A processor asks how to handle a file where a loan officer wants different terms because of a protected applicant characteristic. Which response is most accurate?
Correct Answer
A) Evaluate the file without prohibited-basis factors
Why this is correct: The legal mandate from Regulation B, 12 CFR 1002.4(a), is clear: a borrower's protected characteristic (e.g., race, sex, religion) must not be a factor in credit decisions. When a loan officer wants different terms for this reason, the processor must ensure the file is evaluated on legitimate financial criteria alone. The most accurate and compliant instruction is therefore to "Evaluate the file without prohibited-basis factors." Why the other choices are wrong: The choice "Continue the activity because the borrower appears willing to proceed" is wrong because a borrower's willingness does not permit a lender to violate fair lending laws. The choice "Ignore the consumer-protection issue unless the borrower complains" is wrong because the lender has an affirmative duty to comply; enforcement does not depend on a complaint. The choice "Document the issue later instead of correcting the compliance problem first" is wrong because documenting a known violation without first stopping it and correcting the evaluation process is itself non-compliant. Exam tip: In fair lending, the rule is proactive compliance. You must correct the evaluation process first, before any other step like documentation.
Why This Is the Correct Answer
The correct response is "Evaluate the file without prohibited-basis factors" because Lines 250-254; 12 CFR 1002.4(a).
Why the Other Options Are Wrong
Option B: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option C: Ignore the consumer-protection issue unless the borrower complains.
Ignore the consumer-protection issue unless the borrower complains. is not correct because it does not apply the rule tested by this file scenario.
Option D: Document the issue later instead of correcting the compliance problem first.
Document the issue later instead of correcting the compliance problem first. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
fair-lending controls: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to fair-lending controls; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
More Ethics & Fraud Questions
In a file escalation meeting, the supervisor sees facts tied to RESPA Kickbacks and Referrals. What should the file reflect?
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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