CAC Contract Management 2 — Questions and Answers
Question 1: In indirect auto financing, what typically happens to a retail installment contract after the dealer and consumer sign it?
- The manufacturer automatically becomes the creditor
- The consumer mails it to the state DMV for approval
- The dealer assigns it to a finance company that purchases it (Correct answer)
- The contract is held in escrow until the loan is paid off
Correct answer: The dealer assigns it to a finance company that purchases it
The dealer is the original creditor and assigns the retail installment contract to a finance company or bank that buys it.
Question 2: Under the Truth in Lending Act, which disclosure must appear on a consumer retail installment contract?
- The dealer's gross profit on the vehicle
- The finance company's cost of funds
- The consumer's credit score
- The Annual Percentage Rate (APR) (Correct answer)
Correct answer: The Annual Percentage Rate (APR)
TILA and Regulation Z require disclosure of the APR, finance charge, amount financed, and total of payments.
Question 3: A contract is returned to the dealer because the buyer's signature is missing on the arbitration clause. What is this commonly called?
- A charge-off
- A contract stip or funding exception (Correct answer)
- A deficiency balance
- A repossession notice
Correct answer: A contract stip or funding exception
Missing signatures or documents create funding exceptions that must be cured before the contract is funded.
Question 4: Which party bears the legal obligation to repay the amount financed on an assigned retail installment contract?
- The state titling agency
- The vehicle manufacturer
- The consumer buyer (Correct answer)
- The selling dealer
Correct answer: The consumer buyer
Assignment transfers the creditor's rights, but the buyer remains the obligor on the debt.
Question 5: What does the FTC Holder Rule require in consumer credit contracts arising from a sale?
- A cap on interest rates at 18% APR
- A notice preserving the buyer's claims and defenses against any holder of the contract (Correct answer)
- A guarantee that the dealer repurchases all defaulted contracts
- A waiver of all warranties by the seller
Correct answer: A notice preserving the buyer's claims and defenses against any holder of the contract
The Holder Rule notice lets consumers assert seller-related claims and defenses against the assignee holding the contract.
Question 6: Which document perfects the lender's security interest in a financed vehicle in most U.S. states?
- The buyer's insurance card
- The bill of sale
- Notation of the lienholder on the certificate of title (Correct answer)
- A UCC-1 filed with the county recorder
Correct answer: Notation of the lienholder on the certificate of title
For titled motor vehicles, most states perfect the security interest by noting the lien on the certificate of title.
Question 7: A finance company verifies the buyer's employment and residence before funding a contract. What is the main purpose of this step?
- To calculate the dealer's sales tax
- To set the vehicle's MSRP
- To register the vehicle with the DMV
- To confirm application accuracy and reduce fraud risk (Correct answer)
Correct answer: To confirm application accuracy and reduce fraud risk
Verification confirms that stated information is true, protecting against misrepresentation and fraud before funding.
CAC Contract Management 2
In indirect auto financing, what typically happens to a retail installment contract after the dealer and consumer sign it?