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Truth in Lending: 4.2.4.5.2 Contradictory information in the TILA disclosures

Disclosing two different numbers as the finance charge violates the clear and conspicuous standard,111 as does disclosing two different numbers as the total of payments.112 Putting both the note rate and the APR on the TILA disclosure may violate the clear and conspicuous standard.113 Stating that the interest rate on a loan may be either discounted or at a premium is not a clear and conspicuous disclosure of the fact that the initial interest rate

Truth in Lending: 4.2.4.5.3 Conflict between the TILA disclosure and the loan documents

In general, contradictions between the TILA disclosure and the other loan documents should violate the “clear and conspicuous” standard.122 Descriptions of negative amortization in the note, for example, should match up with any disclosure given in the TILA disclosures.123 While discrepancies between the APR and interest rate are part of the TILA framework and do not, in themselves, lead to violations of clear and conspicuous disclosure of the APR,124

Truth in Lending: 4.2.4.5.4 Inaccurate additional information

Several courts have addressed the issue of whether additional information violates the clear and conspicuous standard. In general, additional oral or written information given to the consumer may undermine clear and conspicuous disclosure.128 Courts have reached this result even when the information is given by a third party, such as a closing attorney, car dealer, or broker.129

Truth in Lending: 4.2.4.6.1 General

Not only do all required disclosures have to be “conspicuous,” but some disclosures have to be “more conspicuous” than the other required disclosures, specifically, the finance charge and the annual percentage rate.133 This reflects the judgment that these two disclosures are the most important ones to fulfill TILA’s purpose of conveying to consumers the true cost of credit.134

Truth in Lending: 4.2.5.1 General Standards

Unless the consumer consents to the use of electronic disclosures,153 the disclosures must be written,154 and the consumer must be given a copy of the written disclosures.155 The copy given to consumers to keep is the relevant one for determining whether required disclosures are “clear and conspicuous.”156 Until the consumer has the disclosures, no delivery has occurred.

Truth in Lending: 4.2.5.2.1 Introduction

Often, the creditor will have the consumer sign an acknowledgment of receipt of the disclosures and an additional acknowledgement that the forms were completely filled-in. There are two sections of the Act that address the effect of these signed acknowledgments. These two sections, section 1635(c), which describes the impact of a written acknowledgment in the rescission context, and section 1641(b), which provides for the effect of a written acknowledgment as to assignees outside of rescission, are discussed below.

Truth in Lending: 4.2.5.2.2 Written acknowledgment and the right to rescind

For mortgage transactions to which the right to rescind applies, section 1635(c) provides that written acknowledgment of receipt of any required disclosures or rescission notices does no more than create a rebuttable presumption of delivery.166 The acknowledgment should, at most, create a presumption of receipt, not of timely receipt, or of accurate information.167 Whether the consumer received the disclosures before the credit was extended, as TILA requires, should be a separate factual questio

Truth in Lending: 4.2.5.2.3 Written acknowledgment as to assignee liability

Section 1641(b), in contrast with section 1635(c), creates a conclusive presumption in certain circumstances.169 Section 1641(b) only insulates assignees from liability; it does not impact the liability of the original creditor and should not affect the liability of loan originators, servicers, or assignees for their own violations of TILA.170 Only where an assignee is “without knowledge to the contrary” of an originating lender’s TILA violation will 15 U.S.C. § 1641(b) have any force.

Truth in Lending: 4.2.6.1 General

The statute requires that the disclosures listed in section 1638(a) must be “grouped together” and “segregated from everything else, and shall not contain any information not directly related” to this closed list.172 This requirement was aimed at ensuring that the consumer receives the important, required information and is not distracted by excess verbiage or information.173 Exceptions to the segregation rule obviously apply to disclosures that must be given post-consummation.

