[15 Test Answers] Fair Lending 2024 CBT

Here are the test answers to the pre- and post-assessment of Fair Lending CBT.

Overview: Banks are required by law to provide regular training to help their employees understand the Fair Lending laws and regulations. This is a computer-based training (CBT) that teaches about the laws and how not following them can affect both the bank and its customers.

It also explains how the fair lending laws relate to two types of illegal discrimination and identify potential fair lending risks in the credit lifecycle.

Fair Lending 2024 test answers

Question 1. What can happen if a bank receives a less-than-satisfactory rating on their Community Reinvestment Act (CRA) exam?
A. A bank can have difficulty obtaining regulatory approvals (i.e., an application for a new branch may be denied)
B. A bank will be required to develop a CRA action plan to correct issues identified.
C. It can harm the firm’s reputation.
D. All of these.✅

Note: The CRA examination results are impactful on a bank’s ability to prosper.

Question 2. Redlining is most likely to occur when a lender excludes or restricts the accessibility of lending based on racial or ethnic makeup in which of the following:
A. States
B. Bank Footprints
C. Metropolitan Statistical Areas
D. Neighborhoods (Census Tracts or Zip codes)✅

Note: While redlining can potentially involve geographic areas of any size, the risk is often highest when a policy or practice focuses on a particular neighborhood (Census Tracts or Zip Codes).

Question 3. What protected classes were recently added to national fair lending guidance by regulators?
A. Religion and Disability
B. Sexual Orientation and Gender Identity✅
C. Disability and National Origin
D. Military Status and Victims of Identity Theft

Note: Both the Consumer Financial Protection Bureau (CFPB) and the Department of Housing & Urban Development (HUD) issued guidance in 2021 that sexual orientation and gender identity were protected classes covered under the Equal Credit Opportunity Act and the Fair Housing Act.

Question 4. In order to increase its level of lending to persons with limited English proficiency, the bank applies different lending standards to credit applications from these persons. The effort has been very successful, with total loan applications, approvals, and loan balances up significantly in the past year among the targeted population. This is an example of what type of discrimination?
A. Disparate impact✅
B. Disparate treatment
C. Redlining
D. Steering

Note: Although language preference is not covered by fair lending laws, there is a strong correlation between language and traits that are covered in Regulation B and Fair Housing Act, such as national origin, race and/or ethnicity. Because of that correlation, the policy may disproportionately impact applicants based on national origin, race and/or ethnicity.

Question 5. Which of the following are protected classes under both the Fair Housing Act (FHAct) and the Equal Credit Opportunity Act (ECOA)?
A. Religion, Color, Race, Education Level, and National Origin
B. Sex/Gender, Religion, Color, Race, and Educational Level
C. National Origin, Race, Sex/Gender, Color, and Religion✅
D. Color, Race, Educational Level, National, Origin, and Sex/Gender

Question 6. Refusing to market mortgage loan products to customers that live in a neighborhood that is predominantly African American is an example of redlining.
A. True✅
B. False

Note: Redlining is the practice of denying financial services in a certain neighborhood due to the racial, ethnic, or other composition of that particular neighborhood. It refers to the presumed practice of lenders drawing red lines around portions of a map to indicate areas or neighborhoods in which they did not want to make loans.

Question 7. In an effort to reduce costs and increase profitability, a bank has decided to institute a US $75,000 minimum loan amount on all first mortgages. Roughly 40% of the neighborhoods in the bank’s market area are predominantly minority with median housing values below US $60,000. This most likely demonstrates the practice of:
A. Disparate treatment by overt evidence✅
B. Special Purpose Lending
C. Disparate treatment by comparative evidence
D. Disparate impact

Note: While race and ethnicity were not factors in the bank’s decision to establish a minimum loan limit, the impact of that policy could negatively affect one or more minority groups.

Question 8. A Customer receiving disability income applies for a mortgage. In evaluating the application, the processor asks the customer to disclose the nature of their disability and to provide a doctor’s note supporting their claim. This is an example of:
A. Disparate treatment✅
B. Prudent underwriting
C. Disparate impact

Note: Disparate treatment occurs when a credit applicant is treated differently based on a prohibited basis, such as disability. Banks should only request the amount of disability income and how long it will be received.

Question 9. You received a telephone call from a customer with what appears to be a fair lending complaint about a banker. What steps should you take to handle the complaint?
A. Attempt to resolve the customer’s concern yourself in an effort to offer good customer service.
B. Ask the banker named in the complaint to respond to the customer since he has the details.
C. Immediately escalate the complaint to the Business Unit Escalation Unit.✅
D. Advise the customer to contact the Executive Office to voice their complaint.

Note: Complaints are escalated to the Executive Office only if the Business Unit Escalation Unit cannot resolve them.

Question 10. Who is covered by fair lending regulations?
A. Only third-party vendors that provide lending services to the firm.
B. All branch bankers in the U.S.
C. All workforce members who are involved in U.S. lending-related activities whether they reside inside or outside the U.S.✅
D. All employees of the firm.

Question 11. A pricing exception must only be documented if it is approved.
A. True
B. False✅

Note: All pricing exception decisions must be documented including those that are not approved.

Question 12. Which of the following is an example of a fair lending complaint?
A. A female customer complains that she was placed on hold with customer service for over 15 minutes causing her to miss an important business appointment.
B. A customer complains that they were denied credit because they had a delinquency on their credit report.
C. A customer states that because she was pregnant, she was required to sign a statement of commitment that she will maintain employment throughout the term of the loan.✅
D. A customer complained that they were denied credit because they were not employed and has no sources of income.

Question 13. A 70-year-old man meets with a banker about applying for a mortgage. Because the banker considers the customer to be elderly, he advises him to apply for a Federal Housing Administration (FHA) government-subsidized mortgage without determining if he would qualify for a conventional loan. This constitutes:
A. Disparate impact
B. Redlining
C. Steering✅
D. A violation of the Elder Abuse laws

Question 14. Discrimination, whether intentional or unintentional, only occurs during the credit decision process.
A. True
B. False✅

Question 15. A couple advises a banker that their total income includes both salary and disability payments. How should disability payments, which are non-taxable, be analyzed in order to fairly calculate the customer’s ability to pay?
A. The gross amount earned from the salary and the non-taxable amount earned from the disability payments should be used in calculating the customer’s ability to pay.
B. Disability payments, which are non-taxable, should be identified separately and grossed-up in order to ensure that the non-taxable portion is equivalent to the taxable amounts used in the ability-to-pay analysis.✅
C. Disregard the disability payments as a source of income in calculating the customer’s ability to repay.