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HOT TOPICS
2017
MEMBERSHIP
DIRECTORY
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consummation of the transaction. If you use multiple credit scores, you must disclose the one you most relied on.
If you didn’t primarily rely on one, you can disclose any one of the multiple scores. If a consumer does not have
a credit score, you must give that consumer a special form alternative notice stating that no score was available.
Notably, the CSD Notice exception does not require disclosing the four to five “key factors”that adversely affected
the credit score. The “key factors”disclosure is only required for adverse action notices.
What if your dealership doesn’t ordinarily need to pull credit reports or credit scores? Your lender may still expect
you to handle this requirement as the initial creditor, and this may require you to buy a credit score anyway.
Security Freeze Laws
All consumers can now freeze their credit files by contacting any or each of the three national credit bureaus:
Equifax, Experian, and TransUnion. If a customer does freeze their credit file, you will be unable to pull their credit
report or credit score unless he or she “thaws”their credit file by calling each credit bureau. The “thawing”process
should take a relatively short amount of time to complete.
Truth in Lending Act (“TILA”) Requirements
TILA, the federal Consumer Leasing Act (“CLA”, a subsection ofTILA), and the Federal Reserve Board’s and Consumer
Financial Protection Bureau’s Regulations M (leasing) and Z (loans and credit sales) govern disclosures of credit
terms to consumers. TILA disclosures must be given prior to consummation of the transaction. TILA and state laws
also contain disclosure and other requirements for credit applications and consumer credit contracts. Many state
laws cap Annual Percentage Rates (“APRs”) and other charges as do the federal Servicemembers Civil Relief Act
and Military Lending Act discussed below. TILA, Regulation Z, and the CLA and Regulation M do not apply to credit
transactions and consumer leases in excess of the then-current amount of the cap. However, it is a best practice to
comply with TILA and the CLA regardless of the amount of the obligation on all credit transactions and consumer
leases. A number of states require compliance with TILA on all credit transactions, regardless of the credit amount.
TILA requires dealers to break down the cost of credit into two categories:
•
Amount financed: Examples of required disclosures in retail installment sales contracts (“RISCs”) for the amount
financed include an itemization of the amount financed representing components of the financed obligation
which are advanced by the dealer to the borrower or paid to others on the borrower’s behalf (and that are not
finance charges), such as vehicle cost, taxes, registration fees, and sums paid to pay off credit obligations on
a consumer’s trade-in vehicle. Insurance (credit or property) can be a component of the amount financed if
properly disclosed.
•
Finance charge:This includes many types of charges thatTILA defines as part of the finance charge and represents
the cost of credit. The finance charge must be disclosed as the total dollar amount of finance charges and the cost
of credit expressed as an APR in the RISC. These disclosures must be more conspicuous than any other required
disclosures (such as by bolding them, outlining them in a border, using all capital letters, etc.). The CLA and
Regulation M require that the vehicle’s gross and adjusted capitalized cost, residual value, depreciation and
amortization, and rent charges be disclosed in lease agreements.