A builder offers a $1,200 incentive to buyers who use its affiliated lender, and the affiliated lender's rate is 0.5 points above what the buyer was quoted elsewhere. Assuming the incentive is a genuine discount, use is optional, all affiliated-business conditions are met, and no prohibited referral payment is made, what disclosure is required for this arrangement?
Correct Answer
A) A separate written affiliate disclosure explaining ownership or financial interest and estimated charges, provided no later than the builder’s referral
A. The builder must provide the affiliated-business disclosure. The disclosure identifies the relationship and the provider’s estimated charges, not just the $1,200 incentive. The stem assumes a genuine optional discount and satisfaction of other conditions; it does not establish that any similarly advertised offer complies. Scope and exceptions: The discount must not be recouped through higher settlement costs. A competing rate alone cannot establish total cost or prove recoupment. Disclosure alone does not cure other failures. Source: 1024.15(b)(1)–(3) — https://www.consumerfinance.gov/rules-policy/regulations/1024/15/ Required use definition — https://www.consumerfinance.gov/rules-policy/regulations/1024/2/
Why This Is the Correct Answer
A. The builder must provide the affiliated-business disclosure. The disclosure identifies the relationship and the provider’s estimated charges, not just the $1,200 incentive. The stem assumes a genuine optional discount and satisfaction of other conditions; it does not establish that any similarly advertised offer complies. Scope and exceptions: The discount must not be recouped through higher settlement costs. A competing rate alone cannot establish total cost or prove recoupment. Disclosure alone does not cure other failures.
Why the Other Options Are Wrong
Option B: Permitted, and no disclosure is needed where the buyer may decline
Optional use does not eliminate disclosure.
Option C: Prohibited unless the $1,200 exactly offsets the 0.5-point difference
There is no exact dollar-to-rate-offset test.
Option D: Prohibited: any incentive to use an affiliated lender is a kickback
An incentive is not automatically a prohibited referral fee.
Exam Tip
Disclose the relationship; independently verify the incentive’s conditions.
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