A lender proposes to take the first 6 monthly payments on a covered loan out of the loan proceeds at closing. May the lender consolidate and pay these periodic payments in advance from the proceeds?
Correct Answer
D) Prohibited: periodic payments may not be consolidated and paid in advance
A covered loan may not include terms under which the periodic payments are consolidated and paid in advance from the loan proceeds. Other choices: reducing delinquency risk is the argument for the practice rather than a defense to the prohibition; itemizing does not permit it; and the prohibition has no 3-month threshold. Source: Cal. Fin. Code § 4973(c)
Why This Is the Correct Answer
A covered loan may not include terms under which the periodic payments are consolidated and paid in advance from the loan proceeds. Other choices: reducing delinquency risk is the argument for the practice rather than a defense to the prohibition; itemizing does not permit it; and the prohibition has no 3-month threshold. Source: Cal. Fin. Code § 4973(c)
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