During intake, a loan officer wants different terms because of a protected applicant characteristic. What is the best compliant response?
Correct Answer
C) Evaluate the file without prohibited-basis factors
Why this is correct: The governing concept is the Equal Credit Opportunity Act (ECOA), implemented by Regulation B at 12 CFR 1002.4(a). This rule prohibits discrimination in any aspect of a credit transaction based on a protected characteristic (e.g., race, religion, national origin, sex, etc.). Credit decisions and terms must be based solely on objective, financial criteria. Therefore, the only compliant response is to "Evaluate the file without prohibited-basis factors," meaning to ignore the protected characteristic and assess the application on its legitimate financial merits. Why the other choices are wrong: The choice "Assume financial responsibility is outside compliance review because no fee has been charged yet" is wrong because ECOA protections apply from the first inquiry, not from the charging of a fee. The choice "Close or renew first and decide later whether the rule applied" is wrong because this would constitute processing a transaction with known discriminatory intent, which is illegal. The choice "Allow activity to continue while the applicable status problem remains unresolved" is wrong because the activity (considering prohibited factors) must stop immediately; allowing it to continue is a violation. Exam tip: If a protected characteristic is influencing terms or decisions, you must stop and re-evaluate the file using only permissible financial factors.
Why This Is the Correct Answer
The correct response is "Evaluate the file without prohibited-basis factors". Credit decisions and treatment must not turn on prohibited-basis factors.
Why the Other Options Are Wrong
Option A: Assume financial responsibility is outside compliance review because no fee has been charged yet.
Assume financial responsibility is outside compliance review because no fee has been charged yet. is not correct because it bypasses the rule supported by the explanation.
Option B: Close or renew first and decide later whether the rule applied.
Close or renew first and decide later whether the rule applied. is not correct because it bypasses the rule supported by the explanation.
Option D: Allow activity to continue while the applicable status problem remains unresolved.
Allow activity to continue while the applicable status problem remains unresolved. is not correct because it bypasses the rule supported by the explanation.
Memory Technique
Discouragement and different treatment can be fair-lending problems before denial.
Exam Tip
Discouragement and different treatment can be fair-lending problems before denial.
Common Mistakes to Avoid
- -Fair lending applies to every aspect of the credit transaction, not just final approval.
More Ethics & Fraud Questions
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In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
At closing, an MLO adds a single-premium credit-life policy to the loan amount even though the borrower declined it and the policy is not required for approval. Which practice is the clearest concern?
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