end credit transaction?
a. Right of rescission applies only to transactions secured by the consumer’s principal dwelling.
b. Right of rescission applies separately to each advance of funds made under a home equity plan.
c. Right of rescission can be made orally or in writing.
d. Notice of right of rescission is made only to the primary borrower.

Answer 14

a. Right of rescission applies only to transactions secured by the consumer’s principal dwelling.

Question 15

When a bank makes a rescindable closed-end home improvement loan to a consumer, to which of the following may the bank advance funds before the end of the rescission period?
a. To the borrower
b. To the contractor for delivery of materials
c. To an escrow account with a third-party escrow agent
d. To an escrow account with the borrower acting as the escrow agent

Answer 15

c. To an escrow account with a third-party escrow agent

Question 16

First National Bank agreed to make a rescindable closed-end home improvement loan to Mr. and Mrs. Smith. The Notice of the Right to Rescind was given to the Smiths on Tuesday at the closing of the loan along with the material disclosures. The Smiths purchased a title policy and paid for a property appraisal for the bank in connection with the transaction. A lien was filed against the Smiths’ home on Tuesday afternoon. The bank funded the loan on Friday morning at the request of Mr. Smith by crediting the Smiths’ joint checking account with the loan proceeds. On Friday afternoon Mrs. Smith has a change of heart concerning the transaction and deposits a rescission notice in the mail to the bank. The bank receives the notice on Tuesday morning. All funds have been withdrawn from the account. What should the bank do?
a. Notify the Smiths that the loan proceeds are immediately due and payable and that once the funds are repaid, the lien on the property will be released
b. Release the lien on the property immediately, then refund to the Smiths the amounts they spent for the title policy and appraisal, and then demand repayment of the loan (without interest)
c. Release the lien on the property immediately, and then send a written request to the Smiths asking for repayment of the loan proceeds (without interest)
d. Send a letter to the Smiths explaining that because the rescission notice was not sent within the proper time period, it is ineffective, and the loan is still valid

Answer 16

b. Release the lien on the property immediately, then refund to the Smiths the amounts they spent for the title policy and appraisal, and then demand repayment of the loan (without interest)

Question 17

A consumer customer reports to First National Bank’s credit card department that his credit card periodic statement contains an amount that is incorrect. What should the bank do?
a. Begin an investigation of the alleged error but require the consumer to pay the disputed amount pending the completion of the investigation
b. Conduct an investigation and mail within 30 days an acknowledgment of the error notice, a correction of the error, or a notice that there is no error
c. Complete an investigation of the error in no more than 60 days
d. Conduct a reasonable investigation of the alleged error and report the disputed amount to the credit bureau as delinquent

Answer 17

b. Conduct an investigation and mail within 30 days an acknowledgment of the error notice, a correction of the error, or a notice that there is no error

Question 18

If a bank completes an investigation of an alleged billing error and determines that no billing error occurred and the consumer owes all or part of the amount, what must the bank do?
a. Immediately report to the credit bureau the amount that was the subject of the investigation as delinquent
b. Disallow any free-ride period normally given to the consumer on the account for amounts owing periodically and require the consumer to make the payment immediately
C. Send the consumer a notice that explains why no billing error occurred
d. Require the consumer to produce documentation for any future billing error notices

Answer 18

C. Send the consumer a notice that explains why no billing error occurred

Question 19

Which of the following situations is NOT considered a billing error?
a. The failure to credit a payment
b. The inclusion of a charge for an item not purchased by the consumer
c. The inclusion of a charge for an item the quality of which dissatisfied the consumer
d. The inclusion of a charge for an item delivered to the wrong location

Answer 19

c. The inclusion of a charge for an item the quality of which dissatisfied the consumer

Question 20

For which disclosure must a bank obtain a customer’s affirmative consent before delivery?
a. A hard copy of a right-to-cancel notice
b. An electronic credit card application disclosure
c. An electronic disclosure statement on a car loan
d. An electronic home equity early disclosure

