Consumer Lending Basics
This domain, Consumer Lending Basics, tests the consumer loan lifecycle from application through servicing. Expect questions on underwriting, pricing disclosures, fair lending, adverse action, and delinquency.
Underwriting and disclosures
Underwriters assess the five Cs-capacity, capital, collateral, conditions, and character-plus credit history and debt-to-income ratio. Ability to repay matters, especially for closed-end consumer credit. Regulation Z requires accurate disclosure of the APR and finance charge; the note rate and APR are not the same. ECOA and Regulation B prohibit discrimination and require adverse action notices when credit is denied or terms change. Fair lending means consistent standards, not identical outcomes. Mortgage-related loans may also involve RESPA, HMDA, and appraisal rules.
Servicing and collections
Servicing includes payment posting, statements, escrow where applicable, payoff quotes, and loss mitigation. Delinquency work should be documented, respectful, and policy-driven. Collections staff must follow prohibitions on harassment and must recognize bankruptcy stays and military protections under the SCRA. Repossession and foreclosure require strict legal steps and approvals.
Worked example
An applicant has gross monthly income of $4,000, existing monthly debt payments of $800, and a proposed loan payment of $400. Reasoning: total monthly debt = $800 + $400 = $1,200. DTI = $1,200 ÷ $4,000 = 30%. If policy caps DTI at 40%, the loan fits on DTI, but underwriting must still review credit, capacity, and collateral. Do not approve on ratio alone; do not deny without a specific, permissible reason.
Traps
Do not substitute the note rate for the APR. Do not issue a vague denial reason such as “credit score” without the required specificity and notice. Do not apply different standards to similar applicants. Do not ignore SCRA or bankruptcy protections during collection.