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NMLS Safe Exam Pt 6
Red Flags, Fair Lending, Advertising & Oversight
| Question | Answer |
|---|---|
| What is the Red Flags Rule? | A rule under FACTA requiring financial institutions and creditors to develop identity theft prevention programs. |
| Who enforces the Red Flags Rule? | The Federal Trade Commission (FTC) and banking regulators. |
| What are the three parts of a Red Flags Program? | Identify red flags, detect them, and respond appropriately. |
| What is a red flag example? | Suspicious documents, unusual account activity, or alert from a consumer reporting agency. |
| What is the purpose of the Equal Credit Opportunity Act (ECOA)? | To prohibit discrimination in credit transactions. |
| Which regulation implements ECOA? | Regulation B. |
| Who enforces ECOA? | The Consumer Financial Protection Bureau (CFPB). |
| What are ECOA’s protected classes? | Race, color, religion, national origin, sex, marital status, age, receipt of public assistance. |
| What disclosures are required by ECOA? | Notice of action taken, appraisal rights, and ECOA notice. |
| When must the appraisal notice be given under ECOA? | Within 3 business days of receiving application. |
| What is the Fair Housing Act? | A law prohibiting housing discrimination in the sale, rental, and financing of dwellings. |
| Who enforces the Fair Housing Act? | HUD (U.S. Department of Housing and Urban Development). |
| What are the protected classes under the Fair Housing Act? | Race, color, national origin, religion, sex, familial status, and disability. |
| What is the difference between ECOA and the Fair Housing Act? | ECOA covers credit; FHA covers housing-related transactions and practices. |
| What is discriminatory lending? | Offering different terms or denying loans based on protected class characteristics. |
| What is disparate treatment? | Intentional discrimination based on a protected class. |
| What is disparate impact? | Neutral policy that disproportionately affects a protected class. |
| What is overt discrimination? | Obvious, intentional unequal treatment of protected classes. |
| What is steering in lending? | Directing borrowers to different loan products or terms based on protected class or income. |
| What is redlining? | Refusing to lend or limiting lending in certain geographic areas based on demographics. |
| What is reverse redlining? | Targeting vulnerable communities for high-cost or predatory loans. |
| What does the MAP Rule stand for? | Mortgage Acts and Practices Rule. |
| What does the MAP Rule regulate? | Prohibits misrepresentation in mortgage advertising and commercial communication. |
| What is considered deceptive under MAP Rule? | Misleading statements about loan terms, APRs, or qualification likelihood. |
| How long must MAP Rule advertising records be retained? | 2 years. |
| What is Regulation N? | Another name for the MAP Rule — governs mortgage advertising practices. |
| What is a trigger term in advertising? | A loan term that requires additional disclosures (e.g., payment amount, interest rate). |
| What disclosures are required when a trigger term is used? | APR, amount or percentage of down payment, and terms of repayment. |
| What is Regulation P? | Implements the Gramm-Leach-Bliley Act (GLBA) — governs the privacy of consumer financial information. |
| What are the key components of GLBA? | Privacy Notice, Opt-Out Rule, and Safeguards Rule. |
| What is the Privacy Notice under GLBA? | Informs customers of how their personal financial information is shared. |
| What is the Opt-Out Rule? | Gives consumers the right to limit some sharing of their personal information. |
| What is the Safeguards Rule? | Requires companies to implement security programs to protect consumer data. |
| When must a Privacy Notice be provided? | At the beginning of a customer relationship and annually thereafter. |
| What is the FTC Disposal Rule? | Requires proper disposal of consumer information to prevent unauthorized access. |
| What is the purpose of the FTC Safeguards Rule? | To ensure companies protect customer information with a written plan. |
| What is Regulation V? | Implements the Fair Credit Reporting Act (FCRA). |
| What does FCRA regulate? | Collection, dissemination, and use of consumer credit information. |
| What is the purpose of the FACT Act? | To improve consumer access to credit reports and reduce identity theft. |
| What is the role of the CFPB? | To enforce federal consumer financial laws and protect consumers in the financial marketplace. |
| What is the role of state regulators? | To enforce state-specific lending laws and oversee mortgage licensees within the state. |
| What is the role of the Federal Reserve? | Regulates monetary policy and supervises certain banking institutions. |
| What is the role of the OCC? | Office of the Comptroller of the Currency — regulates national banks and federal savings associations. |
| What is the role of the FDIC? | Federal Deposit Insurance Corporation — insures deposits and regulates certain financial institutions. |
| What is the role of the NCUA? | National Credit Union Administration — oversees credit unions. |
| What is the function of FinCEN? | Financial Crimes Enforcement Network — combats money laundering and monitors suspicious activity. |
| What is a Suspicious Activity Report (SAR)? | A report filed for suspected financial crimes — must be submitted to FinCEN. |
| When must a SAR be filed? | Within 30 calendar days of identifying suspicious activity. |
