15 - Evaluating Consumer Loans

Front 1

1. A low days inventory on hand and a high inventory turnover relative to industry norms indicates less efficient inventory management and/or more liquidity.
Answer: False

2. Pro forma analysis is a form of sensitivity analysis.
Answer: True

Back 1

a

Front 2

2. Which of the following is an example of an indirect loan?
a. An automobile dealer negotiates the loan terms with the individual and then presents the agreement to the bank. The bank then makes the loan.
b. An automobile dealer refers a customer to the local credit union. The customer goes to the credit union and gets an auto loan secured by the customer's certificates of deposit.
c. A homebuyer gets a mortgage over the Internet.
d. A student gets a student loan guaranteed by Sallie Mae.
e. None of the above.

Back 2

a

Front 3

3. Which of the following is a disadvantage of using a debit card?
a. The consumer is charged higher finance charges than on a credit card.
b. The consumer loses float.
c. They have higher processing costs than ATMs.
d. They have lower processing costs than checks.
e. They are not widely available.

Back 3

b

Front 4

4. Which of the following contains a computer memory chip?
a. Debit card
b. Credit card
c. Smart card
d. Pre-Paid card
e. ATM card

Back 4

c

Front 5

5. Credit card issuers earn income from:
a. annual fees.
b. interest on outstanding balances.
c. discounting the charges that merchants accept on purchases.
d. All of the above.
e. a. and b. only

Back 5

d

Front 6

6. According to the Federal Reserve, a non-card bank:
a. issues its own card.
b. does not issue its own card.
c. operates under a regional card bank.
d. a. and c.
e. b. and c.

Back 6

e

Front 7

7. The vast majority of credit card revenues comes from:
a. merchant discounts.
b. net credit gains.
c. advertising revenue.
d. interest income and annual fees.
e. interchange fees.

Back 7

d

Front 8

8. Revolving credit may take the form of:
a. overdraft protection.
b. demand deposit accounts.
c. excess reserves.
d. automobile loans.
e. interchange credit.

Back 8

a

Front 9

9. The Tax Reform Act of 1986 made home equity loans more appealing by:
a. eliminating the tax deduction of interest on consumer loans not secured by real estate.
b. allowing banks to lend up to 125% of the equity in a home.
c. preventing homes from being liquidated in Chapter 13 bankruptcy cases.
d. reducing bank income taxes on mortgage loan income.
e. all of the above.

Back 9

a

Front 10

10. Which of the following are lenders prohibited from asking on a credit application?
a. The applicant's income
b. If the applicant has a telephone
c. If the applicant has declared bankruptcy in the past
d. How long the applicant has been on the job
e. Lenders are not prohibited from asking any of the above

Back 10

b

Front 11

11. Which of the following is an example of a non-installment loan?
a. Credit card
b. 30-year mortgage
c. Bridge loan
d. 5-year auto loan
e. Home equity line of credit

Back 11

c

Front 12

12. The lowest rating category for a subprime loan is:
a. A
b. B
c. C
d. D
e. E

Back 12

d

Front 13

13. During 2007 – 2008, many borrowers had ________ in their homes causing individuals to “walk away” from their homes.
a. positive equity
b. negative equity
c. positive market value
d. negative market value
e. positive asset value

Back 13

b

Front 14

14. Under the Equal Credit Opportunity Act, for which of the following is it illegal for a bank to discriminate against borrowers?
a. The applicant's income
b. The applicant's credit history
c. The applicant's national origin
d. The applicant's job history
e. A civil judgement against the applicant

Back 14

c

Front 15

19. The purpose of the Truth in Lending Act of 1968 is to require lenders to quote:
a. home mortgage finance charges in a standardized manner.
b. rates on all certificates of deposit in a standardized manner.
c. payments with and without credit life insurance.
d. consumer loan finance charges in a standardized manner.
e. finance charges on loans over $100,000 in a standardized manner.

Back 15

d

Front 16

20. Which of the following has the greatest weight in determining a consumer's FICO score?
a. Current credit use
b. Credit mix
c. Payment history.
d. Length of credit history
e. Number of applications for new credit

Back 16

c

Front 17

21. Which of the following has the lowest weight in determining a consumer's FICO score?
a. Types of credit
b. Amounts owed
c. Payment history
d. Length of credit history
e. Number of delinquencies

Back 17

a

Front 18

22. Redlining is a lending practice of not extending credit:
a. to minimum wage earners.
b. to finance low-income housing.
c. to students.
d. to targeted minority groups.
e. within a geographic area that is believed to be deteriorating.

