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Retail Installment Sales

Consumer Law Tutorial for Judges in New Mexico

The state Retail Installment Sales Act, §§56-1-1 through -16, and the federal Truth in Lending Act, 15 U.S.C. §1601 et seq., both regulate retail installment contracts and retail charge agreements. In order to protect consumers, both acts require meaningful disclosure of credit terms to credit consumers. Meaningful disclosure of credit terms is intended to enable the consumer to “compare various credit terms . . . and avoid the uninformed use of credit.” 15 U.S.C. §1601(a).

A. Definitions

1. A retail installment contract is created when a customer agrees to buy goods through installment payments. Retail installment contracts are closed-end transactions for purposes of the Truth in Lending Act. For example, a consumer enters into a retail installment contract when she purchases an appliance on an installment plan or a car with a loan that has a repayment plan that fixes the number and amount of payments. §§56-1-1(H); 56-1-2.

2. “Goods” include all personal property, except motor vehicles, that are used primarily for personal, family, or household purposes. Goods include mobile homes, but not if the retail installment contract also covers the real estate where the mobile home is located. §56-1-1(A).

3. A retail charge agreement is created when a consumer agrees to the extension of a line of credit, as through a bank or store credit card or a cash-advancing checking account. Retail charge agreements are open-ended transactions for purposes of the Truth in Lending Act. §§56-1-1(I); 56-1-3.

For example
, if Charlie agrees to buy a Thigh Blaster by making four easy monthly payments of $19.99, he has entered into a retail installment contract. However, if Charlie agrees to use a store credit card to pay for his Thigh Blaster, he has entered into a retail charge agreement.

B. Retail Installment Contracts

Both the Retail Installment Sales Act and the Truth in Lending Act require creditors to make certain disclosures when offering consumers a retail installment contract. Although the requirements vary in their formulations, much of the same information is required by each act. A creditor who complies with the Truth in Lending Act and its regulations is deemed to comply with the Retail Installment Sales Act. NMSA §56-1-15.

1. Requirements for Retail Installment Contracts under the Retail Installment Sales Act A retail installment contract must be in writing, dated, signed by the buyer and be completed with regard to certain essential provisions, including:

a. A notice in bold type that the buyer should read the contract before signing, and that the buyer is entitled to a copy of the signed contract;
b. The names of the seller and the buyer;
c. The place of business of the seller;
d. The address of the buyer as specified by the buyer;
e. A description of the goods sold or services to be rendered;
f. The sale price of the goods or services;
g. The amount of the buyer’s down payment;
h. The difference between (f) and (g);
i. The aggregate amount, if any, included for insurance;
j. The aggregate amount of official fees (which include fees prescribed by law for filing, recording, or otherwise perfecting and releasing or satisfying a retained title, lien, or other security interest created by the credit transaction);
k. The principal balance (meaning the cash price of the goods or services plus any amounts charged for insurance and official fees, less the consumer’s down payment);
l. The amount or rate of the time price differential (which is the amount paid by the buyer for the privilege of purchasing goods or services by installment. In other words, it is the difference between the cash price when paid immediately and the price when paid over time. The time price differential does not include any amounts charged for insurance premiums, delinquency charges, attorney’s fees, court costs, or official fees.);
m. The amount of the time balance owed by the buyer (which is the sum of the principal balance and the time price differential);
n. The maximum number of installment payments required, the amount of each installment, and the due date of each payment;
o. The time sale price (which is the total of the sale price and the amount, if any, included for insurance, plus the amount paid for official fees and the time price differential); and
p. If any installment (except the down payment) is more than double the average of all other installments, there must be a notice, printed in bold type, that the contract is not payable in installments of equal amounts.

§56-1-2. The retail installment contract does not have to be set forth in a single document.

2. Requirements for Retail Installment Contracts under the Federal Truth in Lending Act
For each retail installment contract, the creditor must disclose the following information in writing:

