Topic 11: Checking the applicants credit status

Question 1

What is Default?

Answer 1

The borrower has missed one or more payments and failed to respond satisfactorily to requests to correct the problem.

Question 2

What is a Payday loan?

Answer 2

A very high-interest, short-term unsecured loan designed to be repaid by the next payday.

Question 3

What is a Guarantee?

Answer 3

A formal agreement by one person to accept responsibility for another person’s mortgage or loan payments if they cannot, or will not, pay.

Question 4

What is a Guarantor?

Answer 4

The person giving a guarantee. Also known as a surety.

Question 5

What is Full Liability guarantee?

Answer 5

The guarantor has agreed to take responsibility for the whole mortgage.

Question 6

What is Limited liability guarantee?

Answer 6

The guarantor’s liability is limited to a defined proportion of the mortgage.

Question 7

What is a County Court Judgement (CCJ)?

Answer 7

A civil court judgment resulting from a civil action by a creditor against a debtor for repayment. The CCJ will state how the debt should be repaid, either as a lump sum or through instalments.

Question 8

What is a Register of judgments, orders and fines for England and Wales?

Answer 8

A register of CCJs, which stay on the register for six years unless settled within one month of the judgment. If paid after one month, they stay on the register but are shown as satisfied.

Question 9

What is Individual Voluntary Arrangement (IVA)?

Answer 9

An alternative to bankruptcy that is supervised by an insolvency practitioner.

Question 10

What is Company Voluntary Arrangement (CVA)?

Answer 10

Similar to an IVA but for companies.

Question 11

What is a Debt Relief Order (DRO)?

Answer 11

An arrangement to help those with debt problems but little income or assets

Question 12

What is Customer Due Diligence?

Answer 12

The process of verifying a customer’s identity to satisfy anti-money-laundering requirements.

Question 13

What is Financial exclusion?

Answer 13

Where an individual may not be able to access or use financial services because they can’t meet anti-money-laundering identification requirements.

Question 14

Examples of information not revealed by references and statements?

Answer 14

• Pending court hearings
• Action for maintenance/ child support claims
• Borrowing yet to be drawn out
• Purely cash transactions, eg undeclared income or cash borrowings from the family

Question 15

What is a Credit Search?

Answer 15

Credit reference searches can be made through credit bureaux (ie credit
reference agencies) such as Experian, Equifax and TransUnion, which store
and maintain financial and public records of people who have received credit.
Credit references provide an insight into the activities and credit problems
of specific individuals based on historical information. A credit search could
show a ‘default’.

Question 16

What is Credit scoring?

Answer 16

Almost all lending institutions use credit scoring as an integral feature of the assessment process. Scores are given to certain aspects of the application, based on historical data relating to risk. In simple terms, a certain number of
points are then allocated in each category so that, once the points for each
category are added up, the total score reflects the credit score. Applications
that receive more than a certain score (often known as the cut‑off score) are
accepted, while those that do not are declined.

Question 17

What issues can render a guarantee invalid?

Answer 17

• Lack of capacity to contract
• Undue influence
• misrepresentation
• misapprehension
• mistake
• duress

Question 18

Name 5 key facts about guarantee?

Answer 18

• The lender has the right to enforce the guarantee should the borrower default on repayment.
• The borrower has no duty to disclose information to the guarantor unless the guarantor asks for specific information.
• The guarantor does not have an interest in the property on which
  they are guaranteeing the mortgage and does not have the right
  to inspect mortgage documentation or be informed of mortgage
  payments missed. In many cases the first the guarantor will hear of a problem is when the lender demands payment.
• The guarantor must be informed if the mortgage holder requests a further advance or an extension of the term, and can refuse their consent.
• The guarantor can make a request to be released from the guarantee, but the lender will only usually agree to this if it is felt that the borrower will be able to manage the mortgage
  without danger to the lender. In many cases, the lender will simply refuse to release a guarantor.

Question 19

What is Insolvency?

Answer 19

• a person’s liabilities exceed their assets; and
• they cannot meet their financial obligations when they fall due

Question 20

What are acceptable forms of ID?

Answer 20

• current passport;
• driving licence with photograph;
• entry on electoral roll;
• recent utility bill or council tax bill in the customer’s name;
• credit card statements accompanied by the credit card.
  Documents such as mobile phone bills are not acceptable forms of ID.

Question 21

WHEN CAN A LENDER ACCEPT AN ADVISER’S ASSURANCE
OF CUSTOMER IDENTITY?

Answer 21

If a financial intermediary (such as a mortgage adviser) or other authorised firm introduces a customer to a lender, the
lender can accept the introducer’s written assurance that they
have obtained sufficient evidence of identity.

Question 22

What is Fraud?

Answer 22

Fraud occurs when a person deliberately sets out to obtain funds from another
person or organisation by dishonest means.