Skip to main content

Search

Truth in Lending: 3.6.1.1 General Definition

The first part of Regulation Z § 1026.4(a)’s definition of a finance charge is that there must be a “charge.”78 This term is not specifically defined. In most cases, it is intuitively obvious.79 Usually, a charge will be in the form of a cost added on to the borrower’s obligation.

Truth in Lending: 3.6.1.3.1 Generally

Creditors often require consumers to pay pre-existing debts as a condition of obtaining a new loan. Sometimes, creditors do so because the borrower has too much debt to meet the creditor’s underwriting conditions. In that case, the borrower may pay off the pre-existing debt to reduce the borrower’s total debt load and thereby meet the creditor’s requirements for obtaining new credit.88 Sometimes creditors require a borrower to use the new loan to payoff pre-existing debts, thereby consolidating those debts with the new extension of credit.

Truth in Lending: 3.6.1.3.2 Cases on forced payoffs not involving debts discharged in bankruptcy

The Third Circuit found forced payoffs neither among nor similar to the examples of the finance charge listed in Regulation Z and therefore not a finance charge.94 The court also relied on the omission of payoffs as a required disclosure in the separate refinancing rule to conclude that refinanced debts could not be finance charges.95 Smith and its progeny address the scenario where the creditor requires consumers to refinance their own existing debts owed to third parties or to the

Truth in Lending: 3.6.1.3.3 Bankruptcy Code and reaffirmed debts

No court has fully discussed the impact of modern bankruptcy law on the question of whether a debt reaffirmed without approval is a finance charge. In 1981 the FTC,102 followed by the Seventh Circuit103 in 1984, said debts discharged in bankruptcy and reaffirmed as a condition of getting new credit were not finance charges.

Truth in Lending: 3.6.1.4 Interest Forfeitures and Offsets May Be a Credit Charge

While add-on costs may be the most common way of thinking of a “charge,” more unusual examples of charges are also addressed by the official interpretations. One example of a charge imposed by the creditor as a condition of credit is the reduction of the interest rate paid to the consumer on a consumer’s deposit account (thereby reducing the amount of interest that the consumer would otherwise be entitled to) as a condition of obtaining credit.

Truth in Lending: 3.6.2.1 General

Under the general definition of Regulation Z § 1026.4(a), charges must be payable by the consumer to be included in the finance charge, though the payment may be indirect as well as direct. The creditor usually takes into consideration its costs of doing business (overhead, salaries, etc.) in determining what interest rate or cash price to charge its customers.

Truth in Lending: 3.6.2.2.1 Selling consumer credit paper at a discount

Prior to Simplification,129 some cases held that the discount at which an originator sells the note was a finance charge that should have been disclosed.130 Selling at discount means that the assignee buys the paper from the original creditor for less than the face value of the debt, thus in effect imposing a cost on the original creditor.131 Sellers of future services, like gyms, often sell their paper at particularly deep discounts.

Truth in Lending: 3.6.2.2.2 Intangible taxes

A tax that a state imposes on the creditor or the creditor’s asset—such as a loan note—is logically a cost of doing business for the seller, just as its property taxes or corporate income taxes are.

Truth in Lending: 3.6.2.2.3 Document preparation fees

Document preparation fees are a classic example of charges that reflect the creditor’s cost of doing business and therefore meet the statutory definition of a finance charge—unless the same documents are prepared in a comparable cash transaction.136 If the fee is imposed in a real-estate-secured transaction, the statute carves out an exception.137

Truth in Lending: 3.6.2.3 Payable by the Consumer

There should be no question that financed closing costs are payable by the consumer. Nevertheless, a Tennessee federal court in Terry v. Community Bank of Northern Virginia,141 focused on the word “payable,” holding that closing costs are “payable” only when the homeowner is required to pay certain points and fees “at or before closing of a loan, not over the course of the loan.”142

Truth in Lending: 4.4.7.4 TILA-RESPA Integrated Closing Disclosure

Effective October 3, 2015, the creditor must ensure that the consumer receives the closing disclosures no later than three business days before consummation for mortgage loans to which the TILA-RESPA integrated disclosure rules apply.429 In the context of the closing disclosure, “business day” is defined to mean all calendar days except Sundays and the legal public holidays.430 In a rescindable transaction, each consumer who has a right to rescind must be given a copy of the closing disclosu

Automobile Fraud: 5.6.4.5 Exemption for Transfers of New Cars to Dealers

The NHTSA regulations exempt from the odometer disclosure requirements transfers of a new vehicle until its first transfer to a person intending to use the vehicle for a purpose other than for resale, in other words, before its first transfer to someone intending to use the vehicle.150 A transfer from a manufacturer to a dealer does not trigger the disclosure requirement. Neither does the transfer of a new vehicle from one dealer to another (unless the second dealer intends to retain the vehicle for its own use).

