Question 1

Which of the following companies would risk the revocation of its licence for failing to provide accurate information?

Accepted Answer

Credit bureaus are regulated by various laws and agencies, such as the Fair Credit Reporting Act, and are required to provide accurate information. Failure to do so could result in the revocation of their licence. Banking institutions, collection agencies, and credit card companies also have regulations they must follow, but they may not face the same level of consequences for failing to provide accurate information.

Question 2

A lender considering a commercial loan application examined the potential customer's intellectual property and its accounts receivable history.Which of the following would most strongly influence the lender's position with respect to advancing the loan in this instance?

Accepted Answer

The assets' current value and any existing creditor's claims are critical factors in determining the risk associated with advancing a commercial loan, especially in the case of intellectual property and accounts receivable. The lender would want to ensure that the assets being used as collateral for the loan are valuable and not encumbered by existing claims from other creditors. Factors such as the lender's credit history, regulations ensuring accuracy, and unfair bargaining advantages may also be important, but they are unlikely to be as critical as the value of the assets being used as collateral.

Question 3

A new business,Vale Gifts Inc.,hopes to negotiate a loan with BigBank Inc.in order to finance the improvements it wishes to make in its store.Which of the following should Vale expect BigBank Inc.will require as a condition of granting the loan?

Accepted Answer

BigBank Inc. is likely to require a security agreement as a condition of granting the loan, which would provide collateral for the loan in case Vale Gifts Inc. is unable to repay it. BigBank Inc. may also require other conditions such as a personal guarantee from the owners or a detailed business plan. However, it is not likely that BigBank Inc. will want to assume title of Vale Gifts Inc.'s inventory or provide unsecured credit, as these options would be considered risky for the bank. A letter of credit may be useful for international trade transactions, but may not be relevant for Vale Gifts Inc.'s loan request.

Question 4

ImaBigBank has completed its risk assessment for a commercial loan application and has decided to grant the loan.What is the legal term given to the form of notice ImaBigBank will provide to the application detailing basic terms of the proposed loan?

Accepted Answer

A letter of commitment is a legal document that outlines essential terms of a proposed loan agreement between a lender and a borrower. This document indicates that the lender intends to provide funds to the borrower, subject to certain conditions and requirements. It serves as a formal notification of the lender's agreement to extend credit to the borrower and may include information such as the loan amount, interest rate, repayment period, collateral, and other relevant terms.

Question 5

What type of financing agreement would contain conditions relating to the provision of,among other things,an invoice,shipping receipt,and proof of insurance?

Accepted Answer

A letter of credit is a financial document issued by a bank that guarantees payment to a seller upon receipt of specified documents, such as an invoice, shipping receipt, and proof of insurance, ensuring that the terms of the sale are met.

Question 6

Which of the following would typically be requested by a lender being asked to grant a large commercial operating line of credit?

Accepted Answer

The answer of Which of the following would typically be...

Question 7

Which of the following is a valid characterization of the borrower's promise to repay a loan and the lender's collateral or security if the borrower fails to repay?

Accepted Answer

The borrower's promise to repay and the lender's collateral or security are the major elements of a credit agreement. This is because the borrower's promise to repay is the core of the lender's decision to provide credit, while collateral or security provides protection for the lender if the borrower fails to repay. Other answer choices are incorrect - B is too broad, C is not necessarily true in all cases, and D is inaccurate because collateral or security is the borrower's property interest, not the lender's.

Question 8

What is the name given to an agreement that includes all of the debtor's personal property as collateral?

Accepted Answer

A general security agreement is a contract that secures a loan by using all of the debtor's personal property as collateral.

Question 9

Tiki Imports Ltd.plans to purchase items in inventory from a supplier in China.What would Tiki want to assure that it has obtained prior to making payment for those goods to a foreign supplier?

Accepted Answer

Tiki Imports Ltd. would want to assure that it has obtained the title documents prior to making payment for the goods to ensure that they are the rightful owners of the goods and that there are no disputes over ownership or transfer of ownership. Credit arrangements, a letter of commitment, and collateral security may also be important, but obtaining title documents is the most critical step in ensuring that the transaction is valid and legally binding.

