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Truth in Lending: 6.6.5.1 General Rule for Account-Opening Table

Within the account-opening table, creditors must disclose each periodic rate that may be used to compute the finance charge on an outstanding balance for purchases, cash advances, or balance transfers.995 These periodic rates must be expressed as an annual percentage rate (APR), calculated according to the Act and Regulation Z.996

Truth in Lending: 6.6.5.3 Point-of-Sale APRs That Vary by State

In certain cases, a creditor will provide the account-opening disclosures in person to the consumer in connection with financing of goods or services. If a creditor imposes APRs that vary by state or creditworthiness, the creditor has two options for disclosing the APR.

Truth in Lending: 6.6.5.4.1 General

Variable rates exist when changes in the APR are part of the plan and are tied to an index and formula.1015 When the index increases or decreases, the consumer’s interest rate rises and falls in tandem. Some card issuers will use a variable rate for purchases but a fixed rate (usually much higher) for other transactions, such as cash advances.1016 Over 90% of general purpose credit cards have variable APRs.1017

Truth in Lending: 6.6.5.4.2 Variable rate disclosure in the account-opening table

If an account is subject to a variable rate, the creditor will be required to disclose in the account-opening table that the rate is variable and how the rate is determined.1023 The issuer must identify the type of index or formula that is used in setting the rate; however, creditors are prohibited from disclosing in the account-opening table the current value of the index and the amount of the margin that are used to calculate the variable rate.1024 Thus, for example, the issuer must disclo

Truth in Lending: 6.6.5.4.4 Disclosure of rate change triggers

Disclosure of the circumstances under which the rate may increase should include factors such as an increase in the index to which the rate is tied.1034 The disclosure must also reveal when the increase takes effect.1035 For example, the increase may be scheduled to take effect simultaneously with changes in the index; it may take effect periodically on a date in the billing cycle or a specified periodic date; or the rate increase may take effect only when the index has changed a set amount.

Truth in Lending: 6.6.5.5.2 Disclosures outside of the account-opening table

Creditors must make certain disclosures about introductory rates outside of the account-opening table. Regulation Z consolidates the disclosures for introductory and penalty rates outside of the required table. Thus, for APR changes that are specifically set forth in the account agreement and not tied to an index or formula, the creditor must disclose:1063

Consumer Arbitration Agreements: 5.4.1.0a Why It Matters

Consumer litigants often prefer to make legal arguments as to an agreement’s enforceability before a court, where appellate review can consider legal questions de novo, instead of before an arbitrator, where errors of law may not be enough to vacate a ruling.

Federal Deception Law: 11.5.3.2 Escrowing Fees

Even though debt relief service providers may not seek payment until they deliver results, they are allowed to require customers to regularly pay into an account to cover the provider’s fee and to fund anticipated settlement agreements with creditors.218 These payments may be required before the provider performs any work on the contract, but the Telemarketing Sales Rule imposes a number of restrictions on the provider’s ability to impose such a requirement:219

Federal Deception Law: 11.5.3.5 Unsubstantiated Claims

An important TSR requirement is that debt relief providers must have a reasonable basis to substantiate any claims regarding specific savings or other results.240 The FTC’s Statement of Basis and Purpose provides extensive guidance about the evidence providers must possess before they make such claims.

Federal Deception Law: 11.5.4 Recordkeeping Requirements

The Telemarketing Sales Rule (TSR) requires those subject to the rule to maintain a list of records that should be discoverable in litigation. Even when an aggrieved consumer has no right of action under the TSR, records maintained pursuant to the Rule may prove invaluable to establishing other causes of action.242

Federal Deception Law: 11.6.1.1 Registration and Licensing Requirements

Most states have enacted legislation requiring at least certain debt relief agencies to be registered or licensed.256 This subsection generally uses the term “licensed” to also include “registered” and similar concepts. These statutes are significant because debt settlement or other debt relief agencies often do not obtain the necessary licenses, or may not even be capable of doing so, and thus are in violation of the state statute.

Federal Deception Law: 11.6.1.2 Other Substantive Requirements

A number of states prohibit debt management and debt settlement outright but provide that nonprofits and sometimes attorneys are exempt from this prohibition.261 A few states do not license or register debt adjustment agencies, and do not prohibit them outright, but do regulate them extensively.262 And, of course, states that require licensing also include substantive requirements.

Federal Deception Law: 11.6.2.1 Introduction

State debt relief legislation typically covers credit counseling agencies offering debt management plans (DMPs). A critical issue is whether these statutes also apply to debt settlement, debt negotiation, and debt elimination services, as these agencies’ business models are often inconsistent with requirements set out in these state statutes.

Federal Deception Law: 11.6.2.2 ULC Debt Management Act Applies to Debt Settlement

In 2005, the Uniform Law Commission enacted a model debt management law (ULC Debt Management Act), amended it in 2008, and again in 2011.272 The basic coverage of the law remains unchanged in all three versions. The model law applies to “debt management services,” broadly defined as intermediary services between an individual and one or more creditors of the individual for the purpose of obtaining concessions.

Federal Deception Law: 11.6.2.3 When Coverage of Debt Settlement Is Unclear

State statutes may be ambiguous as to whether debt settlement is covered. Often courts will be asked to determine if a debt settlement company is covered by a “debt adjuster” law that applies to agencies that collect payments from consumer for distribution to creditors, sometimes called prorating debt; these statutes typically apply to entities that escrow, handle, manage, or otherwise control client funds.275