Which of the following practices is PROHIBITED on California covered loans?
Correct Answer
B) Financing single-premium credit insurance
Financing single-premium credit life or disability insurance into a covered loan is prohibited under CFL §4973 because it inflates the loan amount with costly insurance the borrower may not need.
Why This Is the Correct Answer
Financing single-premium credit life or disability insurance into a covered loan is prohibited under CFL §4973 because it inflates the loan amount with costly insurance the borrower may not need.
Why the Other Options Are Wrong
Option A: Charging origination fees
Origination fees are allowed on covered loans, subject to the 6% total points and fees cap.
Option C: Requiring hazard insurance
Requiring ordinary hazard insurance is not the covered-loan prohibited practice; the statute targets practices such as improper financing of certain credit insurance and other substantive abuses.
Option D: Offering fixed interest rates
Fixed interest rates are not prohibited. Lenders can offer any rate structure that meets regulatory requirements.
Memory Technique
CA -> ca-covered-loans-high-cost-consumer-protections
Exam Tip
Covered-loan questions often test the 8-point APR trigger, 6 percent points-and-fees trigger, principal-dwelling scope, Consumer Caution notice timing, ATR, prepayment penalty limits, prohibited loan terms, and remedies.
Common Mistakes to Avoid
- -Using a national baseline answer when California has agency-specific DFPI or DRE requirements
- -Confusing CFL, CRMLA, covered-loan, usury, servicing, and DRE endorsement rules
- -Relying on legacy California state-exam or education assumptions instead of current NMLS source pages
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