Guidelines for National Banks to Guard against Predatory and Abusive Lending Practices---AL-2003-2 says that refusing to purchase the following types of loans can reduce the possibility of purchasing abusive mortgage loans EXCEPT:

Loans in which a prepaid multiple-premium credit insurance policy was included in the amount financed

Loans in which the lender has not adequately determined the borrower's ability to repay the debt

Loans subject to the Home Ownership and Equity Protection Act (HOEPA)

Loans with points and fees in excess of 5 percent of the loan amount, except in cases where the higher amount was to prevent the loan from being unprofitable

Loans in which a prepaid multiple-premium credit insurance policy was included in the amount financed

The purpose of advisory letter in Avoiding Predatory and Abusive Lending Practices in Brokered and Purchased Loans- AL-2003-3 is to:

Alert national banks to the risks they take if they make loans through brokers or purchase loans that contain or reflect abusive or predatory terms or practices

Adopt sound credit underwriting policies

Alert national banks to the risks they take if they make loans through brokers or purchase loans that contain or reflect abusive or predatory terms or practices

Adopt policies that address the circumstances under which the bank would make loans that have features associated with abusive lending practices

Make loans secured by the consumer's home but with high, up-front fees that are financed and secured by the home

Examples of unfair practices mentioned in guidelines against Predatory and Abusive Lending includes loan flipping and loan equity stripping. It is said that:

Loan flipping may be unfair because it increases the chances of foreclosure by decreasing home equity and increasing debt burden

Equity stripping is the practice of making loans secured by the consumer's home but with high, up-front fees that are financed and secured by the home

Loan flipping may be unfair because it increases the chances of foreclosure by decreasing home equity and increasing debt burden

Equity stripping is the practice of making loans secured by the consumer's home but with high, up-front fees that are financed and secured by the home

Loan flipping is the practice of making loans secured by the consumer's home but with high, up-front fees that are financed and secured by the home

Equity stripping may be unfair because it increases the chances of foreclosure by decreasing home equity and increasing debt burden

Which of the following are recommended practices In Avoiding Predatory and Abusive Lending Practices in Brokered and Purchased Loans---AL-2003-3?

Have written agreements with third-party brokers that specifically and clearly address the rights and responsibilities of each party. Written agreements should 1. Ensure that no inappropriate compensation exists 2. Provide for indemnification to the bank 3. Enable banks to exit the arrangement through a termination procedure 4. Provide for the bank's and the OCC's ability to access all records of the third party and to audit the third party's operations

Verify that brokers and originators have established policies to ensure that loans will comply with all applicable laws

Establish an effective management information system to monitor the performance of third-party brokers and originators

Safety and soundness concerns in FDIC Payday Lending Guidance clearly mention that there should be adequate capital as Minimum capital requirements are not enough to offset the risks of payday loans. Banks should hold capital against its subprime portfolio in amounts:

That are 1 to 3 times greater than normal

That are 1 to 5 times greater than normal

That are 1 to 3 times greater than normal

That are 1 to 3 times lower than normal

That should be between 2-5 in comparison to normal

Compliance issues related to payday lending are all of the following EXCEPT:

The bank may be subject to the FOC's unfair or deceptive practices rules.

Payday lending may adversely affect a bank's CRA rating. Any illegal or questionable practices will negatively affect a bank's CRA performance. A payday lending program may be inconsistent with helping to meet the community's credit needs

The bank (or its third-party partner) must properly disclose all finance charges and fees to payday lending customers. Advertisements of the program are also subject to Truth-in-Lending requirements

Adverse action disclosures must be provided to applicants of payday loans that are denied if a consumer report (including check tracking services) was used in the credit decision

The bank may be subject to the FOC's unfair or deceptive practices rules.

Which of the following comes under the heading of nontraditional mortgage product risks?

Reduced documentation adds risk to a mortgage loan.Institutions may rely on reduced documentation in the credit underwriting process.Income and credit verification may not be obtained.Use of reduced documentation should be subject to clear policies that require more documentation when the credit risk rises

Perform due diligence before entering into third-party relationships, including a review of the third party's General competence Business practices and operations Reputation Financial capacity Internal controls Record of compliance with laws

Amounts credited as recovery on a loan must not exceed all principal, finance charges, and fees previously charged off. Amounts that exceed these must be credited as income

In Guidance on Nontraditional Mortgage Product Risks, if the institution has a concentration in a nontraditional mortgage portfolio, the institution should:

Have well-developed monitoring systems and risk management practices

Monitor by originator and key borrower and portfolio characteristics

Not understand the risk of payment shock and negative amortization

If the institution offers both full and reduced documentation loans and there is a pricing premium attached to the reduced documentation loan, the consumer should:

Provide consumers with a clear statement of the options available

Not lead consumers with payment option ARMs to choose a non-amortizing or negatively amortizing payment

Institutions that offer nontraditional mortgage products should make sure they comply with the following, as applicable, EXCEPT:

FTC Act (i.e., Unfair and Deceptive Acts and Practices)

State laws prohibiting deceptive trade practices

Underwriting standards in Subprime Mortgage Lending include:

