Chapter 18

Consumer Loans, Credit Cards, and Real Estate Lending

Fill in the Blank Questions

1. The purchase of a house or a multifamily dwelling such as a duplex, triplex or apartment building
is usually financed through the use of a______________________ loan.
Answer: residential mortgage

2. A(n)______________________ loan is a short- or medium-term loan repayable in two or more

consecutive payments, usually monthly or quarterly.
Answer: installment

3. Household borrowings tend to be ______________________. Consumers are more concerned

about the size of the debt repayments than the interest rate charged.
Answer: interest inelastic

4. The fact that a consumer feels a strong moral and ethical responsibility to repay a loan on time
refers to the ______________________ of that individual. The loan officer must be assured that
the borrower is serious about repaying the loan before they are willing to make a loan.
Answer: character

5. When a borrower receives a loan at one lending institution to repay another it is called ________
___________________
Answer: pyramiding of debt

6. The______________________ allows a bank to call a loan that is in default and seize any
checking or savings deposits the customer may hold with the bank in order to recover its funds.
Answer: right of offset

7. ______________________ is a method to evaluate a large volume of consumer loans quickly

with minimum labor. This method is a statistical model which predicts whether the consumer
will repay the loan or not.
Answer: Credit scoring

8. A(n)____________________________________________ is where the customer can use the

difference between some percentage of the appraised value of their home and the mortgage
remaining to secure a loan. This loan can be used to fund a college education, pay for a vacation
or pay for home improvements.
Answer: home equity loan

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 9. The law that requires the full disclosure of credit terms and which promotes the informed use of
credit is the ______________________. This law requires the bank to report the APR of the
loan, the dollar amount of all finance charges and, where appropriate, all fees.
Answer: Truth in Lending Act

10. The law that limits how far a creditor or credit collection agency can go in pressing a customer to
pay a past due debt is the ______________________. It does not allow a debt collector to
"harass" a debtor.
Answer: Fair Debt Collection Practices Act

11. Short-term credit to finance the building of homes or other dwellings is called
______________________.
Answer: construction loans

12. A(n)______________________ is a credit-rating agency that keeps records of borrowers' loan

payment histories.
Answer: credit bureau

13. The____________________________________________ permits consumers to dispute billing

errors with a merchant or credit card company and receive a prompt investigation into any billing
errors.
Answer: Fair Credit Billing Act

14. The____________________________________________ prevents redlining out certain

neighborhoods and refusing to provide loans and other services in those areas.
Answer: Community Reinvestment Act

15. ____________________________________________ is the granting of loans to weaker

borrowers and charging them excessive fees and interest rates, increasing their risk of default
Answer: Predatory lending

16. The______________________ is the internal rate of return that equates present value of the
payments with the amount of the loan. It is the rate required to be reported under the Truth in
Lending Act.
Answer: annual percentage rate (APR)

17. The interest rate method which requires the interest on the loan to be paid in advance is called
the______________________ method.
Answer: discount rate

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 18. The interest rate method that adds the interest owed to the principal is called the __________
method.
Answer: add-on

19. A rule of thumb used to determine how much interest income a bank is allowed to accrue at any
point in time from a consumer loan paid off in monthly installments is called the _____________.
Answer: Rule of 78s

20. A(n)____________________________________________ is an agreement drawn up by the

bank that gives the bank control of the property if the loan cannot be repaid as planned.
Answer: chattel mortgage

21. The interest rate on most consumer loans is based on the cost of loanable funds to the bank plus
nonfunding cost plus premiums for default and time to maturity and also includes the desired
profit margin on the loan. This method of pricing loans is known as______________________ .
Answer: cost plus pricing

22. ______________________ is a basic method for calculating the interest owed on a loan that
adjusts for declining balances and the time remaining on the loan.
Answer: Simple interest

23. A variable rate loan on a residential mortgage is called a(n)______________________.

Answer: adjustable rate mortgage or ARM

24. Many home mortgage agreements include______________________ which is an additional

charge up front. Generally, each of these corresponds to one percent of the face value of the
amount borrowed.
Answer: points

25. A popular prepaid card used like a credit card, especially in Europe, is the _________ card.
Answer: smart

26. A popular credit scoring system developed and sold by Fair Issac Corporation is known as
____________.
Answer: FICO

27. Traditional home equity loans are usually priced using ________-term interest rates while home
equity lines of credit are priced using __________-term interest rates.
Answer: longer, shorter

