Automotive Finance & Insurance
Professional (AFIP) Final Exam Prep –
Comprehensive Compliance &
Regulations Study Guide
TILA & CLA / Reg Z & Reg M
1. Which disclosure is required under the Truth in Lending Act (TILA) on an
installment contract?
• A) Dealer invoice price
• B) The buy rate
• C) Annual Percentage Rate (APR)
• D) Dealer holdback
Answer: C) Annual Percentage Rate (APR)
• Rationale: TILA's primary purpose is to ensure consumers can compare
credit costs. The APR is the standardized cost of credit expressed as a
yearly rate and is a mandatory disclosure on all retail installment sale
contracts .
2. In a closed-end lease, which party assumes the risk that the vehicle's actual
value at lease-end is lower than the residual value?
• A) The lessee
• B) The dealer
• C) The lessor
• D) The manufacturer
Answer: C) The lessor
, • Rationale: The lessor (the leasing company or bank) owns the vehicle and
sets the residual value. If the car is worth less than that value at the end of
the lease, the lessor takes the loss. The lessee is only responsible for excess
wear, tear, and mileage .
3. What does the "money factor" in a lease agreement represent?
• A) The total depreciation
• B) The vehicle's residual value
• C) The financing charge (interest rate equivalent)
• D) The acquisition fee
Answer: C) The financing charge (interest rate equivalent)
• Rationale: The money factor is used to calculate the rent charge portion of
a lease payment. It can be converted to a more traditional APR by
multiplying it by 2400 .
ECOA, FCRA & Adverse Action
4. Which law prohibits discrimination in all aspects of a credit transaction?
• A) The Gramm-Leach-Bliley Act (GLBA)
• B) The Equal Credit Opportunity Act (ECOA)
• C) The Fair Credit Reporting Act (FCRA)
• D) The Truth in Lending Act (TILA)
Answer: B) The Equal Credit Opportunity Act (ECOA)
• Rationale: ECOA and its implementing regulation, Reg B, make it illegal to
discriminate against any applicant in a credit transaction based on
protected characteristics. This applies to all steps from application to
collection .
5. A customer's credit application is denied by your primary lender due to a
low credit score. What must happen?
, • A) The lender must provide an Adverse Action notice. • B) The dealer
must provide an Adverse Action notice.
• C) No notice is required if the dealer finds another lender.
• D) A verbal explanation over the phone is sufficient.
Answer: B) The dealer must provide an Adverse Action notice.
• Rationale: When a dealer is the original creditor in a three-party financing
transaction, the dealer is responsible for providing the Adverse Action
notice if credit is denied or if terms are less favorable than requested. You
cannot rely on the lender to do this for you .
6. Under the Risk-Based Pricing Rule, when should a customer typically receive
an Exception/Credit Score Disclosure Notice?
• A) Before running the customer's credit
• B) After the credit application is received but before the contract is
finalized
• C) At the time of the first payment
• D) Only if the customer specifically requests it
Answer: B) After the credit application is received but before the contract is
finalized
• Rationale: Best practices dictate that the notice, which informs the
consumer of the credit score used and how it compares to others, should
be presented and signed by the customer after credit is run but before the
deal is finalized .
GLBA, OFAC & Ethics
7. What is the primary purpose of the "Safeguards Rule" under the Gramm-
Leach-Bliley Act (GLBA)?
• A) To ensure vehicles are safe to drive.
Professional (AFIP) Final Exam Prep –
Comprehensive Compliance &
Regulations Study Guide
TILA & CLA / Reg Z & Reg M
1. Which disclosure is required under the Truth in Lending Act (TILA) on an
installment contract?
• A) Dealer invoice price
• B) The buy rate
• C) Annual Percentage Rate (APR)
• D) Dealer holdback
Answer: C) Annual Percentage Rate (APR)
• Rationale: TILA's primary purpose is to ensure consumers can compare
credit costs. The APR is the standardized cost of credit expressed as a
yearly rate and is a mandatory disclosure on all retail installment sale
contracts .
2. In a closed-end lease, which party assumes the risk that the vehicle's actual
value at lease-end is lower than the residual value?
• A) The lessee
• B) The dealer
• C) The lessor
• D) The manufacturer
Answer: C) The lessor
, • Rationale: The lessor (the leasing company or bank) owns the vehicle and
sets the residual value. If the car is worth less than that value at the end of
the lease, the lessor takes the loss. The lessee is only responsible for excess
wear, tear, and mileage .
3. What does the "money factor" in a lease agreement represent?
• A) The total depreciation
• B) The vehicle's residual value
• C) The financing charge (interest rate equivalent)
• D) The acquisition fee
Answer: C) The financing charge (interest rate equivalent)
• Rationale: The money factor is used to calculate the rent charge portion of
a lease payment. It can be converted to a more traditional APR by
multiplying it by 2400 .
ECOA, FCRA & Adverse Action
4. Which law prohibits discrimination in all aspects of a credit transaction?
• A) The Gramm-Leach-Bliley Act (GLBA)
• B) The Equal Credit Opportunity Act (ECOA)
• C) The Fair Credit Reporting Act (FCRA)
• D) The Truth in Lending Act (TILA)
Answer: B) The Equal Credit Opportunity Act (ECOA)
• Rationale: ECOA and its implementing regulation, Reg B, make it illegal to
discriminate against any applicant in a credit transaction based on
protected characteristics. This applies to all steps from application to
collection .
5. A customer's credit application is denied by your primary lender due to a
low credit score. What must happen?
, • A) The lender must provide an Adverse Action notice. • B) The dealer
must provide an Adverse Action notice.
• C) No notice is required if the dealer finds another lender.
• D) A verbal explanation over the phone is sufficient.
Answer: B) The dealer must provide an Adverse Action notice.
• Rationale: When a dealer is the original creditor in a three-party financing
transaction, the dealer is responsible for providing the Adverse Action
notice if credit is denied or if terms are less favorable than requested. You
cannot rely on the lender to do this for you .
6. Under the Risk-Based Pricing Rule, when should a customer typically receive
an Exception/Credit Score Disclosure Notice?
• A) Before running the customer's credit
• B) After the credit application is received but before the contract is
finalized
• C) At the time of the first payment
• D) Only if the customer specifically requests it
Answer: B) After the credit application is received but before the contract is
finalized
• Rationale: Best practices dictate that the notice, which informs the
consumer of the credit score used and how it compares to others, should
be presented and signed by the customer after credit is run but before the
deal is finalized .
GLBA, OFAC & Ethics
7. What is the primary purpose of the "Safeguards Rule" under the Gramm-
Leach-Bliley Act (GLBA)?
• A) To ensure vehicles are safe to drive.
