Core Concepts and Principles Flashcards

Which of the following is a key difference between a direct and an indirect auto loan?

Answer: In a direct loan the consumer borrows straight from the lender rather than through the dealer

Direct loans are made by the lender to the consumer, while indirect loans are originated by the dealer and assigned.

What is a 'deficiency balance' after repossession?

Answer: The amount still owed after sale proceeds are applied to the debt

If sale proceeds are less than the outstanding balance plus allowable costs, the remainder is a deficiency.

Under the UCC, how must a repossessed vehicle generally be disposed of?

Answer: In a commercially reasonable manner with required notice

UCC Article 9 requires disposition of collateral to be commercially reasonable and generally preceded by notice to the debtor.

Which practice helps a finance company align dealer incentives with loan performance?

Answer: Sharing future collections with dealers through holdback or performance payments

Tying part of dealer compensation to collections encourages dealers to originate loans that perform.

A borrower's file shows stable employment but a recent bankruptcy. How is this typically viewed in subprime auto finance?

Answer: As a risk factor weighed alongside income and stability

Subprime lenders commonly serve borrowers with past credit events and weigh them with other factors like income and stability.

What does 'charge-off' mean for an auto contract?

Answer: The lender writes the account off as a loss on its books

A charge-off is an accounting recognition that the balance is unlikely to be collected, though collection efforts may continue.

Which law governs how third-party debt collectors may communicate with consumers?

Answer: Fair Debt Collection Practices Act

The FDCPA restricts abusive, deceptive, and unfair practices by third-party debt collectors.