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 28. are loans that families and individuals can draw upon for
immediate cash needs that are repayable in one lump sum. These loans often cover the cost of a
vacation, medical care, the purchase of a home appliance or home repairs.
Answer: Noninstallment loans

29. Credit cards are the best example of a that offer consumers convenience
and flexibility. Consumers can access them whenever the need arises.
Answer: revolving lines of credit (revolving credit loans)

30. are plastic cards that can be used to pay for goods and services but where credit
is not extended. They are a convenient way to make deposits into and withdrawals from an ATM.
Answer: Debit cards

31. Consumer loans tend to be . They tend to rise in periods of economic

expansion and tend to fall in periods of economic downturn.
Answer: cyclically sensitive

32. In the case of a borrower without a credit record or a very poor track record, a may be
requested to support repayment. Technically if the borrower defaults on the payment, they are
obligated to repay the loan.
Answer: cosigner

33. A bank generally prefers the borrower report rather than gross salary.
Answer: net income (or take-home pay)

34. One of the three biggest credit bureaus includes .

Answer: Experian (Equifax, Transunion)

35. The prohibits lenders from asking certain questions of a customer,

such as a customer’s age or race.
Answer: Equal Credit Opportunity Act

36. The fastest rising financial crime against individuals today is . This is the
deliberate attempt to take unauthorized use of someone else’s personal information in order to
fraudulently obtain money, credit or other property.
Answer: identity theft

37. The Act provides consumers with the opportunity to order one free credit
report annually from each of the three nationwide credit bureaus.
Answer: Fair and Accurate Credit Transactions (FACT)

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 38. is the granting of loans to borrowers with below-average credit records.
These loans tend to go to borrowers with a record of delinquent payments, previously charged-off
loans, bankruptcies or court judgments.
Answer: Subprime lending

39. In real estate lending, the property must be . The value and condition of the
property are determined by an independent party. These must conform to industry and
government standards.
Answer: appraised

40. One new type of mortgage where no principal payments are made is called a(n) .
Interest-only mortgage

True/False Questions

T F 41. The dominant lender in the United States to households is the finance company with
commercial banks ranked second as consumer lenders.
Answer: False

T F 42. Nonresidential consumer loans include credit to finance the purchase of home appliances.
Answer: True

T F 43. Credit cards offer convenience to customers plus a revolving line of credit.
Answer: True

T F 44. Consumer loans appear to have virtually no sensitivity to the business cycle, staying
relatively level through both recessions and expansions.
Answer: False

T F 45. Households tend to be interest-inelastic borrowers.

Answer: True

T F 46. Lenders in the consumer loan field prefer to measure a borrowing customer's income by
the amount of take-home pay.
Answer: True

T F 47. The "right of offset" allows a bank to sell a customer's property to the highest bidder to
repay a customer's loan if the loan is in default.
Answer: False

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 T F 48. "Pyramiding of debt" refers to borrowing from one lender to repay another lender.
Answer: True

T F 49. Credit-scoring systems tend to be valid over long periods of time (usually several years)
and need not be periodically retested.
Answer: False

T F 50. The Truth-in-Lending Act of 1968 gave consumers access to the information from their
credit files kept at local and regional credit bureaus.
Answer: False

T F 51. Small business owners with gross annual revenues of $1 million or less who apply for
credit have the right to receive a written notice if their loan request is turned down by a
bank.
Answer: True

T F 52. The symbol "SN" indicates that a bank has been judged to be an outstanding performer
under the terms of the Community Reinvestment Act.
Answer: False

T F 53. Banks awarded top CRA marks usually get strong commitments from their boards of
directors and senior management to promote community involvement.
Answer: True

T F 54. FNMA will buy home mortgages provided the borrower's monthly house payment does
not exceed 35 percent of monthly gross income.
Answer: False

T F 55. Under FNMA rules for buying home mortgages FNMA will not usually purchase a
borrower's mortgage if the borrower's credit report is more than 45 days old.
Answer: False

T F 56. An installment loan is a loan in which the customer repays the loan in two or more
consecutive payments. These payments are often monthly or quarterly.
Answer: True

T F 57. The Equal Credit Opportunity Act authorizes individuals and families to review their

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 credit file for accuracy and to demand an investigation and correction of any apparent
inaccuracies.
Answer: False

