A Regulation Z Summary for Auto Dealers Providing Credit – AutoRaptor –
What is Regulation Z?
Regulation Z (also known as Reg Z) is the implementing regulation of the Truth-in-Lending Act (TILA), and it governs how auto loans and leases are advertised. The general idea is that if you talk about consumer credit in your ads; the information must be accurate and note whether certain terms may be subject to restrictions or qualifications.
“Buying or leasing a car is a big deal, and car ads are an important source of information for serious shopping,” said Jessica Rich, director of the Federal Trade Commission’s (FTC) Bureau of Consumer Protection, in a press release. “Dealers’ ads need to spell out costs and other important terms customers can count on. If they don’t, dealers can count on the FTC to take action.”
It’s not enough to say, “Low monthly payments of $200!” You must also explain how the consumer can receive that rate — do they need to put $5,000 down, or be approved for a rate of 4%, select a 72-month repayment period or all of the above? Spell it out in black and white so it is abundantly clear.
Under Regulation Z, you must be upfront and disclose all terms of loans to potential borrowers, including, but not limited to:
- Interest rates
- Applicable fees
- Length of loans
Reg Z is all about transparency; don’t make false or misleading claims to get customers into your dealership.
A Regulation Z summary of “trigger terms”
How can you know when you need to provide additional information about a financing option? Are there certain situations where you don’t have to say anything?
If you’re advertising a vehicle and include a mention of a one-time credit transaction, there are specific terms — known as trigger terms — that will signal to you that more information is required. If any of these trigger terms pop up, you must clearly and conspicuously disclose additional details about the offer:
- The amount of percentage of any down payment
- The number of payments or period of repayment
- The amount of any payment
- The amount of any finance charge
- When those trigger terms come up, here’s the type of information you’ll need to provide:
- The down payment amount or percentage, if any
- The terms of the repayment
- The annual percentage rate (APR), and if the APR increases after purchasing the vehicle; you must also state that.
What doesn’t trigger an obligation to disclose further information? There are, indeed, a few things:
- Statements such as “no down payment” or “no trade-in required.”
- Statements of the APR or that there is no particular charge for credit (for example, no closing costs).
While these Regulation Z disclosures must be clearly and conspicuously displayed, there are no exact rules regarding their size or display format. If you’re not sure what’s legal, the FTC offers some helpful information regarding the ways to ensure your disclosures are efficient and compliant.
What happens if you don’t comply
If you’re the type of person who likes to skate around the rules, you won’t want to mess with Regulation Z. In 2014, the FTC conducted “Operation Steer Clear” and nabbed ten dealerships for misrepresenting finance terms in a variety of advertisements. They always keep an eye out for deceptive advertising and encourage consumers to do the same.
Violations of Regulation Z may result in the government and individuals’ bringing civil charges against you and your dealership’s paying statutory damages, attorney fees, and court costs in all cases. For individual actions, you might have to pay not less than $100 or more than $1,000. For class actions, there’s a maximum of $500,000 or 1% of your net worth — whichever is less.
What is your best bet? We’re not lawyers and we don’t play them on TV, so please consult with your legal team and do additional homework to ensure your dealership is in full compliance. Keeping your advertisements legal doesn’t just keep you compliant — you’re also exhibiting a transparency that consumers will come to know and trust.