An MLO is reviewing procedures for a case where a loan officer wants different terms because of a protected applicant characteristic. What is the proper handling?
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 prohibited basis, such as race, color, religion, national origin, sex, marital status, age, etc. Credit decisions and terms must be based solely on objective financial criteria, not on these protected characteristics. Therefore, when a loan officer wants different terms because of a protected characteristic, the only compliant action is to evaluate the file without considering those prohibited-basis factors. Why the other choices are wrong: "Close or renew first and decide later whether the rule applied" is wrong because it delays compliance; the prohibition is immediate and absolute. "Allow activity to continue while the applicable status problem remains unresolved" is wrong because continuing a transaction tainted by potential discrimination is itself a violation. "Ignore the financial responsibility issue unless the borrower complains" is wrong because the lender's obligation to comply with fair lending laws is independent of whether a borrower complains. Exam tip: For any question involving a protected characteristic influencing terms or decisions, the answer is always to remove that factor from consideration. ECOA/Reg B compliance is non-negotiable.
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: 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 B: 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.
Option D: Ignore the financial responsibility issue unless the borrower complains.
Ignore the financial responsibility issue unless the borrower complains. 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.
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A homeowner is encouraged to refinance for the third time in 18 months. Each loan generates new points and fees, while the borrower's payment and rate do not improve. Which practice is most strongly indicated?
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