California's predatory lending law requires lenders to verify a borrower's ability to repay based on:
Correct Answer
A) The fully amortizing payment schedule at the fully indexed rate
Lenders must verify ability to repay based on the fully amortizing payment at the fully indexed rate, not a teaser rate or stated income.
Why This Is the Correct Answer
Lenders must verify ability to repay based on the fully amortizing payment at the fully indexed rate, not a teaser rate or stated income.
Why the Other Options Are Wrong
Option B: The borrower's stated income without verification
Stated income without verification does not satisfy the ability-to-repay requirement.
Option C: Only the initial teaser rate payment
Using only the teaser rate would understate the actual payment obligation and is prohibited.
Option D: The borrower's credit score alone
Credit score alone does not demonstrate ability to repay. Income verification is required.
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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