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Truth in Lending: 12.7.9 TILA Class Actions and Arbitration

Credit agreements frequently not only force consumers into arbitration, but also prohibit the consumers from proceeding in arbitration on a class-wide basis. The Supreme Court has found that the FAA preempts a state law rule that would find such class waivers to be unconscionable.1164 Two years later it took one further step, finding that a ban on class arbitration is enforceable even when the limit makes it impossible to vindicate federal statutory rights.1165

Truth in Lending: 12.7.10 TILA Individual Actions in Arbitration

When an enforceable arbitration agreement forecloses class arbitration, class action court litigation, and individual court litigation, adequate client representation may require raising the consumer’s TILA claims in an individual arbitration proceeding. While this approach is not preferred, under some circumstances consumers may achieve good results, particularly if the selected arbitrator has an open mind on consumer claims.

Truth in Lending: 12.7.11 Mass Arbitration

Because of difficulties engaging in class arbitration or individual arbitration on behalf of many individual consumers, an increasingly utilized option is a procedure sometimes called “mass arbitration.” The practice takes its name from “mass torts,” which involves the filing of many individual personal injury complaints, often for product liability, toxic tort, or similar cases that involve factually similar predicates but do not lend themselves to class treatment. Another name for mass arbitration is an “arbitration swarm.”

Truth in Lending: 13.3.6.6.5 Adjusted capitalized cost

The adjusted capitalized cost is the third disclosure in the monthly payment derivation, which is the difference between the gross capitalized cost and the capitalized cost reduction.258 The lessor must use a description such as “the amount used in calculating your base [periodic] payment.”

Truth in Lending: 13.3.6.6.6 Residual value

The residual value is the fourth disclosure in the monthly payment derivation for motor vehicle leases,259 defined as the leased property’s value at lease term end, as estimated or assigned at consummation.

Truth in Lending: 13.3.6.6.7 Depreciation and any amortized amounts

Depreciation and any amortized amounts is the fifth disclosure in the monthly payment derivation,261 defined as the difference between the adjusted capitalized cost and the residual value. The lessor must use a description such as “the amount charged for the vehicle’s decline in value through normal use over the lease term and for any other items paid for over the lease term.”

Truth in Lending: 13.3.6.6.8 Rent charges

The rent charge is the sixth disclosure in the monthly payment derivation, defined as the difference between “the total of the base periodic payments” and “the depreciation and any amortized amounts.”262 Base periodic payments include any first periodic payment due at lease inception, but do not include periodic use taxes or other charges not retained by the lessor.263

Truth in Lending: 13.3.6.6.9 Total of base periodic payments

The total of base periodic payments is the seventh disclosure in the monthly payment derivation, accompanied by a description such as “depreciation and any amortized amounts plus the rent charge.”268 While the total of “base” periodic payments is not defined, the total periodic payment is the total of base periodic payments and any other charges that are part of the periodic payment.269 Consequently, base periodic payments should exclude monthly use taxes and other portions of the monthly paymen

Truth in Lending: 13.3.6.6.10 Number of payments in the lease term

The number of payments in the lease term is the eighth disclosure in the monthly payment derivation, accompanied with a description such as “the number of [periods of repayment] in your lease.”271 Lessors can disclose the lease term in addition to the number of payments in the segregated disclosures.272

Truth in Lending: 13.3.6.6.11 Base periodic payment

The base periodic payment is the ninth disclosure in the monthly payment derivation,273 being the total of base periodic payments divided by the number of payment periods in the lease. This is the monthly or other periodic payment before inclusion of taxes or other charges.

Truth in Lending: 13.3.6.6.12 Itemization of the periodic payment

The itemization of the periodic payment is the tenth disclosure in the monthly payment derivation, which is an itemization of other charges that are part of the periodic payment.274 Other charges (such as taxes or certain insurance payments) that are included in the monthly payment are identified individually with an amount that the charge adds to the monthly payment. These separate charges plus the base periodic payment equal the total periodic payment.

Truth in Lending: 13.3.6.6.13 Total periodic payment

The total periodic payment is the final disclosure in the monthly payment derivation, which is the sum of the base periodic payment and any other charges that are part of the periodic payment, as itemized in the tenth disclosure.275 This is the amount that the consumer pays each month (or other period of payment).

Truth in Lending: 13.3.6.7.1 General

The amount or method of determining the amount of any penalty or charge for early termination276 and for default277 must be disclosed in the non-segregated disclosures. The disclosed early termination and default charges must be reasonable,278 and disclosure of an unreasonable charge is a disclosure violation.279

Truth in Lending: 13.3.6.7.2 The formula must be completely and fully disclosed

The disclosure must provide enough information so that one can in fact compute what the charge will be in various situations: “Section 213.4(g)(1) [section 1013.4(g)(1)] requires a full description of the method of determining an early termination charge.…Descriptions that are full, accurate, and not intended to be misleading will comply with § 213.4(g)(1) [§ 1013.4(g)(1)].…”289 Although certain aspects of the formula can be referred to by name, the lessor “must specify how that figure, and any other term or figure, is used in computing the t

Truth in Lending: 13.3.6.8.1 Required disclosure

Whether the lessor or lessee is responsible for maintaining or servicing the property must be disclosed outside the segregated disclosures, with a brief statement of that responsibility.323 Also disclosed outside the segregated disclosures is a statement of the lessor’s standards for wear and use (if any), which must be reasonable.324 “Use” typically refers to mileage driven on the vehicle.

Truth in Lending: 13.3.6.8.2 Standard must be reasonable

Standards for excess wear and mileage must be reasonable.329 An unreasonable amount is a disclosure violation. Charging fifteen cents a mile for 100,000 extra miles is unreasonable if applied to a car whose residual value is $8,000.330 That is, it is unreasonable to charge $15,000 because of diminished value to a car that is only expected to be worth $8,000 at lease termination.

Truth in Lending: 13.3.6.9.1 Disclosure whether there is a purchase option

The lease must state whether or not it provides the option to purchase the leased property.336 If there is no option, the lease must explicitly state, outside the segregated disclosures, that there is no purchase option.337 The disclosure must identify whether an option exists at the end of the lease term, earlier in the term, or both.

Truth in Lending: 13.3.6.9.2 Disclosure of the purchase option price

If the option exists before the end of term, the lease must indicate, outside the segregated disclosures in the same place as disclosure of the right to purchase early, when this option can be exercised, and the price or method of determining the price.340 If a purchase option exists at lease end, the purchase price must be disclosed in the segregated portion of the disclosure form, in a form that is substantially similar to the model forms.341 A purchase option disclosure for