Tag Archive | "Truth In Lending Act"

Fed Reserve, CFPB Leave TILA, CLA Dollar Thresholds the Same for 2017

WASHINGTON, D.C. — The dollar thresholds in the Truth in Lending Act (TILA)’s Reg. Z and the Consumer Leasing Act (CLA)’s Reg. M for exempt consumer credit transaction will remain at $54,600 for 2017, the Federal Reserve Board and the Consumer Financial Protection Bureau announced on Nov. 23.

The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the TILA and the CLA by requiring that the dollar threshold for exempt consumer credit transactions be adjusted annually by the annual percentage increase in the “Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).” If there is no annual percentage increases, the board and bureau will not adjust the exemption threshold.

“Based on the CPI-W in effect as of June, 1, 2016, the exemption threshold will remain at $54,600 through 2017,” the two agencies stated in a joint notice.

The decision means consumer credit and lease transactions at or below $54,600 will continue to be subject to the protections and requirements of Reg. Z and M, according to the National Automobile Dealers Association (NADA)’s Regulatory Affairs Group.

“This announcement is consistent with the Dodd-Frank Act amendments to the Truth in Lending Act and the Consumer Leasing Act to adjust these thresholds each year by the annual percentage increase in the Consumer Price Index,” the NADA said.

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AFIP Issues Guidance on Reg. Z and M Dollar Thresholds for 2016

COLLEYVILLE — The Association of Finance and Insurance Professionals issued guidance this week on the Federal Reserve Board and the Consumer Financial Protection Bureau’s Nov. 25 announcement that 2016 dollar thresholds for Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing Act) exemptions will remain unchanged in 2016.

Protections under the TILA and CLA will apply to consumer credit transactions and consumer leases of $54,600 or less in 2016, according to the agencies, the same thresholds that applied in 2015, reports F&I and Showroom.

“The $54,600 threshold will remain the same for 2016, as well the accepted practice for processing transactions in excess of that amount.”

The $54,600 maximum amount to qualify for installment sale and consumer lease protection under TILA and CLA, respectively, is not based on the selling price of the vehicle, but on the “amount financed” for a credit sale and the “total contractual obligation” for a lease, Robertson added. The total contractual obligation includes non-refundable amounts a lessee is contractually obligated to pay under the lease, but excludes the residual value, purchase option price and amounts such as taxes, license and registration fees collected by the lessor, but paid to third parties.

“However, most dealers treat all consumer transactions as if they fall under TILA and CLA, regardless of the dollar amount involved,” Robertson noted. “Under the two regulations, a consumer transaction is one in which the vehicle is used ‘primarily’ for household, family or personal use. Consumer transactions exceeding the $54,500 threshold may be recorded on a TILA compliant installment sale agreement or a Consumer Leasing Act compliant lease agreement.”

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FTC Approves Final Consent Orders in Two Deceptive Ad Cases

Following a public comment period, the Federal Trade Commission has approved final consent orders involving two auto dealers that deceptively advertised the sale, financing and leasing of their vehicles.

Under the settlement orders, Jim Burke Nissan of Birmingham, Ala., and Ross Nissan of El Monte, Calif., are prohibited from misrepresenting in any advertisement the cost to purchase or lease a vehicle, or any other material fact about the price, sale, financing, or leasing of a vehicle. The consent orders also address the alleged Truth in Lending Act and Consumer Leasing Act violations by requiring the dealerships to clearly and conspicuously disclose terms required by these credit and lease laws.

The Jim Burke order also prohibits the auto dealer from representing that a discount, rebate, bonus, incentive or price is available unless it is available to all consumers or the qualification terms are clearly and conspicuously disclosed.

These cases were part of the FTC’s nationwide and cross-border auto sweep Operation Ruse Control, which was announced in March 2015. The commission announced a final consent with National Payment Network, Inc., a company involved in the sweep that deceptively advertised its add-on biweekly auto payment plan, earlier this month.

The commission votes approving the final orders were 5-0.

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N.Y. Shuts Down Subprime Auto Lender

NEW YORK — The New York State Department of Financial Services (NYDFS) submitted last week a final consent judgment to settle its lawsuit against Condor Capital Corporation, a subprime auto lender based in Long Island, and its sole shareholder, Stephen Baron.

Among other violations, the defendants deceptively retained millions of dollars owed to vulnerable borrowers and overcharged them for interest in violation of the Truth in Lending Act, the agency’s press release stated.