T F 58. The burden of proof is on the bank to demonstrate that its credit scoring system
successfully identifies quality loan applications at a statistically significant level.
Answer: True

T F 59. Real estate loans are smaller in size and shorter in maturity than most other types of bank
loans.
Answer: False

T F 60. The Community Reinvestment Act is designed to prevent a lender from arbitrarily
marking out certain neighborhoods as undesirable and refusing to lend to people who live
in those neighborhoods.
Answer: True

T F 61. There is usually a positive relationship between the interest rate a consumer is asked to
pay and the amount of deposits the consumer is willing to keep with the bank.
Answer: False

T F 62. Competition for consumer loans tends to drive the interest rates on these loans down
closer to loan production costs.
Answer: True

T F 63. Shorter term cash loans to consumers are normally secured, but longer-term consumer
loans are usually unsecured.
Answer: False

T F 64. An auto loan usually carries with it a chattel mortgage, giving the bank a claim against
the property covered by the loan.
Answer: True

T F 65. Most consumer loans are priced off some base or cost rate.
Answer: True

T F 66. The APR is the internal rate of return on a loan that equates total payments with the
amount of the loan.
Answer: True

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 T F 67. The quotation to customers of the APR on the loan they are requesting usually
discourages consumers from shopping around according to recent research findings.
Answer: False

T F 68. Unlike the APR method for calculating consumer loan rates, the simple interest approach
adjusts for the length of time a borrower actually has use of credit.
Answer: False

T F 69. Under the simple interest method the customer saves on interest as an installment loan
approaches maturity.
Answer: True

T F 70. With the discount rate method interest is deducted first before the customer has use of the
proceeds of a loan.
Answer: True

T F 71. The majority of installment and lump-sum payment loans to families and individuals are
made with floating interest rates.
Answer: False

T F 72. Points on a home mortgage loan result in a lender earning a higher effective interest rate
on the loan than just the loan rate quoted to the borrower.
Answer: True

T F 73. According to the table presented in the book personal loans tend to have lower rates than
automobile loans.
Answer: False

T F 74. According to the table presented in the book credit card loans tend to have the highest
interest rates of all consumer loans.
Answer: True

T F 75. According to the table presented in the book new car loans have a lower interest rate than
used car loans.
Answer: True

T F 76. There are very little economies of scale (cost savings) in the credit card business.
Answer: False

T F 77. Currently the debit card market is almost as large as the credit card market.

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 Answer: False

T F 78. One of the elements used in the FICO credit scoring system is the borrower's
employment history and salary.
Answer: False

T F 79. The most important factor used in the FICO credit score is the borrower's payment
history.
Answer: True

T F 80. Home mortgage real estate loans soared to record levels at the beginning of the 21 st
century.
Answer: True

Multiple Choice Questions

81. Short-term to medium-term loans repayable in two or more consecutive payments are known as:
A) Noninstallment loans
B) Installment loans
C) Residential mortgage loans
D) Nonresidential cash loans
E) None of the above
Answer: B

82. Loans to individuals and families to finance the purchase of new homes are known as:
A) Noninstallment loans
B) Installment loans
C) Residential mortgage loans
D) Nonresidential cash loans
E) None of the above
Answer: C

83. Short-term loans drawn upon by individuals and families for immediate cash needs and repayable
in a lump sum when the borrower's note matures are known as:
A) Noninstallment loans
B) Installment loans
C) Residential mortgage loans
D) Nonresidential cash loans
E) None of the above
Answer: A

84. The federal law that requires banks to notify their credit customers in writing when a loan request

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 is denied is known as the:
A) Equal Credit Opportunity Act
B) Competitive Equality in Banking Act
C) Truth-in-Lending Act
D) Community Reinvestment Act
E) None of the above.
Answer: A

85. Major laws and regulations which must be complied with in the mortgage lending area include
which of the following?
A) National Affordable Housing Act
B) Community Reinvestment Act
C) Financial Institution Reform Recovery and Enforcement Act
D) All of the above
E) B and C only
Answer: D

86. Which of the following factors have proven most important in credit scoring models?
A) Credit Bureau ratings
B) Income bracket
C) Number of loans the customer has had
D) All of the above
E) A and B only
Answer: E

87. The requirement that banks must provide their consumer loan customers with a statement of the
APR for the proposed loan was established by:
A) The Fair Credit Reporting Act.
B) The Equal Credit Opportunity Act.
C) The Truth-in-Lending Act.
D) The Community Reinvestment Act.
E) None of the above
Answer: C

