Mortgage Loan Originator (MLO) Licensing Practice Test

What is the definition of an accuracy tolerance for finance charges?

1. A limit on the total cost of the loan

2. A cap on how much the finance charges can differ from the disclosed amount

3. Identification of all possible fees

4. The need for a comprehensive credit assessment

The correct answer is: A cap on how much the finance charges can differ from the disclosed amount

The definition of an accuracy tolerance for finance charges is principally concerned with establishing permissible variances between the disclosed finance charges and the actual finance charges assessed to the borrower. Specifically, it ensures that consumers are protected and that they are aware of the costs associated with their loans. Understanding this, option B emphasizes that there is a cap on how much the finance charges can differ from the originally disclosed amount. This means lenders must adhere to strict guidelines that prevent significant discrepancies, fostering transparency and trust in the loan process. These tolerances serve to hold lenders accountable and provide borrowers with better predictability of their costs. The other options do not accurately capture the essence of accuracy tolerance. A limit on the total cost of the loan (the first choice) does not focus specifically on finance charges but rather on overall costs, which is broader than just the accrued charges. Identifying all possible fees (the third choice) is not relevant to tolerances but rather relates to full fee disclosure requirements. Lastly, the need for a comprehensive credit assessment (the fourth option) pertains to underwriting standards and evaluations, which are distinct from the accuracy tolerances associated with finance charges.