Apply Consumer Protection Standards - Nationwide Multistate Licensing System NMLS

1. What is the name of the federal rule that requires an ability-to-repay evaluation for most residential mortgages?

   ATR/QM Rule (Ability-to-Repay/Qualified Mortgage). This Dodd-Frank rule requires lenders to verify borrowers' repayment capacity using documented income and debt to reduce default risks on mortgages.

2. Which federal law requires financial institutions to provide privacy notices and limit sharing of nonpublic personal information?

   Gramm-Leach-Bliley Act (GLBA). GLBA enhances consumer privacy by mandating annual notices and opt-out rights regarding the sharing of personal financial data with non-affiliated parties.

3. What is the predatory practice of charging excessive fees or interest not justified by risk or services provided?

   Equity stripping. This abusive practice depletes borrowers' home equity through unjustified high charges, heightening foreclosure risk and financial instability.

4. Under FCRA, what is the term for the legally required reason to obtain a consumer report?

   Permissible purpose. FCRA limits access to consumer reports to valid reasons, such as credit transactions, to safeguard personal information from unauthorized or misuse.

5. Which loan feature is prohibited for Qualified Mortgages (QMs) due to negative amortization risk?

   Negative amortization. QMs exclude this feature as it allows the loan balance to grow, increasing borrower debt and default likelihood beyond initial principal.

6. What is the predatory practice of repeatedly refinancing a loan to generate fees with little borrower benefit?

   Loan flipping. This predatory tactic exploits borrowers by encouraging frequent refinances primarily to collect fees, often eroding equity without providing net benefits.

7. Which law governs how consumer credit information may be accessed, used, and disclosed by lenders?

   Fair Credit Reporting Act (FCRA). FCRA protects consumer privacy and accuracy by regulating the collection, use, and sharing of credit information among financial institutions and credit bureaus.

8. What is the term for a lender targeting vulnerable borrowers for unfavorable loan terms based on demographics or geography?

   Predatory lending targeting (reverse redlining). Reverse redlining exploits vulnerable populations by offering inferior loans, perpetuating economic disparities in underserved communities.

9. What is the ECOA notice called that explains why credit was denied or granted on less favorable terms?

   Adverse action notice. This ECOA-required notice provides transparency by detailing reasons for credit denial or unfavorable terms, allowing applicants to address issues or errors.

10. Identify the red flag: borrower qualifies for prime pricing but is steered into a higher-rate subprime loan.

    Steering (potentially discriminatory or unfair practice). This practice raises concerns of discrimination or predation by directing qualified borrowers to costlier options, potentially for lender profit.

11. Which practice involves misrepresenting or omitting key loan terms to induce a consumer to borrow?

    Deceptive lending (material misrepresentation/omission). This unfair tactic undermines borrower consent by concealing or falsifying critical information, leading to uninformed and potentially harmful decisions.

12. What is the term for a loan where the interest rate can increase after an initial fixed period?

    Adjustable-rate mortgage (ARM). ARMs feature rate adjustments tied to market indices after a fixed introductory period, potentially raising payments based on economic conditions.

13. Which law is violated if a lender discourages an applicant from applying because of national origin?

    ECOA. ECOA forbids discouraging applications on prohibited bases to ensure equal encouragement and access to credit opportunities for all applicants.

14. Identify the prohibited RESPA practice: paying a real estate broker $300 for referring a borrower to a lender.

    RESPA Section 8 illegal kickback for a referral. RESPA Section 8 bans referral payments to prevent conflicts of interest and unnecessary cost increases in real estate settlements.

15. Which law prohibits discrimination in lending based on race, color, religion, national origin, sex, marital status, or age?

    Equal Credit Opportunity Act (ECOA). ECOA ensures fair credit access by banning discrimination on protected characteristics, promoting equality in lending decisions.

16. Identify the prohibited RESPA practice: a title company splits fees with an agent who did no work.

    RESPA Section 8 unearned fee/fee splitting. RESPA Section 8 prohibits dividing fees without services rendered to ensure compensation reflects actual work and maintain fair settlement costs.

17. Which law is violated if a lender uses different underwriting standards based on race for the same product?

    Fair Housing Act (and ECOA). Both laws prohibit racial discrimination in lending standards to ensure consistent, unbiased evaluation and promote fair housing access.

18. Which loan feature is prohibited for Qualified Mortgages (QMs) because it defers principal repayment?

    Interest-only payments. QMs prohibit this to ensure payments contribute to principal reduction, fostering sustainable repayment and reducing long-term debt accumulation.

19. Identify the predatory red flag: a loan is approved with no reasonable ability-to-repay analysis.

    ATR failure; potential abusive or unfair lending. Neglecting ATR assessment violates rules aimed at ensuring loans are affordable, indicating potential exploitation of borrowers' financial situations.

20. What is the primary purpose of the Real Estate Settlement Procedures Act (RESPA)?

    Disclose settlement costs and prohibit kickbacks. RESPA aims to enhance consumer awareness of real estate settlement costs while eliminating abusive practices like referral fees that inflate expenses without value.

21. Which law requires flood insurance when a building is in a Special Flood Hazard Area for a federally related loan?

    National Flood Insurance Act (NFIA). NFIA mandates flood insurance for properties in high-risk areas to mitigate financial losses from floods and protect federal loan interests.

22. Which law requires a creditor to provide a copy of the appraisal and other written valuations promptly?

    ECOA Valuations Rule (copy of appraisal requirement). This ECOA provision enhances fairness by ensuring borrowers receive timely access to valuation information used in credit decisions for residential properties.

23. Which federal law requires lenders to disclose key credit terms and APR to consumers?

    Truth in Lending Act (TILA). This law mandates transparent disclosure of credit terms, including APR, to enable informed borrowing decisions and protect consumers from deceptive practices.

24. What is the legal name of the RESPA rule that requires Loan Estimate and Closing Disclosure?

    TRID (TILA-RESPA Integrated Disclosure) Rule. The TRID Rule combines TILA and RESPA requirements to provide borrowers with standardized, clear disclosures for better understanding of loan and settlement costs.

25. Which federal law prohibits discrimination in residential real estate-related transactions, including lending?

    Fair Housing Act (FHA). The FHA promotes equal housing opportunities by prohibiting discriminatory practices in real estate transactions, including mortgage lending, to prevent bias.

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