2020Directory_FNL_FlippingBook

as vehicle cost, taxes, registration fees, and sums paid to pay off credit obligations on a consumer’s trade- in vehicle. The cost of insurance (credit or property) financed in connection with the transaction can be a component of the amount financed (as opposed to finance charge) if properly disclosed. • Finance charge: This includes many types of charges that TILA 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.). For examples of finance charges see Regulation Z, 12 C.F.R. 1026.4. • Lease Disclosures: 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. • Closed-Credit Disclosures: TILA and Regulation Z also require specific disclosures concerning credit terms of the transaction (e.g. the amount financed and finance charge) that must be provided before consummation of the transaction. For additional information on the disclosures and other requirements see TILA, 15 U.S.C. 41 et seq. and Regulation Z, 12 Part 1026. State laws may require other disclosures and mandate that certain contract terms be conspicuous. Both RISCs and lease agreements must state the number, amounts, and timing of payments. TILA and Regulation Z also include specific rules on disclosing negative equity on a trade-in in a financing transaction. Negative equity should either be used to reduce the customer’s down payment or itemized under “Amounts Paid to Others.” It should not be disclosed as part of the sales price of the vehicle. TILA requires creditors to disclose the costs of ancillary products and services that the consumer elects to purchase as part of the transaction, but that are not required in order to obtain credit. 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 newmotor vehicles without disclosing that it was doing so – or that the vehicle etching was optional. Creditors must disclose additional information regarding the cost of credit, including the Total of Payments (in both credit sales and loans) and Total Sale Price (in credit sales only). In addition, creditors must also disclose the security interest (typically in the vehicle), the amount of any late fees that could be imposed, and whether the consumer may prepay the obligation without incurring penalties. The disclosures also must include a contract reference directing the consumer to the contract documents for additional information about the extension of credit. These disclosures and others that could apply to the transaction, along with the finance charge, APR, amount financed, total of payments and total sale price, must be segregated from all other information and may not include any information not directly related to the disclosures. Pick-Up Payments: TILA governs disclosure 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

2020 MEMBERSHIP DIRECTORY & SERVICES GUIDE HOT TOPICS

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