| What is a CTR? | Currency Transaction Report — required for transactions over $10,000 in cash. |
| Who must file a CTR? | Financial institutions processing large cash transactions. |
| What is the purpose of a Currency Transaction Report (CTR)? | To help detect and prevent money laundering involving large cash transactions. |
| What law requires CTRs? | The Bank Secrecy Act (BSA). |
| What does AML stand for? | Anti-Money Laundering. |
| What is an AML Program? | A program required by the BSA to detect and report suspicious financial activity. |
| What is layering in money laundering? | The stage where illicit money is moved through complex transactions to obscure its origin. |
| What is placement in money laundering? | The stage where illicit money first enters the financial system. |
| What is integration in money laundering? | The stage where laundered money is returned to the criminal as seemingly legitimate funds. |
| What does OFAC stand for? | Office of Foreign Assets Control. |
| What does OFAC do? | Enforces economic and trade sanctions against targeted foreign countries and entities. |
| What must lenders do before funding a loan? | Screen all parties against the OFAC list. |
| What is a matched OFAC name called? | A “hit” — requires further investigation and possibly blocking the transaction. |
| What is the USA PATRIOT Act’s impact on lending? | Requires identity verification and anti-money laundering compliance. |
| What does CIP stand for? | Customer Identification Program. |
| What must be collected under CIP? | Name, DOB, address, and identification number (e.g., SSN or EIN). |
| What is the maximum penalty for a MAP Rule violation? | $43,280 per violation. |
| What is blockbusting? | Encouraging homeowners to sell by suggesting a demographic shift will lower property values. |
| What is steering under Fair Housing? | Guiding buyers to certain areas based on race or ethnicity. |
| What is redlining under Fair Housing? | Denying loans to entire neighborhoods based on racial or economic makeup. |
| What agency investigates Fair Housing complaints? | HUD’s Office of Fair Housing and Equal Opportunity (FHEO). |
| What is ECOA Valuations Rule? | Requires creditors to notify borrowers of their right to receive a copy of appraisals. |
| What is Regulation C? | Implements the Home Mortgage Disclosure Act (HMDA). |
| What does HMDA require? | Lenders to collect and report data to detect discriminatory lending. |
| What is the purpose of HMDA? | To prevent redlining and monitor equal access to credit. |
| What form is used for HMDA reporting? | The Loan/Application Register (LAR). |
| What are typical data points collected under HMDA? | Race, gender, income, property location, loan type, and action taken. |
| What is the deadline to submit HMDA data each year? | March 1st of the following year. |
| What is ECOA’s 30-day rule? | Applicants must be notified of action taken within 30 days of a completed application. |
| What is Regulation B's record retention requirement? | 25 months for denied applications. |
| What is the purpose of TILA’s right of rescission? | Gives borrowers time to reconsider refinance transactions. |
| How long is the right of rescission period? | 3 business days after closing. |
| Which transactions are covered by right of rescission? | Refinance of a primary residence (not purchases or investment properties). |
| What is a “business day” under rescission rules? | All calendar days except Sundays and legal holidays. |
| Can rescission be waived? | Yes, in emergencies with a signed written request. |
| How long must advertising records be kept under TILA and MAP? | 2 years. |
| What is a written list of service providers? | A TRID-required list given when borrower can shop for services (e.g., title). |
| What must be included in the written list of service providers? | At least one provider for each service the borrower can shop for. |
| What is the zero tolerance category under TRID? | Fees that cannot change (e.g., lender fees, appraisal, credit report). |
| What is the 10% cumulative tolerance category? | Third-party services borrower cannot shop for (e.g., title if not shopped). |
| What fees are not subject to tolerance limits? | Prepaid interest, property insurance, escrow deposits, services borrower selects. |
| What happens if fees exceed tolerance limits? | A tolerance cure must be issued within 60 days. |
| How long must CD records be retained? | 5 years after consummation. |
| What are the four components of loan origination covered under TRID? | Application, Loan Estimate, Intent to Proceed, Closing Disclosure. |
| What is the purpose of the Intent to Proceed? | Confirms borrower agrees to move forward after receiving LE. |
| Can a lender charge upfront fees before Intent to Proceed? | Only for credit report; all others must wait. |
| How long must LE records be retained? | 3 years. |
| What triggers the need for a revised LE? | Valid change in circumstance affecting terms or costs. |
| What is the “business day” definition for LE? | Any day the creditor’s offices are open for business. |
| What is the “business day” definition for CD? | All calendar days except Sundays and legal public holidays. |
| What is the role of the CFPB under Dodd-Frank? | Primary enforcer of federal consumer financial laws. |
| What is UDAAP? | Unfair, Deceptive, or Abusive Acts or Practices — prohibited under Dodd-Frank. |
Created by:
jenniferhudson
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