Back 18

e

Front 19

23. Which regulation requires out-of-state-banks that acquire local banks to commit to continued lending in the area and not use the acquired banks simply as deposit gatherers?
a. Equal Credit Opportunity Act
b. National Bank Act
c. Federal Lending Act
d. Fair Credit Reporting Act
e. Community Reinvestment Act

Back 19

e

Front 20

24. Under current bankruptcy law, which of the following debts are not dischargeable under Chapter 7?
a. Past due child support
b. Past due mortgage payments
c. Past due credit card payments
d. Past due auto loan payments
e. All of the above are dischargeable under Chapter 7 bankruptcy law

Back 20

a

Front 21

25. Individuals work out a court supervised repayment plan under:
a. Chapter 7
b. Chapter 9
c. Chapter 13
d. Chapter 17
e. Chapter 21

Back 21

c

Front 22

26. The most important of the five Cs of credit when evaluating a consumer loan application is:
a. cash.
b. capacity.
c. character.
d. conditions.
e. competition.

Back 22

c

Front 23

27. Which of the five Cs refers to an individual’s wealth?
a. cash.
b. capacity.
c. character.
d. conditions.
e. capital

Back 23

e

Front 24

28. The only quantitative measure of a consumer loan applicant's character is their:
a. down payment.
b. home equity.
c. time on the job.
d. credit report.
e. credit card balance.

Back 24

d

Front 25

29. Which of the following are two of the “additional Cs” of consumer credit?
a. Customer relationships
b. Competition
c. Continuous employment
d. a. and b. only.
e. b. and c. only.

Back 25

d

Front 26

30. Which of the following would be considered an unacceptable consumer loan?
a. A home improvement loan, secured by a first mortgage
b. A home improvement loan, secured by a second mortgage
c. A $10,000 loan on a new $30,000 boat, secured by the boat
d. A loan on for 80% of the value on a new automobile, secured by the automobile
e. A loan for 95% of the value of used skydiving equipment, secured by the equipment

Back 26

e

Front 27

31. When a bank keeps dealer reserves, the reserves are primarily used:
a. to cover charge-offs.
b. to increase bank profits.
c. to increase dealer profits.
d. to reduce taxes.
e. to increase advertising revenues.

Back 27

a

Front 28

32. The national average FICO score is:
a. 370
b. 470
c. 570
d. 670
e. 770

Back 28

d

Front 29

33. Who is at risk if an indirect loan defaults on a loan with full recourse?
a. The bank
b. The borrower
c. The dealer
d. The credit bureau
e. All of the above

Back 29

c

Front 30

34. Consumer loans differ from commercial loans in all of the following ways except:
a. consumer loans are generally smaller than commercial loans.
b. consumer loans are generally for longer terms than commercial loans.
c. consumer loans are generally less expensive to administer on a unit basis than commercial loans.
d. individuals are more likely to default than businesses.
e. consumer loans in some states are still covered by usury laws.

Back 30

c

Front 31

35. Salomon Brothers' collateralized automobile receivables securities are labeled:
a. AUTOs.
b. CARDs.
c. VANs.
d. CARs.
e. RACs.

Back 31

d

Front 32

36. Most consumer loans are secured.

37. Banks labeled "consumer lenders" have the heaviest concentration of loans in credit cards.

Back 32

True

False

Front 33

38. Today, many banks target individuals as the primary source of growth in attracting new business.

39. Consumer loans are typically very similar such that a comprehensive analytical format can be used for all loans.

Back 33

True

False

Front 34

40. Credit cards typically provide lower risk-adjusted returns than other types of consumer loans.

41. Losses on credit cards are among the highest of all consumer loan types.

Back 34

False

True

Front 35

42. Credit cards are profitable for banks because many customers are prince insensitive.

43. Credit scoring models are less objective than judgmental evaluations.

Back 35

True

False

Front 36

44. A FICO score summarizes an individual's credit history in one number.

45. Consumers are prohibited from disclosing if they receive public assistance when applying for credit.

Back 36

True

False