Credit Law and Regulations Flashcards
7 cards from real CCM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Credit Law and Regulations flashcards as text
A 'subordination agreement' in a multi-creditor lending arrangement requires:
Answer: A junior creditor to agree that its claims rank below those of a senior creditor
A subordination agreement contractually establishes that one creditor's claims will be paid only after another creditor's claims are satisfied in full.
Under UCC Article 9, which method of perfecting a security interest in accounts receivable is most commonly used?
Answer: Filing a UCC-1 financing statement with the appropriate state office
Accounts receivable are intangible assets that cannot be possessed, so perfection is achieved by filing a UCC-1 financing statement in the appropriate state filing office.
The 'right of setoff' in credit law allows a creditor who is also a depository institution to:
Answer: Apply the debtor's deposit account funds against a matured, mutual debt
The right of setoff permits a bank or creditor with a mutual debt relationship to apply deposits or other funds owed to the debtor against the debtor's outstanding obligations.
The concept of 'adequate assurance of future performance' under UCC § 2-609 allows a seller to:
Answer: Suspend shipments and demand written assurance when reasonable grounds for insecurity arise
UCC § 2-609 allows a party with reasonable grounds for insecurity to demand written adequate assurance of performance and suspend its own performance until assurance is received.
Which of the following best describes a 'non-recourse' factoring arrangement from a legal risk perspective?
Answer: The factor assumes the credit risk and cannot seek reimbursement from the seller if the account debtor defaults
In non-recourse factoring, the factor bears the credit risk of non-payment due to the account debtor's insolvency or inability to pay, with no chargeback right against the seller.
A 'letter of credit' fundamentally differs from a guaranty in which critical legal respect?
Answer: A letter of credit is an independent obligation of the issuing bank based on document compliance, not the underlying transaction
The independence principle means a letter of credit issuer must pay upon compliant document presentation regardless of disputes in the underlying commercial transaction.
Under the Fair Credit Reporting Act (FCRA), a business credit applicant denied credit based on information in a commercial credit report has which right?
Answer: No rights under FCRA because it only covers consumer credit reports
FCRA primarily applies to consumer credit reports; commercial credit reports are generally not covered, leaving business applicants without FCRA protections.