A California lender engages in 'loan flipping' by repeatedly refinancing a covered loan. This practice:
Correct Answer
D) Is prohibited under CFL §4973
Loan flipping — repeatedly refinancing without tangible net benefit to the borrower — is prohibited under California's predatory lending statute.
Why This Is the Correct Answer
Loan flipping — repeatedly refinancing without tangible net benefit to the borrower — is prohibited under California's predatory lending statute. The answer is prohibited under CFL §4973 because loan flipping involves repeated refinancing without the required borrower benefit.
Why the Other Options Are Wrong
Option A: Is allowed if each refinance benefits the borrower
The requirement goes beyond borrower benefit claims — tangible, documented net benefit must be demonstrated.
Option B: Is only prohibited if the borrower complains
The prohibition exists regardless of whether the borrower files a complaint.
Option C: Is allowed with DFPI prior approval
DFPI approval is not a mechanism to permit loan flipping. The practice is prohibited outright.
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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