The Truth in Lending Act, also known as TILA, is a federal law designed to protect consumers in credit transactions by requiring clear disclosure of key terms in the lending arrangement and all costs. This law is contained in Title I of the Consumer Credit Protection Act. The regulations implementing the statute are known as Regulation Z for purchase transactions and Regulation M for lease transactions. The exact requirements for enacting most of the specific requirements imposed by TILA are found in Regulation Z so a reference to the requirements of TILA usually actually refers to the requirements outlined in Regulation Z.
The purpose of TILA is to promote the informed use of consumer credit by requiring disclosures about its terms and costs. TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s primary residence, regulates certain credit card practices and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high-cost mortgage loans, TILA does not regulate the charges that may be imposed for consumer credit. Interest rate caps are usually covered by applicable state laws.
REGULATION Z
The purpose behind the Regulation is to allow customers to make an informed decision when using credit by disclosing cost and terms. All businesses that meet the following four criteria are subject to its rules:
1) the credit is offered to consumers;
2) the offer of credit is done regularly;
3) the credit is subject to finance charges or is repaid with 4 or more payments; and
4) the credit is for personal, family, or household use.
The creditor, i.e. the BHPH dealer, must declare the disclosures clearly, in writing, and on a form that the customer can keep. The disclosures have to be grouped together, be separated from all other information, and not include any information not directly related to the disclosures (TILA box). All disclosures must be made prior to the deal being finalized.
In relation to advertising, if the ad contains any specific financing terms, it must state only those terms that are offered by the dealership. Certain credit terms, when mentioned in an ad, trigger the required disclosure of other items. The purpose of this requirement is to give the prospective purchaser a complete and accurate picture of the transaction being offered.
When the ad mentions any of the following (triggering terms)
a) the amount or percent of down payment;
b) the number of payments or period of repayment;
c) the amount of any payment; or
d) the amount of any finance charge,
it must display all of the following:
- the amount or percent of the down payment;
- the terms of repayment, including balloon payments; and
- the annual percentage rate (using that term or the abbreviation APR) and if the rate is subject to increase.
The disclosure must be clear and conspicuous. Hiding disclosures in tiny print does not satisfy the requirements of the law. All of these terms must be in close proximity to each other. For example, if an advertisement lists a monthly payment, (a “trigger term” under TILA) it must also list the amount of down payment, the number of months or weeks for repayment, the APR and, if the rate may be increased after consummation, a statement of that fact.
Although disclosures in traditional media must be placed in close proximity to the trigger term, internet advertising provides options that are not available in print media such as hyperlinks and scrolling (pop-ups and banners are additional options).
A hyperlink that leads to the disclosure when the cursor is placed on the trigger term is useful if the disclosure is lengthy or is repeated because multiple vehicles use the same disclosures. If hyperlinks are used to display disclosures within an advertisement, consider the following:
- The hyperlink’s label should make it not only obvious to consumers to click on it for more information, but it should also show the consumer that the hyperlinked information relates to the vehicle being advertised.
- Since different web sites use different signals for hyperlinks, dealers should use similar text, graphics, format and color throughout a single web page to for easier identification of hyperlinks by consumers.
- If you use a click-through page, it should display the complete disclosure prominently. It should not provide distracting visuals or extraneous information. Any “close” or “click-away” opportunities should be displayed discreetly and not blocking the disclosure information.
Remember to test any hyperlinks to be sure that they work properly.
Use of Generic Terms
Some statements about credit terms are too general to trigger additional disclosures. Examples of terms that do not trigger the required disclosures are:
“Easy monthly payments”
“Loans available at 5% below our standard APR”
“Low down payment accepted”
“Pay weekly”
“Terms to fit your budget”
“Financing available.”
General statements, such as “take years to pay” or “flexible payment terms” do not trigger further disclosures because they do not state or suggest the period of repayment or down payment cost. Generally, use of terms such as “as low as” for down payments or payment amount are acceptable and do not trigger disclosure as long as you actually offer those terms at your dealership.
However, you must be careful. The statement “drive it home for $199,” which implies that the required cash down payment is no more than $199, does trigger full disclosure. Similarly, a statement such as “up to 48 months to pay” lists the period of repayment and triggers disclosure. Use of terms such as “$0 Down” or “0% Interest” also do trigger additional disclosure. In general, the more specific the statement, the more likely it is to trigger additional disclosures.
I am not an attorney and this article is not meant to be legal advice. It was meant to bring the matter to the attention of dealers and outline the basic requirements. If you have any doubts about your advertising, consult your attorney.