Under the terms of the final consent judgment, Condor Capital and Baron will make full restitution plus 9% interest to all aggrieved customers nationwide (an estimated $8-9 million), pay a $3 million penalty, and admit violations of New York and federal law. Following a sale of its remaining loans, Condor Capital will surrender its licenses in all states.

The lawsuit against Condor Capital and Baron was the first legal action initiated by a state regulator under section 1042 of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, which empowers state regulators to bring civil actions in federal court for violations of Dodd-Frank’s consumer protection requirements.

“We will not tolerate companies that abuse New Yorkers and other customers — particularly vulnerable subprime borrowers who can least afford it,” said Benjamin M. Lawsky, superintendent of Financial Services. “This case demonstrates that the Dodd-Frank Act provides a powerful new tool for state regulators to pursue wrongdoing and obtain restitution for consumers who were abused. We hope other regulators across the country will consider taking similar actions when warranted.”

The department filed a complaint and obtained a temporary restraining order against Condor Capital and Baron on April 23. The court granted the department’s motion for a preliminary injunction and appointed a receiver on May 13. The receiver will remain in place until Condor’s loan portfolio is sold, the penalty and restitution are paid, and Condor has surrendered all of its licenses. To date, the receiver has paid more than $5 million in restitution.

As part of the final consent judgment, Condor admitted to violations of the Dodd-Frank Act, the Truth in Lending Act, the New York Banking Law, and the New York Financial Services Law. Baron admitted to violating Dodd-Frank Act by providing substantial assistance to Condor’s law violations.

Condor Capital concealed from its customers and the department the fact that thousands of its customers had refundable positive credit balances (i.e., money owed by Condor to a customer as a result of an overpayment of the customer’s account). Condor retained these positive credit balances for itself and maintained a policy of failing to refund positive credit balances except when expressly requested by a customer.

Furthermore, Condor programmed its website to terminate customers’ access to their account information once their loans were terminated, even if the customers had positive credit balances in their accounts. In addition, Condor represented to the New York State Comptroller that it had no unclaimed property when in fact Condor was required to report its customers’ positive credit balances to the Comptroller.

Condor Capital also violated the Truth in Lending Act by calculating the interest it charged its customers based on a 360-day year and applying the resulting daily interest rate to its customers’ loan accounts each of the 365 days during the year. This practice resulted in a difference in its customers’ APR in excess of the one-eighth of one percent tolerance permitted under the Truth in Lending Act. After being informed by regulators that this practice violated the Truth in Lending Act, Condor attempted on multiple occasions to add an additional one-eighth of one percent interest back to customers’ accounts.

Condor also endangered the security of its customers’ personally identifiable information. Among other information security lapses, Condor left stacks of hard-copy customer loan files lying openly around the common areas of Condor’s offices. Condor also failed — despite repeated directives from the department — to adopt basic policies, procedures, and controls to ensure that its information technology systems (and the customer data they contain) were secure. The final consent judgment submitted to the court requires Condor’s CEO to pay damages to any customer who the department determines suffered identity theft as a result of Condor’s mishandling of their private information.

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Top 5 Legal Musts for Agents

As we all know, in general, the motor vehicle sales business is highly regulated. This is especially true when you focus on the F&I portion of the business. In today’s business and regulatory environment it is important that F&I providers and agents have an understanding of the laws and regulations that impact the industry. While a complete discussion of all the applicable laws is beyond the scope of a single article, below are the top five laws and a brief summary of each that, in my opinion, are a must-know for agents.

Before we jump into my top five, no legal discussion would be complete without addressing the importance of using proper terminology. In general, it is of utmost importance that agents know about and understand the product itself, as well as use the proper terminology when referring to particular products and credit transactions. Unfortunately, it is common practice for key terms to be misused by industry insiders, the media, lawmakers, regulators, attorneys and the courts. As a result, this misuse has resulted in unnecessary increased risk and exposure to dealers, F&I providers and agents. It is important to know and understand the differences between a Retail Installment Sales transaction and a Loan; GAP Waiver and GAP Insurance; Warranty and Service Contract; and Insurance and Non-Insurance Terms. For example, in a Retail Installment Sales transaction the dealer is extending credit to the buyer for the purchase of the vehicle and the dealer is the “creditor.” Contrast this with the Loan scenario where the consumer, through an agreement with a “lender” such as a bank or finance company borrows money (i.e. gets a loan) and uses the proceeds to pay the dealer for vehicle.

