Question 1

First National Bank has an employee benefit program whereby all bank employees who meet the bank's credit underwriting standards may obtain consumer loans for major purchases or expenses at a rate that is less than the bank's prime rate. Can the bank allow its executive officers to borrow under this program?

Accepted Answer

As long as the program is available to everyone at the bank as an employee benefit, executive officers may also participate. This is because the benefit program is available to all bank employees who meet the credit underwriting standards, regardless of their position in the bank. However, it's important to note that the executive officers must still meet the underwriting standards and are not allowed to have preferential interest rates under any circumstances.

Question 2

What is the longest time after board approval that a bank can approve a line of credit for an executive officer?

Accepted Answer

The answer of What is the longest time after board...

Question 3

ACME National bank uses telephone solicitations to sell its debt cancellation contracts. The banker explains to the borrower the nature of the contract, gives an oral short form disclosure, receives the customer's affirmative election orally, and sends the written long form disclosures and written affirmative election within three business days. Is the bank in compliance with the telephone solicitation rules as they apply to affirmative elections?

Accepted Answer

The answer of ACME National bank uses telephone solicitations to...

Question 4

For what do ECOA and Regulation B extend coverage?

Accepted Answer

ECOA and Regulation B extend coverage to all types of credit, including both consumer and business credit, without any limitations related to the amount of credit or gross revenues.

Question 5

When may a bank pay an overdraft of $5,000 created by an executive officer of the bank?

Accepted Answer

According to Regulation O of the Federal Reserve, a bank may only extend credit to an executive officer, director, or principal shareholder under certain conditions, one of which is that the executive officer must have previously signed an overdraft protection credit agreement in an amount sufficient to cover the overdraft. Therefore, Option B is the best choice.

Question 6

How may a bank limit the definition of executive officer?

Accepted Answer

A bank may limit the definition of an executive officer by passing a board of director's resolution that clearly sets forth the bank's definition of an executive officer. This formal process ensures clarity and compliance with regulatory requirements.

Question 7

Which of the following credit arrangements would most likely be considered a purpose credit because it is indirectly secured by margin stock?

Accepted Answer

A loan guaranteed by an individual who has pledged margin stock as security for the guarantee is considered indirectly secured by margin stock, making it a purpose credit.

Question 8

Safe National Bank has a variety of consumer lending products. Among them are debt cancellation contracts that allow for the cancellation of a consumer's debt if certain events happen. The bank solicits sales for these contracts when the consumer makes an in-person loan application. What does Safe National have to do at the time of the application and solicitation?

Accepted Answer

Safe National Bank must provide the customer with the short-form disclosures orally at the time of application and solicitation for debt cancellation contracts.

Question 9

In a review of a bank's compliance with the Regulation O overdraft provisions, what should the compliance officer do?

Accepted Answer

The answer of In a review of a bank's compliance...

Question 10

Which of the following does an extension of credit NOT include?

Accepted Answer

The answer of Which of the following does an extension...

Question 11

Which of the following actions is NOT an adverse action?

Accepted Answer

Refusal to grant credit on the grounds that the lender does not offer the type of credit requested is not an adverse action because it is not based on the individual's credit profile or credit history. Adverse actions are those that are taken due to negative information on a person's credit report or credit application, such as denying credit, reducing credit limits, or increasing interest rates.

Question 12

In evaluating the coverage of a bank's Regulation U compliance for loans to purchase or carry margin stocks, which of the following securities is NOT covered in the regulatory definition of "margin stock"?

Accepted Answer

The regulatory definition of "margin stock" includes equity securities registered, or having unlisted trading privileges, on a national exchange, any OTC stock, and warrants or rights to subscribe to, or purchase, a margin stock. However, securities issued by an investment company that is licensed under the Small Business Administration Act are exempt from this definition and are not considered margin stock. Therefore, choice B is not covered in the regulatory definition of "margin stock."

Question 13

Robin Martin made an individual application to the bank for a car loan. She has just returned to work on a regular basis because she was a full-time homemaker until recently, when her last child entered school. The loan officer would like to ask her about her husband. Under what circumstances can the officer ask Robin about her husband?

Accepted Answer

In community property states, the spouse's financial situation can affect the applicant's creditworthiness, so the officer can inquire about the spouse.

Question 14

ACME National Bank has a Web site that lists the bank's products and services. On its consumer loan page it lists debt cancellation contracts as an available product. What other disclosure must the bank place on this Web page?

Accepted Answer

The answer of ACME National Bank has a Web site...

Question 15

Which of the following transactions is subject to the provisions of Regulation O?

Accepted Answer

Regulation O applies to extensions of credit made to insiders, which includes any member of the bank's board of directors. Choice A is not subject to Regulation O because it is a time deposit account, not an extension of credit. Choice B is also not subject to Regulation O because it is a travel advance, not an extension of credit. Choice C involves an extension of credit to a director of a noncorrespondent bank, which is not an insider of the bank and therefore not subject to Regulation O.

Question 16

Which of the following statements regarding applications is correct?

Accepted Answer

Creditors may accept oral applications as part of their process, although written applications are more common for documentation purposes.

Question 17

Which of the following is true regarding extensions of credit to executive officers, directors, and principal shareholders?

Accepted Answer

Extensions of credit to executive officers, directors, and principal shareholders must be approved in advance by the board of directors if the aggregate credit is more than the greater of either $25,000 or 5 percent of the bank's capital and surplus, not exceeding $500,000.

Question 18

For purposes of insider lending laws and regulations, what is the definition of the term executive officer?

Accepted Answer

According to the Federal Reserve's Regulation O, an executive officer is defined as "a bank's president, chief executive officer, chief operating officer, chief financial officer, or any other person who performs policymaking functions for the bank." Therefore, the correct answer is B, anyone who has the authority to participate in major policymaking functions at the bank.

Question 19

Under Regulation U, prior to extending credit secured by margin stock for more than $100,000, a national bank must obtain which of the following?

Accepted Answer

Under Regulation U, a national bank must obtain a written statement from the borrower as to the purpose of the loan when extending credit secured by margin stock for more than $100,000.

Question 20

First National Bank would like to adopt a recordkeeping system that complies with the requirements of Regulation O. Which of the following best describes the recordkeeping system required by Regulation O?

Accepted Answer

Regulation O requires a recordkeeping system that surveys insiders of the bank annually and requires each insider to disclose his or her related interests. This system would help ensure compliance with the regulation, which limits the amount of credit extensions that can be made to insiders and their related interests. This option is more specific to the requirements of Regulation O compared to the other choices provided.

Exam 1: Certified Regulatory Compliance Manager