Chapter 25 — Quiz: The F&I Process, Paperwork, and Compliance

Answer each, then open the <details> block to check yourself and read the explanation. Scoring guide at the end.

Part 1 — Multiple Choice (10)

Q1. The single document that is the actual loan contract — the one that creates the customer's debt — is the: - A) Buyer's order - B) Credit application - C) Retail Installment Sale Contract (RISC) - D) Privacy notice

Answer **C) RISC.** The buyer's order *summarizes* the deal; the credit application is *submitted to lenders*; the RISC is the binding loan contract and contains the federally required **TILA box**.

Q2. The four numbers required in the TILA disclosure box are: - A) MSRP, selling price, trade allowance, payoff - B) APR, finance charge, amount financed, total of payments - C) Down payment, monthly payment, term, sales tax - D) Buy rate, sell rate, reserve, doc fee

Answer **B) APR, finance charge, amount financed, total of payments.** TILA standardizes these four so loans are comparable. (Notice **buy rate / sell rate / reserve** in option D are *not* required TILA disclosures — that's why ethical disclosure goes beyond the legal minimum.)

Q3. A salesperson pulls a browsing customer's credit report before the customer has agreed to anything or authorized it. This most directly violates: - A) TILA - B) OFAC - C) FCRA (no permissible purpose) - D) GLBA Safeguards Rule

Answer **C) FCRA.** You need a **permissible purpose** — typically a signed authorization plus a genuine financing attempt — to pull credit. No purpose, no pull.

Q4. Leaving credit applications face-up on a desk overnight and emailing Social Security numbers in plain text most directly violates: - A) The GLBA Safeguards Rule - B) ECOA - C) The Red Flags Rule - D) TILA

Answer **A) GLBA Safeguards Rule.** Dealers must have a written information-security program and actually protect customers' nonpublic personal financial data. (A *pattern* of ignoring identity inconsistencies would implicate the Red Flags Rule — but the data-handling failures here are GLBA.)

Q5. An F&I manager offers a customer a fatter rate markup and pushes more products based on assumptions about the customer's background rather than their credit. This violates: - A) FCRA - B) ECOA - C) OFAC - D) The Red Flags Rule

Answer **B) ECOA.** Terms, products, and effort must be driven by creditworthiness and the deal — never by a protected characteristic. This is also the historical concern behind scrutiny of dealer rate markup (disparate impact).

Q6. A "delivered but not funded" deal becomes a legitimate spot delivery when: - A) The customer drives off happy - B) There is a written conditional delivery agreement stating the financing isn't final and that the trade + down payment are returned if it doesn't fund - C) The manager verbally promises to "make it work" - D) The deal is over $40,000

Answer **B).** The written contingency — naming that financing isn't final and spelling out the unwind (trade and down payment returned) — is what separates a legitimate spot delivery from the setup for a yo-yo.

Q7. Calling a spot-delivered customer back weeks later to force a higher rate or bigger down payment, when the original terms could have funded, is: - A) Standard re-contracting - B) A risk-based pricing adjustment - C) The "yo-yo" — a predatory, prohibited practice - D) Required by FCRA

Answer **C) The yo-yo.** It weaponizes the customer's attachment after their leverage has disappeared. The correct response to a *genuine* fall-through is an honest unwind (or a fully disclosed, truly optional new deal).

Q8. A 720-credit person signs for a car that a non-qualifying 540-credit person will actually have and pay for, with the real buyer doing all the negotiating. This is a: - A) Co-signer arrangement (always fine) - B) Straw purchase - C) Synthetic identity - D) Risk-based pricing case

Answer **B) Straw purchase** — a front borrower hiding the real one, a misrepresentation to the lender. (A *genuine, disclosed* co-borrower allowed by the lender is different and legitimate.)

Q9. Inconsistent addresses, a thin/mismatched credit file, and a Social Security number whose attached history doesn't include the applicant are classic warning signs that trigger the: - A) TILA disclosure - B) Red Flags Rule (identity-theft program) - C) OFAC list - D) Used Car Rule

Answer **B) Red Flags Rule.** These are textbook identity-theft red flags (often synthetic identity). The duty: notice the flag, follow the program, and resolve it *before* funding.

Q10. Which statement about state F&I law is accurate? - A) Doc-fee caps, usury limits, and cancellation rights are identical nationwide - B) Every state grants a 3-day right to cancel a car purchase - C) Much F&I law varies by state, so the professional routes state questions to compliance/counsel rather than guessing - D) State law is irrelevant once federal law is satisfied

Answer **C).** Doc fees, usury limits, cancellation rights, spot-delivery rules, and forms vary by state. There is generally **no** automatic 3-day right to cancel a car (B is the common myth). Default to "let me confirm that."

Part 2 — True / False (5)

State true or false and add a one-line justification.

Q11. The TILA box discloses the dealer's buy rate, sell rate, and reserve to the customer.

