Question 1

Which of the following is NOT included in the definition of margin stock?

Accepted Answer

Nonmargin stock convertible to margin stock is not included in the definition of margin stock.

Question 2

Which of the following statements is true regarding the lessee's ability to purchase the leased property?

Accepted Answer

The purchase price must be disclosed in the initial disclosure statement if the lessee has the option to purchase the property at the end of the lease term.

Question 3

First National Bank has made a loan to Mr. Good, secured by margin stock, to purchase margin stock. He trades stocks frequently, makes substitutions on loan collateral regularly, and sometimes withdraws collateral and does not replace it. Must FNB ensure that margin requirements are met after every substitution and withdrawal?

Accepted Answer

According to Regulation T under the Securities Exchange Act, a lender must ensure that margin requirements are met at all times, even after any substitutions or withdrawals. This is to ensure the safety of the lender's investment and prevent the borrower from becoming over-leveraged. Therefore, FNB must ensure that margin requirements are met after every substitution and withdrawal.

Question 4

First National Bank made the following loans to Mr. James Wilson during the previous calendar year: • Loan A, made on February 2, is a loan for purchasing margin stock and is secured by margin stock • Loan B, made on March 15, is also for purchasing margin stock and is secured by margin stock • Loan C, made on June 30, is an unsecured loan for purchasing margin stock • Loan D, made on September 10, is for purchasing a car, secured by the car All the loans are still outstanding at the end of the year. Which of the loans must be combined for purposes of the margin requirements of Regulation U?

Accepted Answer

Loans A, B, and C must be combined for purposes of the margin requirements of Regulation U because they are all for purchasing margin stock, regardless of whether they are secured or unsecured. Loan D is for a car purchase and is not related to margin stock, so it is not combined.

Question 5

Under Regulation M, what is a "consumer lease"?

Accepted Answer

According to Regulation M, a consumer lease is defined as a lease for personal property that is primarily for personal, family, or household purposes for a period of time exceeding four months and where the total contractual obligation is less than or equal to $25,000. Therefore, option C is the best choice as it accurately defines a consumer lease under Regulation M.

Question 6

The senior lender at ABC bank would like to make stated income mortgage loans (i.e., loans where the bank does not verify the applicant's income) to mortgage customers, including subprime borrowers. Under the statement on subprime mortgage lending, which of the following is the best statement of the bank's responsibility regarding this new program?

Accepted Answer

The best statement of the bank's responsibility is to make a policy for the stated income mortgage loans program that includes mitigating factors for the risks. The statement on subprime mortgage lending notes that lenders should put in place policies and procedures to ensure that subprime borrowers receive loans that are consistent with their ability to repay. The bank should consider the risks associated with stated income loans and put in place measures to mitigate those risks, such as requiring higher down payments or credit scores. Setting stringent debt-to-income ratios or establishing workout procedures should also be part of the bank's policy, but they are not the best statements of the bank's responsibility on their own.

Question 7

For which of the following must a bank obtain Form FR U-1 when a loan is in excess of $100,000?

Accepted Answer

Form FR U-1 is required when a loan is secured by margin stock, regardless of the purpose of the loan.

Question 8

Milton Edwards leased an automobile from First National Bank. The lease contained a provision whereby Milton would be liable for the automobile at the end of the lease based on its fair market value. At the end of the lease, the bank notified Milton that the value of the automobile, based on industry publications, was $10,500 and required him to pay that amount to obtain ownership of the property. Milton objected and requested that the car be individually appraised. What must the bank do?

Accepted Answer

The answer of Milton Edwards leased an automobile from First...

Question 9

When must disclosures on consumer leasing transactions subject to Regulation M be made?

Accepted Answer

Disclosures on consumer leasing transactions subject to Regulation M must be made before the consummation of the lease. This means that the lessee must receive the disclosures before signing the lease agreement and becoming legally bound by its terms.

Question 10

If a bank makes a loan that is in compliance with Regulation U, what will be the status of the loan at its consummation?

Accepted Answer

Regulation U compliance is maintained until maturity as long as there are no substitutions or withdrawals that affect the loan value, regardless of changes in the borrower's equity.

Question 11

First National's consumer leasing department placed an ad in the local paper that pictured a car with the caption, "Sign a lease with us and pay only $275 per month." What other information must this ad have?

Accepted Answer

According to the Truth in Lending Act and Regulation M, advertisements for consumer leases must disclose the total amount due at consummation or delivery, the number of payments required, and any required security deposit. Option A is only required for certain types of transactions, option C is not necessary in this case, and while option D is important, it is not required to be included in this particular type of ad.

Question 12

A bank does not know all of the specific information to be disclosed on the lease at the time of the consummation. What may the bank do after attempting to obtain the information?

Accepted Answer

The bank may estimate the amounts and note that the information is estimated, as this allows the transaction to proceed while acknowledging the uncertainty.

Question 13

With regard to standards for wear and use of leased property, which of the following statements is true?

Accepted Answer

According to the Federal Reserve Board's Regulation M, lessors must provide a notice of wear and use standards on motor vehicle leases. This notice must include information about the lessor's wear and use standards, including any charges that may be imposed for excessive wear and use.

Question 14

Records regarding compliance with Regulation M must be kept for how long?

Accepted Answer

The answer of Records regarding compliance with Regulation M must...

Question 15

How is the maximum loan value of margin stock defined?

Accepted Answer

The maximum loan value of margin stock is defined as a percentage of the current market value of the stock. This is because a margin loan is based on the collateral of the stock, and the current market value reflects the most accurate representation of the collateral's worth.

Question 16

Roberta Milton's car lease with First National Bank reached its termination on August 1. Roberta and the bank agreed to extend the lease on a month-to month basis without charging her a fee for doing so. What disclosure responsibilities does the bank have now?

Accepted Answer

The answer of Roberta Milton's car lease with First National...

Question 17

Is the renewal of a loan considered to be a new extension of credit for purposes of valuing the collateral under Regulation U?

Accepted Answer

According to Regulation U, any amounts other than interest, service charges, or taxes that are added to the loan balance would result in the renewal of the loan being considered a new extension of credit for purposes of valuing the collateral. Therefore, Choice C is the correct answer.

Question 18

The initial disclosure requires that certain disclosures relating to the termination of a lease be given to the consumer. Which of these disclosures is NOT required?

Accepted Answer

The initial disclosure does not require information on whether the lease may be extended at the option of the lessee.

Question 19

First National Bank has made three loans to Mrs. Elmwood. Two of the loans are regulated credits (they are for the purpose of purchasing margin stock and secured by margin stock). The third loan is for the purpose of purchasing margin and nonmargin stock, and the loan is secured by real estate and margin stock. Can the bank avoid having the third loan combined with the other two for Regulation U purposes?

Accepted Answer

According to Regulation U, any loan that is secured by margin stock must be considered a regulated credit, regardless of any other collateral that may also be securing the loan. Therefore, the part of the third loan that is secured by margin stock must be combined with the other two regulated credits. The real estate collateral does not exempt this part of the loan from Regulation U requirements.

Question 20

What insurance disclosures are required in the lease disclosure statement?

Accepted Answer

The lease disclosure statement must include the types and amounts of insurance coverage provided by the lessor and the cost to the lessee.

Exam 1: Certified Regulatory Compliance Manager