If a lender checks credit reports on individuals before mailing out loan offers, it is most likely trying to avoid
A) moral hazard.
B) moral dilemma.
C) adverse selection.
D) adverse reaction.

Question

Quizplus · Accepted Answer

Adverse selection occurs when a lender cannot differentiate between high-risk and low-risk borrowers before providing a loan. By checking credit reports, the lender aims to identify and avoid high-risk individuals, thus mitigating adverse selection.

If a Lender Checks Credit Reports on Individuals Before Mailing