The borrower's debt-to-income ratio should include the borrower's total yearly housing-related payments as a percentage of gross monthly income

Institutions should have a clear policy governing the use of risk-layering features, such as reduced documentation loans or simultaneous second lien mortgages

Stated income and reduced documentation loans to subprime borrowers should be made only if there are clear, documented mitigating factors

Mitigating factors should be present when risk layering features are combined in order to support the underwriting decision and the borrower's repayment capacity

Supervisory review should also be the part of Subprime Mortgage Lending. It should review:

Regulatory agencies will continue to focus on risk management review and consumer compliance processes

Agencies will continue to take action against institutions that violate consumer protection laws or fair lending laws or that engages in unfair or deceptive acts or practices or in unsafe or unsound lending practices

Regulatory agencies will continue to focus on risk management review and consumer compliance processes

Hiring and Training of personnel

Agencies will continue to take action against institutions that violate consumer protection laws or fair lending laws or that engages in unfair or deceptive acts or practices or in unsafe or unsound lending practices

Applicability of prepayment penalties

Content of segregated disclosures in Consumer Leasing Act include all of the followingEXCEPT:

If there are multiple items of property, the property description may be separate

Amount due at lease signing or delivery, itemized by type and amount, including: efundable security deposit Advance monthly or other periodic payment Capitalized cost reduction An itemization of how the amount due will be paid, by type and amount (only required in a motor vehicle lease), using the model form

Number, amount, and due date of payments scheduled and the total amount of periodic payments

In an open-end lease, the descriptive statement ''You will owe an additional amount if the actual value of the vehicle is less than the residual value''

If there are multiple items of property, the property description may be separate

In a motor vehicle lease, a mathematical progression showing how the periodic payment is derived, containing the following information:

Gross capitalized cost (including the agreed-on value of the vehicle)

Rent charge (the difference between the total of base payment over the lease term minus the depreciation and any amortized amounts)

Itemization of other charges that are part of the periodic payment

Which one of the following should be included in an early termination notice in case of the termination from consumer leasing agreement?

A warning to the consumer that a substantial charge may result from early termination (required only in a motor vehicle lease)

A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term

The amount of any penalty or other charge for early termination (the penalty must be reasonable)

A warning to the consumer that a substantial charge may result from early termination (required only in a motor vehicle lease)

A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term

The purchase option at the end of the lease term

The amount of any penalty or other charge for early termination (the penalty must be reasonable)

In Consumer Leasing Act Content of non-segregated disclosures may be made separately or as part of another document (such as the lease agreement); however, other information cannot be stated, used, or placed so as to mislead or confuse the consumer. Other disclosures include all of the following EXCEPT:

A statement of maintenance responsibilities including the counter bank responsible and a description of the responsibility

A statement of the conditions under which the lessee or lessor may terminate the lease before the end of the lease term, along with the amount (or a description of the method of how the amount is determined) of any penalty or other charge for early termination

Whether the lessee has the option to purchase the leased property during the lease term and, if applicable, the purchase price (or method for determining it) and when the lessee may exercise it

The lessee's right to an independent appraisal of the property if the lessee's liability at the end of the lease is based on the realized value of the leased property, and that the appraisal will be binding on all parties

A statement of maintenance responsibilities including the counter bank responsible and a description of the responsibility

Under Renegotiations, extensions, and assumptions-12 CFR 213.5; any lease that is renegotiated or extended by longer than six months is considered to be a new lease, subject to new disclosure requirements, except when:

One or more payments are deferred, whether or not there is a charge for the deferral

Lease property is substituted with property of substantially equivalent or greater value, if no other lease terms are changed

One or more payments are deferred, whether or not there is a charge for the deferral

Lease property is substituted with property of substantially equivalent or greater value, if no other lease terms are changed

In a multiple-item lease, property is added, deleted, or substituted provided the average periodic payment does not change by more than 35 percent

There is an agreement resulting from a pre-order

In Advertising-12 CFR 213.7, if a percentage rate is used in an advertisement, it cannot be more prominent than any other disclosure, EXCEPT:

For the warning regarding the limitation of the rate as a measurement of cost

For beginning at least 3 days before and ending at least 10 days after the broadcast

For required disclosures in advertisements

For an advertisement accessed in electronic form

Under Consumer Leasing Act Enforcement-15 USC 1667d section FIRREA penalties include:

Penalties up to $8,500 per day for violations of laws and regulations

Penalties up to $37,500 per day if violations or unsafe or unsound practices are engaged in recklessly or are part of a pattern of misconduct that causes more than a minimal loss to the bank or any pecuniary gain to the parties involved

Penalties up to $8,500 per day for violations of laws and regulations

Penalties up to $37,500 per day if violations or unsafe or unsound practices are engaged in recklessly or are part of a pattern of misconduct that causes more than a minimal loss to the bank or any pecuniary gain to the parties involved

Penalties up to $1,375,000 per day against persons who knowingly commit a violation and knowingly or recklessly cause a substantial loss to the bank or a substantial benefit to the party

Penalties up to $9,500 per day for violations of laws and regulations

An exempted borrower is a member of a national securities exchange or a registered broker or dealer who:

