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Question 1. Under the basic contract rules, which of the following is NOT an essential element of a enforceable contract? A) Offer B) Acceptance C) Consideration D) Advertising Answer: D Explanation: Advertising is not a required element; a contract must have an offer, acceptance, consideration, and legal capacity. Question 2. Which of the following best describes a “voidable” contract? A) A contract that is illegal and cannot be enforced. B) A contract that is valid until one party chooses to rescind it. C) A contract that lacks consideration. D) A contract that has been fully performed. Answer: B Explanation: A voidable contract is initially valid but may be avoided by one party due to factors like fraud or duress. Question 3. In a credit sale, the buyer: A) Receives a loan from a bank and pays the dealer at closing. B) Purchases the vehicle directly from the dealer and finances the balance. C) Leases the vehicle with a purchase option. D) Pays cash for the entire purchase price. Answer: B
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Explanation: A credit sale involves the dealer extending credit to the buyer, who pays the dealer over time. Question 4. A Retail Installment Sale Agreement (RISC) must contain which of the following disclosures? A) The dealer’s profit margin. B) The buyer’s credit score. C) The amount financed and finance charge. D) The dealer’s inventory turnover. Answer: C Explanation: TILA requires RISC to disclose the amount financed, finance charge, APR, and other cost information. Question 5. Full recourse in a RISC assignment means: A) The dealer retains liability for the loan if the buyer defaults. B) The buyer can return the vehicle at any time. C) The finance source can pursue the dealer for any deficiency. D) The dealer can transfer the contract without notice. Answer: C Explanation: Full recourse allows the finance source to seek the dealer for any unpaid balance after buyer default. Question 6. Which of the following is a required element of the Truth in Lending Act (TILA) disclosure? A) The dealer’s net profit on the sale. B) The Annual Percentage Rate (APR).
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B) It includes both principal and finance charges. C) It excludes any optional add‑ons such as GAP insurance. D) It is the same as the vehicle’s MSRP. Answer: B Explanation: Total of payments is the sum of all payments (principal + finance charge) over the loan term. Question 10. An advertisement that includes a “triggering term” such as “0% APR” must also disclose: A) The dealer’s gross profit. B) The full TILA disclosure worksheet. C) The vehicle’s fuel economy. D) The buyer’s credit score. Answer: B Explanation: Triggering terms require the full set of TILA disclosures to be made available to the consumer. Question 11. When a contract is rewritten (re‑contracted), which of the following is required under TILA? A) The original contract may be discarded without notice. B) The new contract must contain all required TILA disclosures. C) Only the APR needs to be recalculated. D) The buyer’s signature is optional. Answer: B Explanation: Re‑contracting triggers the same TILA disclosure requirements as the original contract.
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Question 12. A “deferred down payment” (hold check) must be disclosed to the consumer because: A) It reduces the APR. B) It is considered a finance charge. C) It affects the amount financed and timing of payments. D) It is a tax credit. Answer: C Explanation: Deferred down payments alter the cash flow and must be disclosed to reflect the true cost of credit. Question 13. Which method of interest calculation results in a higher finance charge for the consumer? A) Simple interest based on the unpaid balance. B) Precomputed interest based on the original loan amount. C) Flat‑rate interest. D) No‑interest promotional financing. Answer: B Explanation: Precomputed (flat‑rate) interest charges interest on the full original amount for the entire term, leading to higher total finance charges. Question 14. Violation of TILA can result in: A) Only civil penalties. B) Only criminal penalties. C) Both civil and criminal penalties. D) No penalties if the dealer corrects the error.
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D) The dealer offers a zero‑interest promotion. Answer: B Explanation: Safe harbor shields dealers from liability if a genuine clerical error is corrected within a reasonable time and the consumer is not materially harmed. Question 18. A “bona fide error” under TILA must be: A) A deliberate misrepresentation. B) An error that is material and affects the total cost. C) A clerical or mathematical mistake that is promptly corrected. D) An error that cannot be corrected after the contract is signed. Answer: C Explanation: Bona fide errors are non‑intentional mistakes that are corrected quickly, allowing the dealer to avoid liability. Question 19. Under the Consumer Leasing Act (CLA), a “closed‑end lease” is defined as: A) A lease that automatically converts to a purchase at lease end. B) A lease where the lessee has no obligation to purchase the vehicle. C) A lease with unlimited mileage. D) A lease that includes a balloon payment. Answer: B Explanation: Closed‑end leases give the lessee the option, but not the obligation, to purchase the vehicle at lease end. Question 20. Which of the following must be disclosed in a CLA lease agreement? A) The dealer’s gross profit margin. B) The residual value of the vehicle.
