A branch sends its closed-loan list, including borrower names and loan amounts, to a marketing firm that will mail refinance offers. The firm is not affiliated with the lender. What was required first?
Correct Answer
A) Follow privacy limits before sharing nonpublic personal information
Why this is correct: The correct procedure is governed by 12 CFR Part 1016, which establishes privacy limits for sharing nonpublic personal information. A request for borrower bank statements from an outside party without a permissible basis (e.g., without the borrower's consent or a valid legal exception) triggers these limits. The MLO must not share the information and must follow the established privacy protocols. Thus, the proper handling is to "Follow privacy limits before sharing nonpublic personal information." Why the other choices are wrong: The choice to "Assume records, reports, and required notices is outside compliance review because no fee has been charged yet" is wrong because privacy rules apply regardless of whether a fee has been charged; they are triggered by the handling of personal information. The choice to "Close or renew first and decide later whether the rule applied" is wrong because compliance must be addressed immediately, not deferred. The choice to "Allow activity to continue while the applicable status problem remains unresolved" is wrong because continuing an activity that may violate privacy rules is non-compliant. Exam tip: Privacy rules are not contingent on transaction timing or fees. When in doubt, always default to protecting the borrower's nonpublic information.
Why This Is the Correct Answer
The correct response is "Follow privacy limits before sharing nonpublic personal information". Borrower nonpublic personal information is subject to privacy notices and sharing limits.
Why the Other Options Are Wrong
Option B: Assume records, reports, and required notices is outside compliance review because no fee has been charged yet.
Assume records, reports, and required notices is outside compliance review because no fee has been charged yet. is not correct because it bypasses the rule supported by the explanation.
Option C: 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
Outside party plus borrower data means pause and verify authority.
Exam Tip
Outside party plus borrower data means pause and verify authority.
Common Mistakes to Avoid
- -Closing a loan does not remove privacy duties for borrower information.
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