88. Which of the following consumer loans has grown in popularity as a result of the passage of the
Tax Reform Act of 1986?
A) Credit card loans
B) Home equity loans
C) Long-term, noninstallment loans
D) Short-term, installment loans
E) All of the above
Answer: B

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 89. A bank that is judged by examiners as needing to improve under the performance requirements of
the Community Reinvestment Act will receive an examiner rating of:
A) 0
B) S
C) N
D) SN
E) None of the above
Answer: C

90. In order to be eligible for purchase by FNMA a home mortgage cannot have a maturity of less
than 10 years nor more than:
A) 25 years
B) 30 years
C) 35 years
D) 40 years
E) None of the above
Answer: B

91. FNMA will not purchase home mortgages in the secondary market if the borrower's monthly debt
repayments (including housing costs) exceed _________ percent of the borrower's monthly gross
income. The correct percentage figure to complete the sentence above is:
A) 28
B) 30
C) 36
D) 40
E) None of the above
Answer: C

92. How did the Tax Reform Act of 1986 increase the appeal of home equity loans?
A) It allowed customers to borrow up to 100 percent of the value of their home
B) It eliminated bank income taxes from this type of loan
C) It protected homes under Chapter 13 bankruptcy
D) It eliminated individuals' tax deduction for interest payments on other types of loans
E) It required banks to lend on homes in the geographic area of their deposits
Answer: D

93. The federal law that permits consumers to dispute billing errors with a merchant or credit card
company and receive a prompt investigation of any billing disputes is the:
A) Fair Credit Reporting Act
B) Fair Credit Billing Act
C) Fair Debt Collection Practices Act
D) Truth in Lending Act
E) None of the above
Answer: B

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 94. The bank's real estate loan officer should consider which of the following aspects of the
customer's loan application carefully when making a home mortgage?
A) The amount and stability of the borrower's income
B) The borrower's available savings and where the down payment is coming from
C) The borrower's track record in caring for and managing property.
D) The outlook for real estate sales in the local market area
E) All of the above are things that need to be looked at carefully
Answer: E

95. An abusive practice is which lenders grant loans to weak borrowers and charge them high fees
and interest rates which may cause the borrower to default on the loan is known as:
A) Installment loans
B) Credit card loans
C) Predatory lending
D) Herbivore lending
E) None of the above
Answer: C

96. The law which was passed to reduce predatory lending is known as:
A) Community Reinvestment Act
B) Home Ownership and Equity Protection Act
C) Equal Credit Opportunity Act
D) Fair Debt Collection Practices Act
E) None of the above
Answer: B

97. Which of the following is true regarding credit card loans?

A) There is evidence that considerable economies of scale exist
B) Credit cards cannot act as installment loans
C) Credit cards are very inconvenient for consumers
D) Credit cards are very inflexible for consumers
E) All of the above are true
Answer: A

98. A loan officer asks a customer what race she belongs to. Which law prohibits the loan officer
from asking that question?
A) Truth in Lending Act
B) Equal Credit Opportunity Act
C) Community Reinvestment Act
D) Fair Debt Collection Practices Act
E) None of the above
Answer: B

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 99. Which of the following is not part of the evaluation of an installment loan?
A) The borrower's track record in caring for and maintaining property
B) Evidence of stable employment
C) Evidence of residence stability
D) Evidence of income stability
E) All of the above are part of the evaluation of an installment loan
Answer: A

100. Which of the following is an advantage of a credit scoring model?

A) Credit scoring models rely on the evaluation of an experienced credit officer
B) Credit scoring models are immune from charges of discrimination
C) Credit scoring models never make mistakes
D) Credit scoring models can handle a large volume of applications in a short period of time
E) All of the above are advantages of credit scoring models
Answer: D

101. When interest owed on a loan is added to the principal amount of the loan to determine a
borrowing customer's required installment payments, this is known as the _________method for
figuring a customer's loan rate. Fill in the blank with an appropriate response below.
A) Simple interest
B) APR
C) Discount
D) Add-on
E) None of the above
Answer: D

102. The symbols ARM in lending means:

A) Automatic rate modulation
B) Amortization rate method
C) Adjustable rate mortgage
D) Adaptable readjusted mortgage
E) None of the above.
Answer: C

103. The charge on a home mortgage loan that a borrower may be asked to pay up front is referred to
as:
A) Loan Interest Owed
B) Points
C) Loading
D) Tax equity
E) None of the above.
Answer: B

