Skip to main content

Search

Truth in Lending: 2.8.8.3 Are Banks “Creditors” When They Make Overdraft Loans?

As discussed in § 2.6, supra, in order to count as creditors under TILA, lenders must regularly extend consumer credit subject to a finance charge or payable by written agreement in more than four installments and be the entity to whom the note is initially payable. Depository institutions that make overdraft loans regularly extend consumer credit, and the overdraft loan obligations are payable to them.

Truth in Lending: 2.1.3 Opting In to TILA Coverage

In some instances, a creditor will give TILA disclosures for a transaction that is not covered or is specifically exempted from TILA. In other instances, a creditor will insert references to TILA in the contract itself.

Truth in Lending: 2.7.2.1 Primary Purpose

Extensions of credit primarily for business, commercial, or agricultural purposes are exempt from the scope of TILA.317 This rule is the mirror-image of the restriction of TILA to extensions of credit for personal, family, or household purposes.318 Practitioners should also remember that, in general, only natural persons qualify as consumers under TILA.319

Truth in Lending: 2.7.9.1 General

The Official Interpretations of Regulation Z discuss a number of transactions that are not considered “credit.”463 These exclusions from the definition of credit appeared in the first edition of the “official staff commentary” in 1981464 and have never been amended. Now called “official interpretations,” these sections create de facto exemptions, which are discussed below.

Truth in Lending: 5.15.6 Workout Agreements

Often when a consumer is in default, the creditor and consumer will agree to change the terms of an obligation to (seemingly) give the consumer an opportunity to avoid some of the consequences of default (litigation, repossession). For example, the consumer may agree to make higher payments or give additional security for the obligation; in return, the creditor will not file suit.

Truth in Lending: 2.7.9.3.3.4 TILA applicability to California HERO and similar transactions

The rationale of the tax lien and tax assessment exclusions from “credit” found in the 1981 official staff commentary do not apply to PACE loans. The California HERO “assessment contract” extends “credit” under TILA for several reasons. The fact that a local authority provides the funds to the contractor installing the energy improvements does not affect the application of TILA.

Truth in Lending: 2.2.2.4 State Law Definitions of “Debt” Support Broad TILA Coverage

Regulation Z specifies that state law may provide guidance for construing terms that the regulation does not define.89 For example, California recently incorporated the Bankruptcy Code definition of “debt” into its Financial Code.90 California’s Rosenthal Debt Collection Act defines “debt” as “money, property, or their equivalent that is due or owing or alleged to be due or owing from a natural person to another person.”91

Truth in Lending: 2.2.2.5 Non-Recourse Debts Are Still Debts

Companies that are trying to evade TILA sometimes claim that their products do not create a “debt” and therefore are not “credit” because the transaction is a non-recourse one, i.e., one in which the lender renounces recourse against the consumer personally for repayment.

Truth in Lending: 2.3.1 General Definition

A credit sale118 is a sale in which the seller is also a creditor.119 A retail installment contract entered into by a motor vehicle dealer or other retailer is one example.120 An installment land sale contract is another frequent example of a credit sale transaction.121 When the transaction is a credit sale, the special credit sale disclosures, such as the “total sale price,”

Truth in Lending: 2.3.2 Terminable Without a Penalty: The Rent-to-Own Loophole

Leases that are terminable by the consumer without penalty are not covered by TILA.125 Termination penalties that bring a lease within TILA coverage include requiring the consumer to pay all remaining rental payments in order to terminate the lease.126 Rent-to-own contracts usually provide that the consumer can terminate the lease without penalty at the end of each weekly lease period in a bid to evade TILA coverage.127

Truth in Lending: 5.14.2 Disclosures for Closed-End Private Student Loans Entered into Before February 14, 2010

Although TILA does not apply to student loans made, insured, or guaranteed by the United States or a state guaranty agency,1479 private student loan lenders must comply with TILA as long as all other threshold requirements are met.1480 In general, a creditor making covered student loans must give all closed-end disclosures which are required of other lenders.1481 Special rules exist for “interim student credit extensions.”

Truth in Lending: 10.2.2 Consumer Credit Transaction; Creditor

The TILA rescission right arises only when the credit transaction meets several criteria. The first and most basic one is that the loan must be a consumer credit transaction.39 A consumer credit transaction involves the extension of credit to a natural person for personal, family, or household purposes.40 Consequently, not every transaction in which a lien is placed on a person’s home is covered.

Truth in Lending: 2.1.1 Overview

The Truth in Lending Act was intended to apply broadly to most consumer credit transactions. In the majority of consumer cases, there will be little question that the transaction and the creditor are covered. Questions do arise though, and this chapter will discuss the major problem areas, along with the relevant definitional elements, which merit close attention. The definitional elements are found in the statute, in Regulation Z, and in the official interpretations.

Truth in Lending: 2.6.2.2 Attorneys and Trustees

Attorneys or collection agencies acting on behalf of a creditor or who are hired to collect the loan are not creditors.172 However, attorneys are considered the same “person” as the creditor when the attorney is acting within the scope of the attorney-client relationship with regard to a particular transaction.173 Attorneys themselves may be creditors as to their fee arrangements with clients, if they meet the definitional elements.174

Truth in Lending: 2.8.5 Land Contracts

Land contracts, also known as contracts for deed or land installment agreements, are installment agreements for the purchase of real property. They often are offered to low-income families as a way to acquire a home. However, the promise of homeownership may be illusory, as many land contracts are written so that any default in payment results in forfeiture of all the payments made toward the home.