Deck 15: Evaluating Consumer Loans

Question 1

Which of the following has the lowest weight in determining a consumer's FICO score?

A) Types of credit
B) Amounts owed
C) Payment history
D) Length of credit history
E) Number of delinquencies

Answer 1

A

Question 2

Revolving credit may take the form of:

A) overdraft protection.
B) demand deposit accounts.
C) excess reserves.
D) automobile loans.
E) interchange credit.

Answer 2

A

Question 3

Which of the following is an example of an indirect loan?

A) An automobile dealer negotiates the loan terms with the individual and then presents the agreement to the bank. The bank then makes the loan.
B) An automobile dealer refers a customer to the local credit union. The customer goes to the credit union and gets an auto loan secured by the customer's certificates of deposit.
C) A homebuyer gets a mortgage over the Internet.
D) A student gets a student loan guaranteed by Sallie Mae.
E) None of the above.

Answer 3

A

Question 4

Use the following information for questions
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

Question 5

Which of the following are lenders prohibited from asking on a credit application?

A) The applicant's income
B) If the applicant has a telephone
C) If the applicant has declared bankruptcy in the past
D) How long the applicant has been on the job
E) Lenders are not prohibited from asking any of the above

Question 6

Use the following information for questions
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 are the net proceeds of the loan?

A) $2,200
B) $2,100
C) $2,000
D) $1,800
E) Cannot be determined

Question 7

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

Question 8

Which of the following is a disadvantage of using a debit card?

A) The consumer is charged higher finance charges than on a credit card.
B) The consumer loses float.
C) They have higher processing costs than ATMs.
D) They have lower processing costs than checks.
E) They are not widely available.

Question 9

Which of the following has the greatest weight in determining a consumer's FICO score?

A) Current credit use
B) Credit mix
C) Payment history.
D) Length of credit history
E) Number of applications for new credit

Question 10

The vast majority of credit card revenues comes from:

A) merchant discounts.
B) net credit gains.
C) advertising revenue.
D) interest income and annual fees.
E) interchange fees.

Question 11

Redlining is a lending practice of not extending credit:

A) to minimum wage earners.
B) to finance low-income housing.
C) to students.
D) to targeted minority groups.
E) within a geographic area that is believed to be deteriorating.

Question 12

The Tax Reform Act of 1986 made home equity loans more appealing by:

A) eliminating the tax deduction of interest on consumer loans not secured by real estate.
B) allowing banks to lend up to 125% of the equity in a home.
C) preventing homes from being liquidated in Chapter 13 bankruptcy cases.
D) reducing bank income taxes on mortgage loan income.
E) all of the above.

Question 13

During 2007 - 2008, many borrowers had ________ in their homes causing individuals to "walk away" from their homes.

A) positive equity
B) negative equity
C) positive market value
D) negative market value
E) positive asset value

Question 14

The lowest rating category for a subprime loan is:

A) A
B) B
C) C
D) D
E) E

Question 15

Which of the following is an example of a non-installment loan?

A) Credit card
B) 30-year mortgage
C) Bridge loan
D) 5-year auto loan
E) Home equity line of credit

Question 16

The purpose of the Truth in Lending Act of 1968 is to require lenders to quote:

A) home mortgage finance charges in a standardized manner.
B) rates on all certificates of deposit in a standardized manner.
C) payments with and without credit life insurance.
D) consumer loan finance charges in a standardized manner.
E) finance charges on loans over $100,000 in a standardized manner.

Question 17

Use the following information for questions
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
D) $173.12
E) $166.67

Question 18

Which of the following had the greatest net interest margin in 2012?

A) International banks
B) Agricultural banks
C) Credit card lenders
D) Consumer lenders
E) Mortgage lenders

Question 19

Which of the following contains a computer memory chip?

A) Debit card
B) Credit card
C) Smart card
D) Pre-Paid card
E) ATM card

Question 20

Under the Equal Credit Opportunity Act, for which of the following is it illegal for a bank to discriminate against borrowers?