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 104. Which of the following has the highest interest rate according to the book?
A) New automobile loan
B) Used automobile loan
C) Personal loan
D) Credit card loan
E) All of these have the same interest rate
Answer: D

105. Which of the following has the lowest interest rate according to the book?
A) New automobile loan
B) Used automobile loan
C) Personal loan
D) Credit card loan
E) All of these have the same interest rate
Answer: A

106. A customer seeks a $150,000 home mortgage. The bank requires the customer to pay 1 ¾ points
up front. How much of the loan is actually available to the customer?
A) $150,000
B) $152,625
C) $147,375
D) $148,000
E) None of the above
Answer: C

107. A customer wants to borrow $1200 from Edmond State Bank. Edmond State Bank has an add-on
loan with an interest rate of 12 percent and monthly payments for one year. What are the monthly
payments this customer will need to make on this loan?
A) $100 per month
B) $112 per month
C) $107 per month
D) $88 per month
E) None of the above
Answer: B

108. A customer wants to borrower $25,000 for one year. TRC State Bank has a discount loan with an
interest rate of 15 percent. How much of the loan will be available to the customer?
A) $25,000
B) $28,750
C) $22,500
D) $21,250
E) None of the above
Answer: D

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 109. A customer wants to borrow $125,000 to purchase a new home. The APR on this loan is 10
percent and it is a 30-year mortgage with monthly payments. What monthly payment will this
customer face on this loan?
A) $1097
B) $55
C) $12,500
D) $13,260
E) None of the above
Answer: A

110. Mark Brown receives a $2000 loan with the intention of repaying the loan in 12 months.
However, at the end of one month, Mr. Brown discovers he can repay the loan in full. What
percentage of the interest charge is Mr. Brown entitled to receive as a rebate?
A) 36.67 percent
B) 50.00 percent
C) 91.67 percent
D) 63.33 percent
E) None of the above
Answer: D

111. Paul Carter requests an automobile loan of $15,000 that will be repaid over the next four years in
monthly repayments. The First National Bank tells Mr. Carter that his total finance charges will
be $4675.20. What is the APR on this loan?
A) 16 percent
B) 1 percent
C) 14 percent
D) 7 percent
E) None of the above
Answer: C

112. Jane Smith has asked for a 30 year mortgage to purchase a home in Oklahoma City, Oklahoma.
The purchase price of the home is $150,000 of which $125,000 must be borrowed. If the APR on
this loan is 8 percent, how much will Jane's total financing charges be?
A) $246,233
B) $205,194
C) $180,194
D) $165,097
E) None of the above
Answer: B

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 113. Beverly Frickerson asks for a $15,000 loan for one year. The bank tells her that they will give her
$13,050 immediately and deduct $1950 in interest up front. What is the effective rate of interest
on this loan?
A) 14.94 percent
B) 13.00 percent
C) 19.50 percent
D) 11.50 percent
E) None of the above
Answer: A

114. The largest credit card lender (as a group) in the U.S. are:
A) Thrifts
B) Insurance companies
C) Finance companies
D) Oil companies
Answer: C

115. Prepaid cards which compete with credit cards and debit cards are:
A) Smart cards
B) Deposit cards
C) Match cards
D) All of the above
E) None of the above
Answer: A

116. The first major bank within the U.S. to establish a separate department for granting household
loans was:
A) First National City Bank of New York
B) BankAmerica
C) Bank One
D) State Street Bank
E) Bank of New York
Answer: A

117. The fastest growing consumer loan category is:

A) Credit card loans
B) Auto loans
C) Home mortgages
D) Personal loans
E) Education loans
Answer: C

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 118. The very popular FICO credit scoring system provides credit scores in the range:
A) 0 to 10
B) 0 to 1000
C) 100 to 1000
D) 300 to 850
E) 20 to 80
Answer: D

119. The most important factor used in the FICO credit scoring system is:
A) The borrower's payment history
B) The amount of money owed
C) Marital status
D) Employment history and salary
E) Age
Answer: A

120. Jeremiah Uselton needs a loan to purchase a condo in Sarasota,

Florida. What type of loan does Jeremiah need?
A) Residential mortgage loan
B) Installment loan
C) Noninstallment loan
D) Revolving line of credit
E) None of the above
Answer: A