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C) The buyer’s credit score. D) The dealer’s advertising budget. Answer: B Explanation: The residual value is a required disclosure in consumer leases as it determines the lease payment calculation. Question 21. Lease payments under CLA are calculated using: A) The vehicle’s MSRP minus the down payment only. B) The sum of the capitalized cost, residual value, money factor, and taxes. C) The dealer’s profit plus the APR. D) The buyer’s trade‑in allowance exclusively. Answer: B Explanation: Lease payments are derived from the capitalized cost, residual value, money factor (interest), and applicable taxes. Question 22. Advertising a “$199 per month” lease without stating required disclosures violates: A) The Equal Credit Opportunity Act. B) The Consumer Leasing Act. C) The Fair Credit Reporting Act. D) The Gramm‑Leach‑Bliley Act. Answer: B Explanation: CLA regulations require that lease advertisements include certain disclosures; omitting them is a violation. Question 23. In a lease agreement, “early termination” typically results in:
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Question 26. Which piece of information is NOT required in an AAN? A) The specific reason for the adverse action. B) The name and address of the credit reporting agency used. C) The buyer’s Social Security Number. D) The consumer’s right to obtain a free copy of the report. Answer: C Explanation: The consumer’s SSN is not required in the AAN; the notice must include reasons, agency info, and rights to obtain the report. Question 27. Disparate impact pricing under ECOA can be avoided by: A) Offering the same markup to all applicants regardless of credit. B) Using objective, credit‑based criteria for pricing. C) Adjusting rates based on the applicant’s zip code. D) Providing discounts only to friends and family. Answer: B Explanation: Using credit‑based, objective criteria helps prevent unintentional discrimination (disparate impact). Question 28. ECOA record‑retention requirements mandate that credit applications be kept for at least: A) 6 months. B) 1 year. C) 2 years. D) 5 years. Answer: C
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Explanation: ECOA requires dealers to retain credit applications and related documents for a minimum of two years. Question 29. Under the Fair Credit Reporting Act (FCRA), a “permissible purpose” to pull a credit report includes: A) Marketing new products. B) Determining eligibility for credit. C) Conducting a background check for employment unrelated to credit. D) Verifying identity for a social media account. Answer: B Explanation: FCRA permits credit pulls for credit decisions, insurance underwriting, employment (if credit‑related), and other legitimate purposes. Question 30. The Risk‑Based Pricing Rule requires a dealer to: A) Offer the same interest rate to all borrowers. B) Provide a notice when a consumer receives less favorable terms than the majority. C) Disclose the dealer’s profit margin. D) Offer a discount for cash purchases. Answer: B Explanation: When a consumer receives terms that are materially less favorable than those offered to most other consumers, a notice must be provided. Question 31. If a consumer disputes an entry on their credit report, the dealer must: A) Ignore the dispute. B) Immediately delete the entry. C) Investigate and correct any inaccuracies within 30 days.
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A. Install firewalls on all computers. B. Develop, implement, and maintain an information security program. C. Share customer data with affiliated companies without notice. D. Provide free credit monitoring to all customers. Answer: B Explanation: The Safeguards Rule obligates financial institutions to create a comprehensive information security program to protect NPI. Question 35. Under the GLBA Disposal Rule, which of the following is an acceptable method for disposing of consumer information? A) Shredding paper records. B) Throwing documents in a regular trash bin. C) Recycling without any security measures. D) Storing records in an unsecured garage. Answer: A Explanation: Secure shredding is a recognized method for disposing of non‑public personal information to prevent unauthorized access. Question 36. The FTC Used Car Rule requires the Buyer’s Guide to be: A) Displayed only upon request. B) Prominently displayed on every used car for sale. C) Hidden in the dealer’s office. D) Provided only after the sale is completed. Answer: B Explanation: The Buyer’s Guide must be clearly displayed on every used vehicle for sale to inform consumers of warranty status and other important details.
