Core Concepts and Principles Flashcards

Under the Equal Credit Opportunity Act, which factor may NOT be used to deny an auto loan application?

Answer: The applicant's marital status

ECOA prohibits credit discrimination based on marital status, along with race, religion, sex, national origin, age, and public-assistance income.

When an application is declined based partly on a credit report, what must the creditor provide?

Answer: An adverse action notice

ECOA and the FCRA require an adverse action notice stating the decision and, where applicable, the credit reporting agency used.

What is 'amount financed' on a retail installment contract?

Answer: The credit extended to the buyer after down payment, including financed add-ons

Amount financed is the net credit provided on the buyer's behalf, such as price plus financed items less down payment.

A dealer finances a $12,000 contract and receives a $7,000 advance from the finance company. What does the $7,000 represent?

Answer: The upfront cash paid to the dealer for assigning the contract

The advance is the upfront payment the dealer receives when assigning a contract, typically less than the contract balance.

Which metric best measures how much of a pool of contracts is likely to be collected over its life?

Answer: Expected collection rate

Forecasting expected collections over the life of a loan pool is central to pricing advances and assessing profitability.

Why is a borrower's payment-to-income ratio evaluated during underwriting?

Answer: To assess whether the borrower can afford the monthly payment

Payment-to-income shows how much of the borrower's income the car payment consumes, indicating affordability.

What does a GPS or starter-interrupt device on a financed vehicle primarily help a lender do?

Answer: Locate collateral and encourage timely payment

These devices help lenders find the collateral if needed and can encourage payment, subject to state law and disclosure rules.