A borrower discovers that the loan amount includes fees for three optional credit products that were never discussed. Which fact most strongly indicates loan packing?
Correct Answer
C) The products were financed without the borrower's informed authorization
Why this is correct: "Loan packing" is a predatory practice where unnecessary or undisclosed products or services are added to a loan, increasing its cost without the borrower's informed consent. The central element is the lack of voluntary, informed authorization. The correct answer, "The products were financed without the borrower's informed authorization," directly identifies this defining characteristic. The fact that the fees were included but never discussed proves the absence of authorization. Why the other choices are wrong: "The loan has a fixed interest rate" is wrong because loan packing can occur with any rate type; the rate structure is irrelevant to the practice. "The property is owner occupied" is wrong; occupancy does not determine whether packing occurred. "The loan will be sold after closing" is wrong; the future sale of a loan is a common secondary market activity and does not indicate packing. Exam tip: The hallmark of loan packing is financing add-ons the borrower didn't knowingly agree to. Look for phrases like "never discussed" or "without authorization."
Why This Is the Correct Answer
Why this is correct: "Loan packing" is a predatory practice where unnecessary or undisclosed products or services are added to a loan, increasing its cost without the borrower's informed consent. The central element is the lack of voluntary, informed authorization. The correct answer, "The products were financed without the borrower's informed authorization," directly identifies this defining characteristic. The fact that the fees were included but never discussed proves the absence of authorization. Why the other choices are wrong: "The loan has a fixed interest rate" is wrong because loan packing can occur with any rate type; the rate structure is irrelevant to the practice. "The property is owner occupied" is wrong; occupancy does not determine whether packing occurred. "The loan will be sold after closing" is wrong; the future sale of a loan is a common secondary market activity and does not indicate packing. Exam tip: The hallmark of loan packing is financing add-ons the borrower didn't knowingly agree to. Look for phrases like "never discussed" or "without authorization."
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