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HOT TOPICS
2017
MEMBERSHIP
DIRECTORY
167
State laws also may require other disclosures and mandate that certain contract terms be conspicuously disclosed
as well. Both RISCs and lease agreements must state the monthly payments and term of the payment obligations.
TILA and Regulation Z also include negative equity on a trade-in into the cash price disclosure on a RISC. Negative
equity should either be used to reduce the customer’s down payment (but not below $0) or itemized under
“Amounts Paid to Others”and not as part of the sales price of the vehicle.
TILA also requires listing items that a consumer is not required to purchase in order to obtain credit, but elects to
do so. These items are typically disclosed in the Itemization of the Amount Financed on the RISC. Simply including
the un-itemized cost of aftermarket items such as vehicle etching, service contracts, rustproofing, and other items
into the cash price of the vehicle constitutes “payment packing”, an activity of great interest to the FTC and state
Attorneys General. Even if an aftermarket product is permitted under applicable state and federal law, failing to
disclose these items in the Itemization of the Amount Financed could subject the dealer to regulatory scrutiny
and/or lawsuit. For example, a dealer was sued in a class action alleging a TILA violation for including vehicle
etching in the cash price of new motor vehicles without disclosing that it was doing so – or that the vehicle
etching was optional.
Pick-Up Payments:
TILA also addresses the subject of deferred down payments (also called“pick-up payments”),
a practice in which the consumer agrees to make a portion of the contractual down payment at a time later than
contract signing and vehicle delivery. A deferred portion of a down
payment may be treated as part of the down payment if it is payable not later than the due date of the second
otherwise regularly scheduled payment and is not subject to any finance charge. However, most lender agreements
require the dealer to represent and warrant that it has received the down payment in full prior to assigning any
contract to the lender. Thus, while TILA permits deferred down payments, there is a strong risk that a lender will
require a dealer to repurchase a RISC for breaching the rep and warranty that the down payment has been received
in full. TILA also provides several ways to disclose pick-up payments. If the pick-up payment is treated as part
of the down payment, it must be subtracted from the amount financed. Alternatively, it may, but need not, be
reflected in the payment schedule. But if the pick-up payment goes in the payment schedule, it must be included
in the Total of Payments disclosure required by TILA. State laws also have provisions relating to deferred down
payments. Some states require a separate disclosure of the deferred portion of the down payment on the RISC.
Non-disclosure of the deferred portion on the face of the RISC may violate state law. TILA disclosures must reflect
the legal obligation of the parties. If information necessary for the accurate disclosure is unknown, the disclosure
may base the information on the best information reasonably known to the creditor and label the disclosures as
estimates. In the case of a refinancing, new TILA disclosures must be provided for the refinanced transaction. TILA
also includes recordkeeping requirements. Creditors must retain evidence of compliance for two years after the
disclosures are required to be made.
FTC Credit Practices Rule
The FTC Credit Practices Rule prohibits certain unfair contract provisions, such as making consumers assign their
wages to get credit or a creditor taking a lien on household goods to secure payment. It prohibits “pyramiding”
of late fees, when a payment is considered late only because the payment did not include a late fee from the
previous payment. The Credit Practices Rule also requires giving cosigners an FTC-mandated notice describing
their potential liability if the consumer fails to pay. The notice must be given and signed by the cosigner before