UNDERSTANDING THE TRUTH IN LENDING ACT AND THE CONSUMER LEASING ACT AND THEIR PROTECTIONS FOR LEASED CONSUMER GOODS
June 10, 2021
The Truth In Lending Act applies to many consumer situations. In this post, we will consider its application to consumer leases. First, we will view some of the workings of the law, and then we will apply it to a situation using the information we’ve learned. While this article looks at the Truth In Lending Act’s application to cars, the logic is the same for many other consumer product leases. Also, since we are addressing leases, it is important to mention that the Consumer Leasing Act, helps to further explain the application of the Truth in Lending Act.
Have you ever leased a new or used car and wondered if those numbers on the lease really mean anything? Well, the easy answer is that the information is very meaningful. In fact, Congress passed the Truth In Lending Act to make sure that those numbers have a real impact. A lot of blogs exclude the applicable statute number, and admittedly, a lot of readers don’t like to look at the statutes. I like to include them, to give you an option if you want to go to the source.
At 15 U.S.C. § 1601(b), for background, Congress explained that consumers often use leases for automobiles and other durable goods as an alternative to purchases made using traditional loans. Another initial thought, that you may know, is that the lessor in a consumer goods setting is the party to a lease that is providing a consumer good and the lessee is the person that is receiving the good and agreeing to make a payment. Congress designed the Truth In Lending Act, in part, to make sure that lessees receive meaningful disclosures of the terms of the lease.
In addition to requiring that the lessor disclose several important terms of the agreement, Congress created a way for consumers to go after lessors when the lease does not provide accurate information. 15 U.S.C. § 1640(2)(A)(i), as it relates to leases, may entitle the consumer to up to 25% of the total amount of his or her monthly payments. Importantly, we can look to the lessor to pay the attorney fees!
How The Law Applies To You
A little more about the nuts and bolts of the law before we can consider an example of how the law applies to a real-world situation. 15 U.S.C. § 1667a requires that lessors provide a dated statement with certain specific information. Some of the key information that the lessor must provide includes the number of payments, the amount of each payment when the payment is due, and the sum of all of the payments when added together.
More often than not, the lease terms are properly presented, but that is not always the case. It is a good idea to compute those terms out, but the actual computation can be tricky. Things may look correct with a quick glance, but when you add it all together, something may be wrong. If you suspect something isn’t adding up properly, it certainly makes sense to reach out to an attorney who is familiar with the terms of the Truth In Lending Act. My office is licensed to practice law in Michigan and Ohio and we enjoy working through these scenarios if you leased a new or used vehicle in either of those states. Actually, even if you leased something other than a car, feel free to reach out to us.
Okay, here we go with a real-world situation. Usually, on the first page of a consumer lease, there will be some critical information laid out in four boxes. Starting on the left of the lease agreement, there is a box that indicates how much you must pay at the lease signing (the down payment). For our situation, let’s say you are to put $1,000 at the lease signing, that seems easy enough. Now moving to the next box over, it will disclose how much your payments are, how often you must make them, and when those payments start. It will also disclose the total of your payments.
Let’s say you leased a car and it requires you to make 48 monthly payments of $200; so the total of the monthly payments is $9,600. Easy enough so far. The third box should list any other one-time charges for your car, like a pick-up fee, a disposition fee, a document preparation fee, or anything similar. If a dealer adds any special charges to your lease, it must be shown here. The fourth and final box provides the total of all payments and it includes everything you have to pay It includes everything you have to pay for the lease, so it adds the amount due at signing and the total amount of the payments, plus any other fees or charges by the dealer. In our case, it looks like the right number is $10,600 for the total amount you will have paid by the end of the lease. Sometimes, in our example, dealers will mistakenly indicate that the total amount of payments is only $9,600, forgetting to include the initial amount due at lease signing, or any other fees or charges it added to the deal. Alternatively, the dealer may forget to account for the first monthly payment, even if it is part of that $1,000 down payment. So it could indicate $10,600, but if that $1,000 initial payment included the first monthly payment, then they’d be asking for 49 payments instead of 48.
When leasing a consumer good or product, like a car, most dealers provide for a “purchase option” where you may purchase your car after making all your scheduled lease payments. Purchase options must be explained upfront in your lease contract, and the dealer must give you the specific price for that purchase option. Some dealers do not explain this properly.
You may be entitled to significant damages if the lessor violates the Truth in Lending Act, so it is important to properly review the details. Also, your situation may be one that is best resolved by bringing a class action. These cases are very fact-specific. If something doesn’t feel right, it makes sense to reach out to us.
The Truth In Lending Act is a very comprehensive act and it covers a lot. This post is only looking at a focused situation, but there are so many other ways that the law can apply.