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Question 37. The Buyer’s Guide must include which of the following statements? A) “All repairs are covered for the life of the vehicle.” B) “The vehicle is sold ‘as is’ unless a warranty is provided.” C) “Dealer’s profit margin is confidential.” D) “Financing is available at a fixed rate.” Answer: B Explanation: The guide must disclose whether the vehicle is sold “as is” or with a warranty. Question 38. The FTC Holder‑in‑Due‑Course Rule (Holder Rule) requires that a credit contract contain: A. The dealer’s profit margin. B. A notice that the holder is subject to the consumer’s defenses against the seller. C. The seller’s tax identification number. D. A clause prohibiting early payoff. Answer: B Explanation: The Holder Rule requires a notice that the holder (finance source) stands in the shoes of the seller regarding consumer claims. Question 39. The FTC Credit Practices Rule prohibits the use of: A. Non‑purchase money security interests in household goods. B. Fixed‑rate financing. C. Credit checks for cash purchases. D. Lease agreements with a purchase option. Answer: A
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D. Accepting cash payments. Answer: B Explanation: OFAC screening is required before extending credit or completing any financing arrangement to ensure compliance with sanctions. Question 43. If a potential match is found on the OFAC SDN list, the dealer must: A. Immediately approve the transaction. B. Freeze the transaction and report to OFAC. C. Ignore the match if the amount is under $1,000. D. Offer a discount to the customer. Answer: B Explanation: A potential or exact match triggers a hold on the transaction and requires reporting to OFAC. Question 44. The Do‑Not‑Call Rule prohibits: A. Sending promotional emails. B. Telemarketing calls to numbers on the National Do‑Not‑Call Registry. C. Sending text messages after a purchase. D. Mailing brochures. Answer: B Explanation: The Do‑Not‑Call Rule restricts telemarketing calls to numbers listed on the registry. Question 45. Under the CAN‑SPAM Act, a commercial email must include: A. The dealer’s profit margin. B. An opt‑out mechanism.
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C. The buyer’s credit score. D. A list of all available warranties. Answer: B Explanation: The CAN‑SPAM Act requires a clear, easy way for recipients to opt out of future commercial emails. Question 46. Text message marketing to a consumer’s cell phone must: A. Be sent without prior consent. B. Include the consumer’s name in the subject line. C. Obtain prior express written consent. D. Be limited to 10 characters. Answer: C Explanation: The FTC requires prior express written consent before sending marketing texts to a consumer’s mobile device. Question 47. The Magnuson‑Moss Warranty Act primarily governs: A. Financing terms. B. Written consumer product warranties. C. Lease residual values. D. Dealer profit disclosures. Answer: B Explanation: The Act regulates written warranties on consumer products, ensuring they are clear and enforceable. Question 48. Vehicle Service Contracts (VSC) are considered: A. Warranties under the Magnuson‑Moss Act.
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A. A written agreement stating the buyer may return the vehicle within a reasonable time. B. No written documentation, only a verbal promise. C. A cash‑only payment method. D. An automatic financing approval. Answer: A Explanation: Spot deliveries require a written agreement that allows the buyer to return the vehicle if the financing is not finalized within a reasonable period. Question 52. The Federal Do‑Not‑Contact rule for email (CAN‑SPAM) requires that commercial emails: A. Contain a physical address of the sender. B. Include the buyer’s credit score. C. Be sent only on weekdays. D. Have a subject line of less than 20 characters. Answer: A Explanation: The CAN‑SPAM Act mandates that commercial emails include a valid physical postal address of the sender. Question 53. The “Right of Rescission” under TILA does NOT apply to which of the following? A. Home equity loans. B. Automobile installment contracts. C. Credit card agreements. D. Personal loans. Answer: B Explanation: The right of rescission is excluded for automobile installment contracts.
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Question 54. A dealer’s “full recourse” assignment differs from “partial recourse” in that: A. Full recourse allows the dealer to retain the contract. B. Partial recourse limits the finance source’s ability to pursue the dealer for deficiencies. C. Full recourse eliminates the dealer’s liability entirely. D. Partial recourse requires the buyer to pay a higher APR. Answer: B Explanation: Partial recourse limits the finance source’s right to seek the dealer for any deficiency after buyer default, unlike full recourse. Question 55. Under TILA, the “Finance Charge” does NOT include which of the following? A. Interest. B. Origination fees. C. The vehicle’s MSRP. D. Prepaid finance charges. Answer: C Explanation: The MSRP is the vehicle’s price, not a finance charge; finance charges consist of interest and related fees. Question 56. The “Money Factor” used in lease calculations is equivalent to: A. APR divided by 2400. B. APR multiplied by 12. C. The dealer’s profit margin. D. The residual value percentage. Answer: A
