CFP - Professional Conduct and Regulation (8% of the exam) - Section A.5

Consumer protection laws

Federal consumer protection statutes that touch financial planning: privacy and safeguarding of client information under Regulation S-P, fair credit reporting and lending rules, identity-theft red flags, and the planner's obligations when handling client data and credit information.

Regulation S-PFair Credit Reporting ActGramm-Leach-Bliley Act

Practice question for this objective

Free sampleProfessional Conduct and Regulationmedium

Marcus, aged 41, is refinancing his mortgage and his application is declined. His credit report shows a delinquent car loan he has never had, opened in a state where he has never lived. He wants the entry off the report quickly so he can reapply. Under the Fair Credit Reporting Act, what is the appropriate first step for his planner to recommend?

APlace a security freeze on the credit file, which suppresses the disputed account while the lender reconsiders the refinancing application.
BSue the furnisher of the account for damages immediately, as litigation is the practical route once a lender has already relied on the inaccurate entry.
CWait for the seven year reporting period to run, since the account will drop off the file in time without Marcus needing to take any action himself.
DFile a dispute with the consumer reporting agency, which must reinvestigate, generally within thirty days, and delete or correct anything it cannot verify. Correct

Identify the consumer reporting agency dispute and reinvestigation process as the primary statutory remedy for an inaccurate credit report entry. The statute puts the burden of accuracy on the consumer reporting agency once a consumer disputes an item. The agency must conduct a free reinvestigation, notify the furnisher of the account, and delete or correct information that cannot be verified, all within the reinvestigation window that generally runs thirty days from receipt. Freezes, waiting periods and litigation are secondary options that either address a different problem or depend on the dispute having been made first.

Why A is wrong: Tempting because a freeze is a real statutory right and is sound protection after suspected identity theft. It is wrong as a first step here because a freeze restricts new access to the file and does nothing to remove or correct an entry that is already being reported.

Why B is wrong: Tempting because the statute does create private remedies against furnishers. It is wrong because a furnisher's accuracy duties are generally triggered once the consumer reporting agency passes on a dispute, so suing before disputing skips the step that produces the correction.

Why C is wrong: Tempting because the seven year limit on reporting adverse items is a genuine rule. It is wrong because that limit governs accurate adverse information, it does nothing for a fraudulent account, and it would not help a refinancing that is happening now.

Why D is correct: Correct. The dispute process is the statutory mechanism for inaccurate information. The agency must reinvestigate free of charge, forward the dispute to the furnisher, and delete or modify information it cannot verify within the reinvestigation period.

See more CFP practice questions, answers explained.

Exam traps in Professional Conduct and Regulation

Answers that look right on this material and are not. Each one is a distractor from a different question in the CFP bank for this domain.

Send no client communication, because nothing yet shows that anyone has actually opened the file or misused the information taken with the laptop.
Why it is wrong: Tempting because waiting for evidence of misuse feels proportionate and avoids alarming clients. It is wrong because the trigger is unauthorised access to sensitive customer information that has occurred or is reasonably likely to have occurred, not proof of actual misuse.
Rely on the joint marketing exception, since a written contract limiting the agency's use of the data removes the duty to offer clients an opt out.
Why it is wrong: Tempting because a written confidentiality contract is genuinely part of the service provider and joint marketing exception. It fails here because that exception covers a third party performing services for or on behalf of the firm, and this agency is marketing its own products for its own account.
The Securities Investor Protection Corporation will reimburse the fall in the market value of her shares that occurred around the failure of the firm, up to the 500,000 dollar limit.
Why it is wrong: Tempting because the loss and the failure happened together, which invites the reading that one caused the other. It is wrong because the protection covers assets that go missing from the account when a brokerage fails, and never underwrites investment performance.

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