Truth in Lending: 4.2.6.2 How to Segregate the Disclosures

There are a variety of ways to group the disclosures together and segregate them. The official interpretations give a few examples: outlining them in a box, using bold dividing lines, different color backgrounds, or different type faces.181 The most common method used by creditors is the box, sometimes known as the federal box, the method used in the model forms.182

Truth in Lending: 4.2.6.3 Exceptions to the Segregation Rule

The itemization of the amount financed, even though required by Regulation Z § 1026.18,186 may not be included with the segregated disclosures. It must be disclosed separately.187

The creditor may exclude, at its option, any or all of the following disclosures from the segregated disclosures (although if excluded the disclosures must be made elsewhere), even though these disclosures are required by section 1026.18 of the regulation:

Truth in Lending: 13.2.1 Lease Must Exceed Four Months; Coverage of Rent-to-Own, Other Terminable Leases

The Consumer Leasing Act (CLA) applies to leases greater than four months in duration.8 The CLA does not apply to a lease that is terminable without penalty during its first four months.9 For example, a majority of courts hold that the Act does not apply to rent-to-own (RTO) leases that are terminable at will without penalty.10 Similarly, the CLA does not apply to a four month lease with an option to extend, if there is no penalty for termination at the end

Truth in Lending: 13.2.2.1 General

The CLA does not apply to leases where the total contractual obligation exceeds a specified dollar amount. “Total contractual obligation” is not necessarily the total of payments,14 it is not defined in Regulation M, and the term’s meaning is thus somewhat uncertain. In general, it is payments that must be made to the lessor over the term of the lease, but not those forwarded to third parties.

Truth in Lending: 13.2.2.2 Inclusion of Down Payment and Trade-In Amounts

“Total contractual obligation” is not defined in the CLA, but probably includes the total of lease payments plus a portion of down payments and trade-ins. Courts find two reasons to include these amounts.28 First, without the down payment, the monthly charges would have to be higher. Second, in enacting the CLA, the House of Representatives receded to the Senate in using the term “total contractual obligation” instead of the term “rent.”29

Truth in Lending: 13.2.2.3 Inclusion of Taxes and Other Third-Party Payments

The official interpretations define total contractual obligation as excluding amounts the lessor collects and pays to a third party, such as taxes, licenses, and registration fees.33 Amounts paid to third parties for service contracts, credit insurance, GAP insurance, and similar charges, and arguably bank fees and other amounts paid to the assignee should also be excluded.34

Truth in Lending: 13.2.4 Consumer Must Be Natural Person Leasing Property for Consumer Purposes

The CLA applies to “consumer leases,” defined as being primarily for personal, family, or household purposes.48 The CLA does not apply to leases for agricultural, business, or commercial purposes.49 A consumer can prove that a lease is primarily for personal purposes even when the lease itself states that the lease has a business purpose.50 Conversely, the mere fact that the lessor has given disclosures does not prove that a lease is for consumer purpose

Truth in Lending: 13.2.6 Real Property Leases Are Not Covered

The CLA applies to personal property and not real property leases.70 Whether manufactured homes, houseboats, or other items are real or personal property is based on the law of the state where the property is situated at the time the property is offered for lease.71 If two conditions are met, the CLA does not apply to personal property leased incidentally to a real property lease, such as where a refrigerator is included with an apartment lease.

Truth in Lending: 13.2.7 Other Exempt Property

The official interpretations of Regulation M exempt from CLA coverage safety deposit box leases,73 home entertainment systems requiring the consumer to lease equipment that enables a television to receive the transmitted programming, propane gas service where the consumer must lease a propane tank to receive the service, and burglar alarm systems requiring the installation of leased equipment that triggers a telephone call when a home is burglarized.74

Truth in Lending: 13.3.1.1 Federal Requirements

Regulation M sets out detailed lease disclosure requirements, certain of which apply only to motor vehicle leases, only to open-end leases,75 or only to open-end non-vehicle leases. Whether property is a motor vehicle is determined by state or other applicable law.76 Unless noted otherwise, each disclosure requirement discussed infra applies to all leases within the Act’s scope.