121. Tammy Payne wants to buy a used car and wants a loan that she will
pay off over the next three years with monthly payments. What type of loan
does Tammy want?
A) Residential mortgage loan
B) Installment loan
C) Noninstallment loan
D) Revolving line of credit
E) None of the above
Answer: B

122. Emily Barnes has gone to the First State Bank and gotten a loan of
$5000 so she can go on vacation. She plans on paying the loan back in one
payment in three months. What type of loan has Emily gotten?
A) Residential mortgage loan
B) Installment loan
C) Noninstallment loan
D) Revolving line of credit
E) None of the above
Answer: C

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 123. Bill Wells uses his Discover card to buy new furniture for his apartment.
The interest rate on this card is 18% and the minimum payment that is due is
$100. What type of loan has Bill gotten?
A) Residential mortgage loan
B) Installment loan
C) Noninstallment loan
D) Revolving line of credit
E) None of the above
Answer: D

124. Jerry McGuire uses his Visa card to buy a new washer and dryer and a
new refrigerator for his home. He plans on paying off the credit card over the
next two years. How is Jerry using his credit card?
A) As an installment loan
B) As a noninstallment loan
C) As a lump sum payer
D) As a debit card
E) None of the above
Answer: A

125. The most profitable credit card customers for a bank are those that:
A) Use their credit card frequently
B) Pay off any charges incurred within a few days
C) Charge at least $10,000 per year
D) Use their credit card as a source of installment loans
E) None of the above
Answer: D

126. Alexis Downs uses her credit card to buy furniture but pays off the
credit card at the end of the month before she incurs any interest costs. How
is Alexis using her credit card?
A) As an installment loan
B) As a noninstallment loan
C) As a lump sum payer
D) As a debit card
E) None of the above
Answer: B

127. Donna Carlon is using her plastic card to buy groceries. The money is
taken from her checking account immediately to pay for her groceries. How
is Donna using her card?
A) As an installment loan
B) As a noninstallment loan
C) As a lump sum payer

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 D) As a debit card
E) None of the above
Answer: D

128. A bank is considering making a loan to Alice Granger. The bank is

looking at her credit report from Equifax and also examining the reason Alice
has put on the loan application for needing the loan? What aspect of
evaluating a consumer loan application is the bank looking at?
A) Character and purpose
B) Income level
C) Deposit balance
D) Employment and residential stability
E) Pyramiding of debt
Answer: A

129. A bank is considering making a loan to Ron Weasley. Ron has a gross
salary per month of $4000 but has take-home pay of $2800 per month. What
aspect of evaluating a consumer loan application is this fact most concerned
with?
A) Character and purpose
B) Income level
C) Deposit balance
D) Employment and residential stability
E) Pyramiding of debt
Answer: B

130. A bank is considering making a loan to Sean Finnigan. Sean owns his
own home and has lived there for the past four years. What aspect of
evaluating a consumer loan application is this fact most concerned with?
A) Character and purpose
B) Income level
C) Deposit balance
D) Employment and residential stability
E) Pyramiding of debt
Answer: D

131. A bank is considering making a loan to Sam Snape. Mr. Snape has
$1000 in the bank right now but generally keeps a balance of $4500 most of
the year. What aspect of evaluating a consumer loan application is this fact
concerned with?
A) Character and purpose
B) Income level
C) Deposit balance
D) Employment and residential stability
E) Pyramiding of debt

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 Answer: C

132. A bank is considering making a loan to Neville Langdon. Neville has

bounced three checks in the last year and already has $10,000 on a credit
card and an automobile loan with a large balance. What aspect of evaluating
a consumer loan application is this fact concerned with?
A) Character and purpose
B) Income level
C) Deposit balance
D) Employment and residential stability
E) Pyramiding of debt
Answer: E

133. A bank is considering making a loan to John Carter. John is a

commissioned sales broker. Some months he earns as much as $10,000 and
in other months he earns virtually nothing. Which aspect of evaluating a
consumer loan would this be concerned with?
A) Character and purpose
B) Income level
C) Deposit balance
D) Employment and residential stability
E) Pyramiding of debt
Answer: B

134. Which of the following is a challenge of making a consumer loan?

A) Audited financial statements are provided by consumers quarterly
B) Consumers must disclose publicly any changes in their health that would
affect the loan
C) Consumers can more easily hide pertinent information
D) Consumers can more easily adjust to financial setbacks than can
businesses
E) All of the above are challenges of making a consumer loan
Answer: C

