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Truth-in-Lending disclosures need review to avoid potential lawsuits

November 23, 2010
Attorneys debated nearly two years over how to present Truth in Lending disclosures so that a consumer can meaningfully shop for credit. Ultimately, a Federal  Reserve Board amendment and commentary on Regulation Z clarified the matter. Lawsuits over TILA are fertile ground-they provide for statutory damages for many violations and attorneys fees-and therefore are a favorite of plaintiffs' lawyers who seek quick and expensive settlements in cases involving dealerships. More often than not, however, TILA lawsuits stem from errors that can be avoided. Dealers periodically should spot-check their retail installment sales contracts and processes. Lining up a contract. An F&I officer so poorly loaded a contract in his printer that disclosures failed to print on the proper lines. Disclosures must be printed on the properlines. "Administrative fees and charges" is the proper term to use when completing RISCs; it sometimes is referred to wrongly as a "document" fee. Plaintiffs' attorneys would quickly argue that a document fee is some other fee for extending credit which should be included in the APR calculation. Disclosure of official fees. Finance companies often use different forms with different provisions to disclose and itemize amounts financed. Examine all disclosures to make sure that any charged fees are permitted legally and that they appear on the proper disclosure line of every retail installment contract. For example, a disclosure of any official fees must be just that. If a contract discloses payment of "official fees" or "government fees," then the amount charged should be what will be paid to the government or what the dealership may be reimbursed. Averaging, guessing or charging a flat fee is not allowed. Any amounts charged should print on the proper lines of the retail installment contract. Disclosure that the seller may retain a portion of amount charged. Non-government fees (disclosed as amounts paid to others), certain charges such as credit insurance premiums, extended service contract prices, or similar charges should include a disclosure on the RISC that "seller may retain a portion of these amounts." Failure to include such a disclosure could subject the dealership to charges of misrepresenting the amounts paid to others.