Question 10

Gita has entered into a loan contract with ABC Loans Inc.in which Gita agrees to pay 70 percent per annum on the outstanding balance of the loan.Which of the following statements is correct regarding this arrangement?

Accepted Answer

The Criminal Code in many jurisdictions sets a maximum allowable interest rate, often around 60% per annum, beyond which it is considered criminal usury.

Question 11

Marina borrowed $5000 of the $25 000 she required to purchase her car from ImaBigBank.The only financing document Marina signed was ImaBigBank's loan agreement.Marina had a number of problems with the car and subsequently sold it.The outstanding balance of the loan is $1500.What will be the most likely result if Marina defaults on the loan?

Accepted Answer

If Marina defaults on the loan, the bank will likely obtain a judgment against her and seek to satisfy the debt from her general financial resources. This may include seizing her assets, garnishing her wages, or engaging in other collection activities as permitted by law. It is not likely that the bank will extend time for payment or bring fraud charges, as Marina signed a loan agreement and presumably agreed to repay the debt. The bank may also give Marina notice of its intention to begin collection proceedings before obtaining a judgment.

Question 12

Which of the following forms of credit does "trade credit" usually assume?

Accepted Answer

Trade credit is typically unsecured, meaning it does not require collateral. It is an agreement where a buyer can purchase goods on account, paying the supplier at a later date.

Question 13

Brooker Boat Inc.plans to sell 10 boats to a Holiday Boat Sales Ltd.What is the name of the written promise by Holiday's bank to Brooker to pay Brooker when certain specified conditions are met?

Accepted Answer

The written promise by a bank to pay a seller when certain specified conditions are met is called a letter of credit. This is commonly used in international trade transactions to ensure that the seller will receive payment even if the buyer defaults. In this case, Holiday Boat Sales Ltd's bank would issue a letter of credit to Brooker Boat Inc. to guarantee payment for the 10 boats they plan to purchase.

Question 14

Which of the following is a distinguishing characteristic of an unsecured debt?

Accepted Answer

An unsecured debt is characterized by the absence of a security interest in debtor's assets. This means that the lender has no claim on the borrower's assets if they default on the loan.

Question 15

Consumer protection laws relating to lending institutions are scattered throughout a number of pieces of legislation.What is the unifying theme that each seeks to regulate?

Accepted Answer

Consumer protection laws relating to lending institutions primarily focus on licensing, permitted activities, and terms of credit to ensure fair practices and transparency in lending.

Question 16

What is one of the criticisms levelled against new federal legislation regulating payday loans?

Accepted Answer

The answer of What is one of the criticisms levelled...

Question 17

Which of the following is a distinguishing feature of a guarantee?

Accepted Answer

A guarantee must be in writing to be enforceable, as per the Statute of Frauds.

Question 18

Which of the following is a valid criticism of the federal government's delegation of the regulation of payday lending costs to the provinces?

Accepted Answer

The criticism of the federal government's delegation of regulation of payday lending costs to the provinces is that the permitted costs of borrowing are inconsistent among the provinces. This creates confusion for borrowers and allows lenders to potentially exploit differences in regulations between provinces. While A and B may be valid concerns in some cases, they are not specific criticisms of the delegation of regulation to the provinces. Option D is incorrect as it is not a criticism of the delegation but rather a criticism of the payday lending industry itself.

Question 19

Which of the following is a commonality shared by buildings and inventory with respect to financing a business?

Accepted Answer

Both buildings and inventory can be used as collateral for business loans, meaning they can be pledged as security in exchange for financing. This is a commonality between the two when it comes to financing a business. While the other options may also apply to both buildings and inventory, they are not specific to financing and do not necessarily represent a shared characteristic between the two.

Question 20

A lender has been fined,its licence has been suspended,and it is subject to an order by the regulator prohibiting further violations.What may the complainant seek as additional remedies in these circumstances?

Accepted Answer

Given the severity of the lender's violations, a court may be able to adjust the loan terms and a complainant may be eligible for damages. Options A, B, and C do not address the root issue of the lender's wrongdoing or offer adequate compensation to the complainant.

Quiz 26: The Legal Aspects of Credit