Answer 20

c. An electronic disclosure statement on a car loan

Question 21

What must a married couple do to waive their right of rescission on their residential property?
a. Call the bank’s toll-free telephone number
b. Obtain the loan officer’s written approval
c. Sign the bank’s standard waiver form
d. Sign a written statement indicating the reason for the waiver

Answer 21

d. Sign a written statement indicating the reason for the waiver

Question 22

A creditor receives a phone application for a home equity line of credit. Before the
time period for mailing out the early disclosure and the Regulation Z-mandated brochure, the creditor reviews the applicant’s credit history and discovers the applicant will not qualify for the line of credit due to a bankruptcy filing last year. Which of the following BEST describes how Regulation Z treats this situation?
a. The creditor may wait and send the early disclosures and brochure with the adverse action letter required by Regulation B.
b. The early disclosures and brochure must be sent out within the required time period after receipt of the telephone application, even if the loan is declined within that period.
c. If the credit denial was made within 30 days after receipt of the telephone application, the creditor does not have to send the early disclosures and brochure.
d. If the credit denial was made within the period of time Regulation Z allows for mailing the early disclosures and brochure, the creditor does not have to send the early disclosures or the brochure.

Answer 22

d. If the credit denial was made within the period of time Regulation Z allows for mailing the early disclosures and brochure, the creditor does not have to send the early disclosures or the brochure.

Question 23

In determining a prepaid finance charge for a final APR calculation, a compliance officer notes an unusual settlement agent fee. What should the compliance officer FIRST determine?
a. Whether the fee will be prepaid
b. Whether the fee is a service, transaction, or activity fee
C. Whether the fee is charged in a comparable cash transaction
D. Whether the loan will be secured by a dwelling or a residential mortgage transaction

Answer 23

C. Whether the fee is charged in a comparable cash transaction

Question 24

On January 10, ABC Bank decides to send an advertising piece to consumers in its local community to promote its home equity lines of credit. The ad will be sent via email. The bank’s home equity product has an interest rate based upon the national prime rate plus a five percent margin. However, the bank is offering a lower promotional interest rate that is fixed for six months. In the ad, the bank plans to disclose the promotional rate and the fact that it is valid for six months from the date of loan closing. The bank will also disclose an actual APR charged on this product during the previous November. Additionally, the ad will include a list of all the fees required to close the loan and the maximum APR that can be charged under the plan. Will this ad meet TILA requirements?
a. Yes, all required disclosures have been made.
b. No, the ad must include the fact that a security interest will be taken on the consumer’s home.
c. No, the ad must include the specific index and margin upon which the rate is based
d. No, the ad must disclose a rate used during the 30 days before the date the ad is transmitted.

Answer 24

d. No, the ad must disclose a rate used during the 30 days before the date the ad is transmitted.

Question 25

Which of the following features is acceptable in a high-cost mortgage loan? a. A late fee constituting five percent of the amount past due b. A payment schedule that allows for negative amortizations c. A prepayment payment penalty provision effective for the first year of the loan d. An unconditional demand clause

Answer 25

c. A prepayment payment penalty provision effective for the first year of the loan

Question 26

If a loan is to be secured by a consumer's principal dwelling, which of the following actions is prohibited with regard to an appraiser? a. The banker does not understand the comparable values in an appraisal and asks the appraiser to clarify the information. b. The banker tells the appraiser that the appraisal will need to show that the property is worth at least $100,000, or the bank will not be able to make the loan. c. The banker notices that there is a factual error in the appraisal and asks the appraiser to correct it. d. The banker refuses to pay for an appraisal submitted past the date that the appraiser agreed to provide it.

Answer 26

b. The banker tells the appraiser that the appraisal will need to show that the property is worth at least $100,000, or the bank will not be able to make the loan.