135. Mark Green is considering buying a new Honda Accord. The purchase
price of the car is $21,000 but Mark has a trade-in worth $4500. Mark needs
a loan to buy the car and knows that his local bank requires him to put down
10% of the purchase price after the value of the trade-in is considered. Mark
also knows that bank will charge 8% for the loan and require monthly

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 payments over the next 4 years. What is the minimum down payment that
Mark can make?
A) $2,100
B) $450
C) $1,650
D) $2,550
E) None of the above
Answer: C

136. Mark Green is considering buying a new Honda Accord. The purchase
price of the car is $21,000 but Mark has a trade-in worth $4500. Mark needs
a loan to buy the car and knows that his local bank requires him to put down
10% of the purchase price after the value of the trade-in is considered. Mark
also knows that bank will charge 8% for the loan and require monthly
payments over the next 4 years. If Mark makes the minimum down payment
on the car, what is the amount of the loan that Mark will receive?
A) $18,900
B) $14,850
C) $16,500
D) $14,400
E) None of the above
Answer: B

137. Mark Green is considering buying a new Honda Accord. The purchase
price of the car is $21,000 but Mark has a trade-in worth $4500. Mark needs
a loan to buy the car and knows that his local bank requires him to put down
10% of the purchase price after the value of the trade-in is considered. Mark
also knows that bank will charge 8% for the loan and require monthly
payments over the next 4 years. What is the size of Mark’s monthly
payments if he makes the minimum down payment on the car?
A) $353.50
B) $301.67
C) $512.67
D) $402.81
E) None of the above
Answer: A

138. Mark Green is considering buying a new Honda Accord. The purchase
price of the car is $21,000 but Mark has a trade-in worth $4500. Mark needs
a loan to buy the car and knows that his local bank requires him to put down

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 10% of the purchase price after the value of the trade-in is considered. Mark
also knows that bank will charge 8% for the loan and require monthly
payments over the next 4 years. Mark’s monthly payments are 353.50 per
month. What is Mark’s total finance charge if he takes the full 4 years to pay
off the loan?
A) $468
B) $4,032
C) $4,500
D) $2,488
E) None of the above
Answer: D

139. The Equal Credit Opportunity Act requires that:

A) A bank make loans to all minority applicants
B) A bank only make loans to white male applicants
C) A bank give reasons in writing for denying the loan
D) A bank deny loans if the borrower has only been employed for three
months
E) None of the above
Answer: C

140. Credit reports provided by credit bureaus provide lenders:

A) With personal identifying data
B) With personal credit histories derived from data submitted by lenders
C) With public information that may bear on a borrower’s honesty and
stability
D) With the volume of inquiries from lenders about the borrower
E) All of the above
Answer: E

141. Which regulation requires out-of-state-banks that acquire local banks to commit to
continued lending in the area and not use the acquired banks simply as deposit gatherers?
A) Equal Credit Opportunity Act
B) National Bank Act
C) Federal Lending Act
D) Fair Credit Reporting Act
E) Community Reinvestment Act
Answer: E

142. A bank customer is granted credit for a $2,000 loan at 10% to be repaid in 12 equal installments.
If the loan is a discount loan, what is the monthly payment?
A) 200.00
B) $192.35
C) $184.20

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 D) $173.12
E) $166.67
Answer: E

143. A bank customer is granted credit for a $2,000 loan at 10% to be repaid in 12 equal installments.
If the loan quoted has an add-on rate, what are the net proceeds of the loan?
A) $2,200
B) $2,100
C) $2,000
D) $1.800
E) Cannot be determined
Answer: c

144. A bank customer is granted credit for a $2,000 loan at 10% to be repaid in 12 equal installments.
If the loan quoted has an add-on rate, what is the approximate annual percentage rate (APR) on
the loan?
A) 20%
B) 18%
C) 14%
D) 12%
E) 10%
Answer: B

145. As part of the new regulations of the mortgage market, the Federal Reserve Board moved
to tighten the rules on mortgage lending in 2008. All of the following would improve
transparency of the market except for:
A) Lenders must verify the borrower’s reported income
B) Lenders cannot rely on a home’s current market value to judge a borrower’s creditworthiness
C) Lenders must rely on a borrower’s stated income
D) Lenders must disclose more about the actual terms of a home mortgage loan to a borrower
E) All of the above are included in the new rules
Answer: C

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