Which action best prevents loan packing when a borrower is offered optional credit insurance?
Correct Answer
C) Explain that it is optional, disclose its cost, and document the borrower's choice
Why this is correct: Loan packing involves adding unwanted or unnecessary products to a loan without the borrower's informed consent. The best prevention is to explain that the credit insurance is optional, disclose its full cost, and document the borrower's choice. This process ensures transparency and allows the borrower to make a voluntary, informed decision. Why the other choices are wrong: Including it automatically and permitting cancellation after closing is a packing tactic; it burdens the borrower with the product unless they take affirmative steps to remove it. Disclosing only the monthly payment, not the premium, hides the true cost and prevents informed consent. Stating that approval depends on purchasing it when that is untrue is a deceptive practice and violates fair lending laws. Exam tip: To avoid packing, always separate optional products, clearly state they are not required for loan approval, and document the borrower's affirmative election.
Why This Is the Correct Answer
Why this is correct: Loan packing involves adding unwanted or unnecessary products to a loan without the borrower's informed consent. The best prevention is to explain that the credit insurance is optional, disclose its full cost, and document the borrower's choice. This process ensures transparency and allows the borrower to make a voluntary, informed decision. Why the other choices are wrong: Including it automatically and permitting cancellation after closing is a packing tactic; it burdens the borrower with the product unless they take affirmative steps to remove it. Disclosing only the monthly payment, not the premium, hides the true cost and prevents informed consent. Stating that approval depends on purchasing it when that is untrue is a deceptive practice and violates fair lending laws. Exam tip: To avoid packing, always separate optional products, clearly state they are not required for loan approval, and document the borrower's affirmative election.
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