Question 27

How must a card issuer disclose a minimum payment on a periodic statement for an open-end credit account that is not home-secured? a. By disclosing the actual repayment for the consumer's account balance, rate, and terms over the remaining term of the account b. By providing a toll-free telephone number that will respond with a generic payment example c. By disclosing the estimated monthly payment for repaying in 36 months d. By disclosing several generic examples that could apply to the consumer's account

Answer 27

c. By disclosing the estimated monthly payment for repaying in 36 months

Question 28

When credit card checks accessing open-end accounts (not home-secured) are sent to a borrower and the finance charge terms exactly match the terms originally disclosed at account opening, under what circumstance must the disclosures be displayed prominently on the front page of the checks? a. When provided at the time the account is opened b. When provided more than 30 days after the account is opened c. When provided in the same envelope as the credit card d. When provided more than 10 days after the account is opened

Answer 28

b. When provided more than 30 days after the account is opened

Question 29

If a bank is charging a premium rate in a credit card solicitation, how must it disclose this rate? a. In bold type and underlined b. In a different color ink c. In a different font d. In 16-point type

Answer 29

d. In 16-point type

Question 30

A bank's compliance officer received a complaint from a credit card customer indicating that she received her credit card statement and noted that her credit limit had been reduced to less than the balance she owes. She claims that she was charged an over-the-limit fee before she was informed. The compliance officer reviewed the statement and determined that the customer was correct. If the bank determined that the credit limit should be lowered, what should it have done? a. Charge over the limit fees until the balance owed falls below the credit limit b. Notify the customer that they were terminating the account c. Provide notice 45 days before the decrease to the credit limit d. Suspend future credit privileges

Answer 30

c. Provide notice 45 days before the decrease to the credit limit

Question 31

On Monday, ABC Bank received a written application from the Browns for a loan to purchase their home. Later that day ABC mailed the Browns their early TILA disclosures. If the disclosure was sent via standard U.S. mail, what is the earliest day ABC bank may obtain intent to proceed from the customer and debit their account for an application fee? a. Tuesday b. Wednesday c. Thursday d. Friday

Answer 31

c. Thursday

Question 32

Which of the following statements is true regarding providing credit card accounts to cardholders under the age of 21? a. Accounts can only be issued to cardholders who are at least 21 b. Co-signers may be required on credit card accounts to consumers who are under 21 c. The consumer must submit a written application d. Consumers must be provided with credit counseling prior to card issuance

Answer 32

c. The consumer must submit a written application

Question 33

Sam owes a balance of $5,000 on his credit card account at Bank B. His minimum payment is $150 per month. $1,000 of his balance is accruing interest at 3% (a promotional rate); the remaining balance is accruing interest at 14%. Sam received a bonus at work and submitted an additional payment of $500 on his account this month. Which statement is true regarding the bank's responsibility for applying the extra payment? a. If Sam specifies the balance to which the extra payment should be applied, the bank must honor his request b. The bank should apply the extra payment to the balance accruing at the 14% rate c. The bank may apply the extra payment at its own discretion d. The bank should pay off the oldest balance first, regardless of the interest rate

Answer 33

b. The bank should apply the extra payment to the balance accruing at the 14% rate

Question 34

Which of the following is NOT required on a closing disclosure on a loan secured by a dwelling? a. APR b. Interest Rate c. Government monitoring information d. A statement that there is no guarantee the loan can be refinanced

Answer 34

c. Government monitoring information

Question 35

Which of the following is a “loan originator”? a. The office manager of a manufactured home retail center who does not accept applications from customers b. A bank teller who distributes preprinted home loan rate sheets to customers who inquire c. A customer service representative who assists applicants that complete an application and collect application data, but does not have loan authority d. A real estate broker who refers prospective purchasers to a mortgage company

Answer 35

c. A customer service representative who assists applicants that complete an application and collect application data, but does not have loan authority

Question 36

36. Which of the following statements is true regarding the requirement that a creditor determine a borrower's ability to repay the loan? a. Applies only to loans secured by the consumer's principal dwelling b. Applies only to higher-priced mortgages c. Applies to HELOCs d. Applies to all closed-end dwelling-secured loans

Answer 36

d. Applies to all closed-end dwelling-secured loans