A) The applicant's income
B) The applicant's credit history
C) The applicant's national origin
D) The applicant's job history
E) A civil judgment against the applicant

Question 21

The national average FICO score is:

A) 370
B) 470
C) 570
D) 670
E) 770

Question 22

Which of the following would be considered an unacceptable consumer loan?

A) A home improvement loan, secured by a first mortgage
B) A home improvement loan, secured by a second mortgage
C) A $10,000 loan on a new $30,000 boat, secured by the boat
D) A loan on for 80% of the value on a new automobile, secured by the automobile
E) A loan for 95% of the value of used skydiving equipment, secured by the equipment

Question 23

The only quantitative measure of a consumer loan applicant's character is their:

A) down payment.
B) home equity.
C) time on the job.
D) credit report.
E) credit card balance.

Question 24

The most important of the five Cs of credit when evaluating a consumer loan application is:

A) cash.
B) capacity.
C) character.
D) conditions.
E) competition.

Question 25

Credit cards typically provide lower risk-adjusted returns than other types of consumer loans.

Question 26

Banks labeled "consumer lenders" have the heaviest concentration of loans in credit cards.

Question 27

When a bank keeps dealer reserves, the reserves are primarily used:

A) to cover charge-offs.
B) to increase bank profits.
C) to increase dealer profits.
D) to reduce taxes.
E) to increase advertising revenues.

Question 28

Losses on credit cards are among the highest of all consumer loan types.

Question 29

Under current bankruptcy law, which of the following debts are not dischargeable under Chapter 7?

A) Past due child support
B) Past due mortgage payments
C) Past due credit card payments
D) Past due auto loan payments
E) All of the above are dischargeable under Chapter 7 bankruptcy law

Question 30

Individuals work out a court supervised repayment plan under:

A) Chapter 7
B) Chapter 9
C) Chapter 13
D) Chapter 17
E) Chapter 21

Question 31

Prepaid cards:

A) have a high risk of loss
B) are a hybrid of the debit card
C) have high processing costs
D) all of the above
E) none of the above

Question 32

Consumer loans differ from commercial loans in all of the following ways except:

A) consumer loans are generally smaller than commercial loans.
B) consumer loans are generally for longer terms than commercial loans.
C) consumer loans are generally less expensive to administer on a unit basis than commercial loans.
D) individuals are more likely to default than businesses.
E) consumer loans in some states are still covered by usury laws.

Question 33

Which of the five Cs refers to an individual's wealth?

A) cash.
B) capacity.
C) character.
D) conditions.
E) capital

Question 34

Today, many banks target individuals as the primary source of growth in attracting new business.

Question 35

Most consumer loans are secured.

Question 36

Salomon Brothers' collateralized automobile receivables securities are labeled:

A) AUTOs.
B) CARDs.
C) VANs.
D) CARs.
E) RACs.

Question 37

Consumer loans are typically very similar such that a comprehensive analytical format can be used for all loans.

Question 38

Credit cards are profitable for banks because many customers are prince insensitive.

Question 39

Which of the following are two of the "additional Cs" of consumer credit?

A) Customer relationships and Character
B) Competition and Continuous employment
C) Continuous employment and Character
D) Customer relationships and Competition
E) Competition and Character

Question 40

Who is at risk if an indirect loan defaults on a loan with full recourse?

A) The bank
B) The borrower
C) The dealer
D) The credit bureau
E) All of the above

Question 41

What is indirect lending and how does it benefit both dealers and banks?

Question 42

A FICO score summarizes an individual's credit history in one number.

Question 43

How do banks use credit-scoring models? If you were developing such a model, what factors do you think would be important in determining if an applicant is a good credit risk?

Question 44

Consumers are prohibited from disclosing if they receive public assistance when applying for credit.

Question 45

Credit scoring models are less objective than judgmental evaluations.

Question 46

Which is more expensive for a bank: 1. Making a loan to a customer that does not pay the loan back? or 2. Denying a loan to someone who would have paid the bank? Explain your answer.

Question 47

Discuss the 5 C's of credit and what they mean in evaluating a loan application.

Question 48

Discuss the major differences between consumer and commercial loans.