Maintains at least 1,000 active accounts annually for persons other than brokers, dealers, and persons associated with brokers and dealers

Earns at least $10 million in gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with brokers and dealers, or

Earns at least 10 percent of its gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with brokers and dealers

Maintains at least 1,000 active accounts annually for persons other than brokers, dealers, and persons associated with brokers and dealers

Earns at least $10 million in gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with brokers and dealers, or

Earns at least 10 percent of its gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with brokers and dealers

Banks may extend and maintain purpose credit without complying with Regulation U if the credit is extended:

To any customer, other than a broker or dealer, to temporarily finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid in the ordinary course of business on the completion of the transaction

To enable a customer to meet emergency expenses not reasonably foreseen and if the bank obtains a good faith statement from the customer. Emergency expenses are ones related to unforeseen death or disability, not a chance to make a profit.

To a qualified employee stock ownership plan running previously but not now

To any customer, other than a broker or dealer, to temporarily finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid in the ordinary course of business on the completion of the transaction

To enable a customer to meet emergency expenses not reasonably foreseen and if the bank obtains a good faith statement from the customer. Emergency expenses are ones related to unforeseen death or disability, not a chance to make a profit.

Margin stock includes:

Securities issued by a investment company registered under the Investment Company Act, except for: A company licensed under the Small Business Investment Company Act A company that has at least 95 percent of its assets continuously invested in exempted securities; or A company that issues face-amount certificates; or A company that is considered a money market fund under the SEC Rules

Equity securities registered or having delisted trading privileges on a national securities exchange:

Over-the-counter (OTC) securities that do not qualify for trading in the National Market System

Warrants or rights to subscribe to or purchase a common stock

Securities issued by a investment company registered under the Investment Company Act, except for: A company licensed under the Small Business Investment Company Act A company that has at least 95 percent of its assets continuously invested in exempted securities; or A company that issues face-amount certificates; or A company that is considered a money market fund under the SEC Rules

Purpose credit is credit for all of the following EXCEPT:

Accidental purpose of purchasing or carrying margin stock

Immediate purpose of purchasing or carrying margin stock

Incidental purpose of purchasing or carrying margin stock

Ultimate purpose of purchasing or carrying margin stock

Accidental purpose of purchasing or carrying margin stock

Under collateral requirements-12CFR 221.7, maximum loan value of margin stock is:

Currently 50 percent of the current market value

Subject to change by the Federal Reserve

Currently 50 percent of the current market value

Currently 70 percent of the current market value

Subject to change by the Federal Reserve

Subject to change by the Equity Reserve

What is actually a Single credit rule-12 CFR 221.3(d)?

All purpose credit extended to a customer will be considered to be a single credit for purposes of Regulation U

The value of all collateral securing all purpose loans will be aggregated to determine if it is sufficient

If unsecured purpose credit is extended before secured purpose credit, the loans need only be combined for purposes of applying the withdrawal and substitution rules

Which one of the following types of credit may be extended in Requirements case-12 CFR 221.3, 221.7:

Temporary advances in payment against delivery transactions

Credit to clearing banking authorities

OCC advisory on credit card practice-AL-2004-10 in credit card practices covers:

Marketing and account management practices that may be unfair or deceptive and expose a bank to compliance and reputation risk

Finance and credit management practices that may be unfair or deceptive and expose a bank to compliance and reputation risk

Marketing and account management practices that may be unfair or deceptive and expose a bank to compliance and reputation risk

Marketing and account management practices

Marketing and account management practices that may be fair and can't expose a bank to compliance and reputation risk

Practice/s addressed in the guidance of OCC advisory on credit card practices-AL-2004- 10 is/are:

Repricing of accounts and other changes in credit terms

Regulation O both restricts lending to insiders and requires that certain loans to insiders be disclosed. Each banking agency has adopted the provisions of Regulation O for administrative enforcement purposes. These were not found to be useful in preventing insider lending abuse. Regulation O governs which of the following areas major areas:

Disclosures of loans made to insiders

Unless excluded by a board resolution or the bylaws, the following officers will be considered to be executive officers EXCEPT:

Brokerage house's vice president

Each vice-president and above (for example, senior vice-president, executive vicepresident, and so on)

Brokerage house's vice president

It is an extension of credit will be deemed to be made to an insider if the proceeds are transferred to the insider or used for the insider's benefit. This rule does not apply if the credit is made on substantially the same terms and conditions as those made to a noninsider and if the proceeds are used in a bona fide transaction involving the acquisition of property, goods, or services from the insider. What is it?

Tangible economic benefit rule012 CFR 215.3(f)

Extension of credit-12 CFR 215.3

Intangible economic-benefit rule

ABA CRCM Practice Test 2 - Free Online Exam Prep & Questions

Question 1 / 40

Which of the following usually comes under the heading of abusive lending?

Abusive lending usually is defined by a variety of lending practices

It is the excessive and hidden fees in the amount financed

A fundamental characteristic is aggressive marketing of credit to prospective borrowers who cannot repay it on the terms offered

Typically, such loans are underwritten on the liquidation value of the collateral rather than the creditworthiness of the borrower

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