Answer **False.** TILA discloses the **APR the customer pays** (and finance charge, amount financed, total of payments). It does **not** reveal the buy/sell spread — which is why ethical disclosure of the markup goes beyond the legal floor.

Q12. A signed credit application in connection with a real attempt to finance a purchase is a permissible purpose to pull the customer's credit.

Answer **True.** That's the classic FCRA permissible purpose in retail. Pulling without authorization or without a genuine financing attempt is the violation.

Q13. Helping a customer inflate their income on the application is acceptable if the customer asks you to and says they're "good for it."

Answer **False.** It's loan fraud regardless of who suggests it — a misrepresentation to the lender that exposes the dealer to liability and traps the customer in a payment they may not afford.

Q14. The odometer disclosure is a required, certified statement protecting buyers from odometer fraud, not a mere formality.

Answer **True.** Federal law requires a written, certified mileage disclosure at transfer; falsifying it is a federal crime.

Q15. Because five of the six federal F&I laws are designed to protect the customer, complying with them necessarily reduces the dealer's legitimate profit.

Answer **False.** They limit opacity, discrimination, carelessness, and complicity — not legitimate profit. Theme #3: ethics/compliance are the *profitable* long game (kept gross, referrals, no chargebacks/lawsuits).

Part 3 — Short Answer (4)

Q16. In one or two sentences, what is a deal jacket and why does a clean one matter long after the sale?

Answer The deal jacket holds every document for one transaction; it is the **proof the process happened correctly**. A clean jacket is a defensible deal in any later dispute, lawsuit, audit, or lender repurchase demand; a sloppy one is a liability.

Q17. Name the six federal laws governing F&I and give each a one-line job.

Answer **TILA** — disclose loan cost comparably (the box). **ECOA** — no discrimination; adverse-action notices. **FCRA** — permissible purpose to pull credit; risk-based pricing/adverse-action notices. **GLBA** — privacy notice + safeguards to protect data. **Red Flags Rule** — written identity-theft prevention program. **OFAC** — screen customers against prohibited-parties lists.

Q18. Describe the honest unwind — what a professional does when a spot-delivered deal genuinely can't fund at the agreed terms.

Answer Call the customer promptly, tell the truth about what happened, and **honor the written contingency** — return the trade and down payment and unwind the sale, restoring the customer to their starting point. If a different deal *is* available, present it as a genuine, fully disclosed, optional choice with the unwind still on the table — never as a trap.

Q19. Why is the yo-yo especially harmful compared to a straightforward overcharge?

Answer The yo-yo strikes *after* the customer's leverage has evaporated — they've bonded with the car, told family, maybe disposed of their old car — so the "come back and redo it" demand removes real choice and weaponizes attachment. An overcharge happens with the customer's options intact; the yo-yo happens once they're trapped.

Part 4 — Applied Scenario (2)

Q20. Using the canonical Okafor build (amount financed $41,030**, **7.9%** APR, **72 months**, payment **$717.39/mo), state the four TILA-box numbers and show the math for total of payments and finance charge.

Answer - **APR:** 7.90% - **Amount financed:** $41,030 - **Total of payments:** 72 × $717.39 = **$51,651.08** (≈ $51,652) - **Finance charge:** $51,651.08 − $41,030 = **$10,621.08** (≈ $10,622) The finance charge (>$10,600) is the *dollar* cost of borrowing — invisible if the customer looks only at the payment. (Rounded; exact values depend on payment rounding and first-payment timing.)

Q21. It's 7:30 p.m. The credit application says one address; the driver's license says another; the income line is noticeably higher than the stapled pay stub supports; and the SSN's attached history matches none of the stated addresses. Name (a) the rule that requires you to have a process for this, (b) the two most likely innocent explanations, and (c) the two fraud patterns you must rule out — and state what you do before funding.

Answer **(a)** The **Red Flags Rule** (you must have an identity-theft prevention program and act on red flags). **(b)** Innocent: a recent move with a not-yet-updated license/insurance; an income figure that mistakenly combined spouse/household or listed gross-with-extras against the application's format. **(c)** Fraud to rule out: **synthetic identity** (fabricated person around an SSN) and **income/employment falsification** (and watch for a **straw purchase** dynamic). **Before funding:** stop, verify identity and income calmly and factually with the customer, correct and *document* the resolution, and only fund a deal whose information is consistent and supportable.

Scoring Guide

Count one point per question (21 total; for True/False, the justification must be correct too).

  • 18–21 (85%+): You've got the compliance spine cold. You're ready for Chapter 26 (subprime/special finance), where this discipline matters most.
  • 15–17 (70–84%): Solid. Re-read §25.4 (the six laws) and §25.6 (spot delivery/yo-yo) to firm up the edges before moving on.
  • 11–14 (50–69%): You have the shape but not the detail. Go back through §25.2–§25.4 and rebuild your Compliance Checklist (Project Checkpoint) from memory.
  • Below 11: Re-read the chapter and work Part A and Part C of the exercises. This is the most learnable chapter in the book — and the one a future F&I employer cares about most.