The Dodd-Frank Act
The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) in 2010. The law has resulted in significant reforms in all areas of the financial services industry – including the car business. Under the law, there is an exemption for those motor vehicle dealers that have both sales and service operations. However, even though a dealer may not be subject to CFPB regulation, all of the same rules still apply, and the Federal Trade Commission (FTC) still has authority over those dealers exempt from regulation by the CFPB. In addition, as we are recently seeing, the CFPB is indirectly impacting the dealer through the regulation of those banks and financial institutions they do regulate. For example, the CFPB has issued a bulletin addressing discrimination and rate spread for indirect finance transactions through dealers. In addition, it is believed the CFPB is also looking at the pricing of F&I products sold through dealers.

Magnuson-Moss Warranty Act
Warranties are regulated on both the federal and state level; on the federal level, they are governed by the Magnuson-Moss Warranty Act (MMWA). Under the MMWA, manufacturers and sellers are required to provide consumers with detailed information about the warranty coverage on the product purchased, and the rights and obligations of the consumer and warrantor. The MMWA does not apply to oral warranties and does not require the provision of a written warranty, however, if a written warranty is offered it must comply with the MMWA. For example, the warranty must indicate whether it is “full” or “limited,” must be in a single, easy to read document and must be available to the consumer before buying the product. It is important to note that the requirements of the MMWA and the FTC’s Used Car Rule regarding the Buyers Guide on used vehicles are interrelated as they both address import warranty disclosure requirements. As such, the Buyers Guide cannot serve as the written warranty to comply with the MMWA. In addition, understanding the difference between a Warranty and a Service Contract and using the terms properly is crucial. Basically, a Warranty is included in the purchase price of a product, not sold separately, and comes from either the manufacturer or seller. On the other hand, a Service Contract is purchased separately from the product itself, is often administered by a third-party, only covers those items outlined in the contract and is in addition to any warranty.

Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act (GLB) is the federal law that governs a motor vehicle dealer’s responsibility as it pertains to the non-public personal information that a dealer obtains, possesses and shares. Within the GLB are the Privacy Rule and the Safeguards Rule. The Privacy Rule covers the non-public personal information from customers who apply for, or obtain credit from, the dealer. The Privacy Rule is the source of the dealer requirement to provide the customer with the initial and annual privacy notices that outlines what the dealer will or will not do with the information it obtains. The Safeguards Rule deals with how the dealer protects the non-public personal information provided by the customer. The Safeguards Rule requires a dealer to have a written information security plan to address the various safeguards in place to collect, store and dispose of the non-public personal information it has. Depending upon the dealer’s specific operation, enforcement of the GLB can come from either the CFPB or the FTC. It is also important to know that various states have their own privacy laws too.

Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) is the primary law that addresses consumer credit and the gathering, use and sharing of consumer credit information by creditors, consumer reporting agencies and others. The FCRA requires that users of consumer reports have a permissible purpose to obtain a consumer report. The list of permissible purposes is specific in the FCRA, and the best practice to comply with the requirement is to have the written authorization of the consumer to pull their credit.In addition, the FCRA is the law behind the Red Flag Rule, the Risked Based Pricing Rule, the Disposal Rule (requiring the dealer to properly dispose of consumer information) and is also one source of the Adverse Action Notice requirement.

Truth In Lending Act
The Truth in Lending Act (TILA) and its implementing regulations (Reg. Z) requires creditors (i.e. dealers) to provide disclosures regarding the cost and terms of credit to consumers. TILA is not concerned with interest rates, late charges and related fees – that is all governed by state law. However, TILA does specify what fees and charges in a credit sale are considered finance charges. Unless properly disclosed, the cost of F&I products may have to be included in the finance charge calculation. Note that the Dodd-Frank Act increased the threshold for TILA coverage from $25,000 to $50,000, and provides that the threshold be adjusted for inflation every year. For 2013, the threshold amount is $53,000, which means that TILA does not apply when the “amount financed” exceeds this amount. As a result of this threshold increase, more finance transactions will be covered by TILA and Reg. Z

It is impossible to cover every detail of each of these in a single article, but hopefully now you have a better idea of where to start, and why it is important that you educate yourself on these acts and how they effect both your and your dealers’ businesses. For more information on any of these, you can visit the CFPB (consumerfinance.gov) or FTC (ftc.gov) Web sites, or feel free to e-mail me directly with any questions.

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