Automobile Fraud: 5.6.4.6 Exemption for Heavy Vehicles

The NHTSA regulations exempt vehicles with a gross vehicle weight rating in excess of 16,000 pounds from the disclosure requirements.152 How this rating is calculated is set out in federal regulations.153 As a practical matter, this exemption applies to large trucks and large motor homes, but not to sports utility vehicles, campers, or small motor homes.

Automobile Fraud: 5.6.5.1 Introduction

The Federal Act specifies a standard method for making disclosures when a used car is transferred, on the assignment section of the vehicle’s existing title. The state, when printing the title, creates standardized language in the assignment section that facilitates disclosure when that title is subsequently transferred.

Automobile Fraud: 5.6.5.2 Disclosure Procedure for New Cars

When a purchaser is the first such purchaser for retail use, odometer disclosures cannot be on an old title, because there is no old title. The vehicle is transferred with only the manufacturer’s statement of origin. The first title is issued only when that retail purchaser applies for a title. Transfers from the manufacturer to a dealer or from one dealer to another dealer do not generate titles.

Automobile Fraud: 5.6.5.3 Used Car Transfers Typically Make Odometer Disclosures on the Old Title

When title to a used car is transferred, the transferor makes odometer disclosures on the assignment section of the transferor’s existing title (“old title”), which is a document issued by the state using a secure printing process.164 Both parties sign the assignment section of the old title and then the old title is submitted to the state as part of the transferee’s application for a new title; obtaining a new title is a condition of a transferee being able to use the vehicle on the state’s roads.165

Automobile Fraud: 5.6.5.4 Use of Additional Disclosure Form in Transfer of Used Vehicle

Dealers may provide consumers purchasing used cars with separate odometer disclosures in addition to, or instead of, those they must make on the old title. A separate disclosure statement cannot substitute for disclosures made on the title, but nothing prevents the dealer from supplying an accurate separate disclosure statement in addition to the disclosure on the title.171

Automobile Fraud: 5.6.5.5 Dealer to Dealer Transfers and the Use of Reassignment Forms

When a used vehicle is transferred to a dealer, the dealer may obtain a new title in its own name. But, with certain exceptions created by state law, the dealer need not do so, because the dealer is not purchasing for use but for resale. Instead, the original owner’s transfer to the dealer can be documented on the original owner’s title, with the original owner and dealer completing the assignment block information on that title. The dealer then retains this old title to transfer to the next transferee, be it another dealer or a consumer.

Automobile Fraud: 5.6.5.6.1 When powers of attorney are allowed

When a consumer trades in a car to a dealer, but the title is physically held by the consumer’s lienholder, it is awkward for the consumer to make disclosures to the dealer on the old title—the lienholder will not physically release the title until paid. The car first will be traded in to the dealer, the dealer then pays the lienholder the balance due on the vehicle, and the lienholder then produces the title, typically sending it to the dealer.

Automobile Fraud: 5.6.5.6.2 Requirements for “first” powers of attorney

The “first” power of attorney is the power of attorney that a transferor provides to a transferee to sign the title for the transferor. A common example is when a consumer trading in a vehicle gives the dealer a first power of attorney to sign the title for the consumer as transferor at a later date when the dealer obtains the title from the consumer’s lienholder.

Automobile Fraud: 5.6.5.6.3 Requirements for “second” powers of attorney

A dealer that has been given a “first” power of attorney may wish to resell the vehicle before the dealer has a chance to obtain the transferor’s old title, and also may wish to avoid the necessity of the subsequent buyer returning to the dealer’s place of business to sign the old title as transferee once the dealer obtains that title. NHTSA provides the dealer with a convenient method to accomplish this goal, referred to here as a “second” power of attorney.