A tale as old as time – the internet is once again both a blessing and a curse.
October 22, 2024
By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com
The Internet is both a blessing and a curse. Some customers have earned their law degrees through social media, by watching videos of “experts” giving “legal advice” to consumers on the Truth in Lending Act.
Based on the “legal advice,” dealers have been receiving “legal” documents similar to the following scenario:
Customer purchases a vehicle and enters into the standard retail installment sales contract, which dealer assigns to the finance source. At some point prior to customer’s first payment, dealer receives notice from the customer including an Affidavit that dealer breached TILA and customer has a right to rescind the transaction. The documents received are notarized, appear legal, and customer copies the Federal Trade Commission on the correspondence. The customer claims that, at time of sale, they were not provided with the notice of the right to rescind the transaction under TILA, dealer violated Regulation Z, and citations to the law include 12 CFR §1026.23 and 15 U.S. Code §1635(a).
TYPICAL MOTOR VEHICLES SALES ARE NOT THE CONSUMER’S PRINCIPAL DWELLINGS
Dealers who have received these documents question - when did TILA start providing customers with the “right to rescind” motor vehicle sales? The short answer is that it does not and the customer is wrong. The sections cited by these consumers that TILA gives them a right to recission are “principal dwelling” statutes and do not apply to typical motor vehicle sales. Despite applying to a “principal dwelling” on the face of the statute, various courts over the years have opined that TILA’s right to rescission provisions do not apply to typical motor vehicle sale transactions.
DOWNPAYMENTS ARE NOT ILLEGAL
Similarly, there is a Tik Tok video circulating on various platforms (including Facebook) that claims downpayments are illegal pursuant to 15 U.S. Code §1605. The Tik Tok advice giver claims that “downpayments” are not in the examples of charges that should be in a “finance charge.” The short answer is that this too is wrong.
Downpayments are contemplated by TILA. For closed credit disclosures, which are those customers enter into with the dealer to be assigned to the creditor under the RISC, dealer is required to disclose “amount financed”, which shall be computed by taking “the principal amount of the loan or the cash price less downpayment and trade-in…” 15 U.S. Code § 1638(a)(2)(A)(i).
A downpayment is not per se illegal nor is the requirement that a consumer have one during the extension of credit in a motor vehicle sale should it be required by the lending source. Various court cases across the nation have decidedly held that downpayments are not illegal under 15 U.S. Code §1605 without facts in evidence that the dealer failed to provide necessary disclosure obligations under TILA (i.e., the amount financed, total monthly payments, APR).
ACCURATE DISCLOSURES ON THE RISC MEETS TILA
TILA’s purpose is to make sure that dealers are providing the necessary disclosures to consumers during the extension of credit. Dealers do not create their own RISCs. They use the state forms created by their financing source or by entities like Reynolds and Reynolds, who create the forms in conjunction with banks, which clearly lay out the applicable law and provide the disclosures required under TILA. Thus, if dealers are accurately disclosing to the customer the terms for the extension of credit and filling out the RISCs correctly, they are meeting their TILA obligations.
Downpayments are not illegal, especially when consumers desire to bring down monthly payments or banks require the downpayment so that the customer can be financed at the rate quoted. Moreover, dealers accurately account for the downpayments when explaining the “amount financed” to the consumer over the life of the loan which on the RISC will provide rate, months of payment, total amount of payments, and total amount paid by the consumer.
Again, a typical motor vehicle sale is not a “principal dwelling” but rather personal property of the customer who will park the vehicle at the “principal dwelling.”
WHAT DO YOU DO IF YOU RECEIVE ONE OF THESE “LEGAL NOTICES?”
Should the dealership receive a letter seeking rescission or claiming an illegal downpayment, legal guidance should be sought to craft a response and weigh the options of the dealership. Although the consumer does not have a right to rescind the contract, the dealer may want to examine the circumstances to which this rescission is being requested.
For example, if the customer will never make the first payment to the finance source, then the finance source may require dealer to buy the deal back. For those reasons, dealer may want to look at getting the customer out of the vehicle sooner rather than later to minimize any damage (i.e., vehicle not titled yet, can still be sold as “new”, still has low mileage).
But the bottom line is that there are no new laws under TILA which require dealers to disclose to a customer that he or she may rescind the deal or that downpayments are illegal under TILA!