a. The identity of the creditor;
b. The aggregate amount financed must be disclosed using that term. In addition, a brief description of the amount financed must be provided, such as “the amount financed is ‘the amount of credit provided to you or on your behalf.’” 12 C.F.R. §226.18(b). (Note that the amount financed must be disclosed as an aggregate amount in the segregated disclosures, BUT, an itemization must also be disclosed separately.);
c. An itemization of the amount financed or a statement of the consumer’s right to obtain, if requested in writing, a written itemization of the amount financed;
d. The finance charge must be disclosed using that term. A brief description of the finance charge must be provided, such as “the finance charge is the dollar amount the credit will cost you.” 12 C.F.R. §226.18(d). The finance charge must be expressed as a total dollar amount and may not be itemized;
e. The annual percentage rate, using that term and using the actuarial method, the U.S. Rule, or the Federal Reserve Board’s Annual Percentage Rate Table to calculate the annual percentage rate. 15 U.S.C. §§1606(a)(1)(A) & (B) and -1606(d). A brief description of the annual percentage rate must be provided, such as “the cost of your credit as a yearly rate.” 12 C.F.R. §226.18(e); If the annual percentage rate may increase at a later date (because it is a variable rate), then certain additional information must be disclosed:
(i) If the transaction is not secured by the consumer’s principal dwelling or the transaction is secured by the consumer’s principal dwelling with a term of one year or less, then the creditor must disclose:
• The circumstances under which the rate may increase;
• Any limitations on the increase;
• The effect of an increase; and
• An example of the payment terms that would result from an increase.
(ii) If the transaction is secured by the consumer’s principal dwelling with a term greater than one year, the creditor must disclose:
• The fact that the transaction contains a variable-rate feature; and
• A statement that the variable-rate disclosures have been provided earlier.
f. The number, amount, and due dates or period of payments scheduled to repay the total of payments;
g. The total of payments, which is the sum of the amount financed and the finance charge. A brief description of the total of payments must be provided, such as “the amount you will have paid when you have made all scheduled payments.” 12 C.F.R. §226.18(h);
h. If the credit obligation has a demand feature, that fact must be disclosed;
i. In the sale of goods or services where the seller is the creditor, the “total sale price,” using that term. The total sale price is the total of the cash price of the property or services, additional charges not included in the finance charge, and the finance charge. A brief description of the total sale price must be included, such as “the total price of your purchase on credit, including your down payment of $_________.” 12 C.F.R. §226.18(j);
j. A statement indicating whether the consumer is entitled to a rebate of any finance charge or is subject to any penalties upon refinancing or prepayment in full;
k. The amount of any late fees;
l. Where the credit is secured, a statement that the creditor has a security interest in the property purchased through the credit transaction or in other identified property;
m. The conditions required to exclude voluntary credit insurance premiums and charges and fees paid for debt cancellation coverage from the finance charge. 12 C.F.R. §226.4(d);
n. If applicable, an itemized statement disclosing that certain security interest charges are not included in the finance charge (for example, taxes required to record security instruments and taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest). 12 C.F.R. §226.4(e);
o. In a residential mortgage transaction, a statement whether or not a subsequent purchaser of the dwelling from a consumer may be permitted to assume the remaining obligation on its original terms;
p. A statement that the consumer should refer to the appropriate contract document for information on nonpayment, default, the right to prepay, and prepayment rebates and penalties;
q. If the creditor requires the consumers to maintain a deposit as a condition of the credit transaction, a statement that the amount of the annual percentage rate does not reflect the effect of the required deposit;

15 U.S.C. §1638; 12 C.F.R. §226.18.

In addition to requiring that certain information be disclosed, the Truth in Lending Act also dictates how the information is to be disclosed:

a. The disclosures must be in writing and the written disclosures must be given to the consumer to keep.
b. All of the required disclosures must be conspicuous, but information relating to the creditor’s identity, the annual percentage rate, and the finance charge, must be more conspicuously disclosed than all other disclosures. 15 U.S.C §1632(a).
c. Most of the required disclosures must be segregated from other information not directly related to those required disclosures. 12 C.F.R. §226.17(a). The creditor may segregate the information in a variety of ways: by printing them on a separate sheet of paper, outlining them in a box, using bold dividing lines, using a different color background, or using different type faces. See Official Staff Commentary 12 C.F.R. §226.17(a)(1)-2.
(i) Exceptions to the segregation requirement:
• The itemization of the amount financed must not be included with the segregated disclosures, and
• The creditor’s identity, the variable rate example, the insurance disclosures, and the security interest charges may be included or excluded from the segregated disclosures. 12 C.F.R. §226.17(a)(1), fn. 38.

3. A Buyer Can Prepay the Full Balance
Any buyer may prepay in full the unpaid balance on the installment contract at any time before its final due date, even if the retail installment contract states otherwise. §56-1-2(J).

4. Consolidated Installment Contracts
Sometimes a retail buyer makes subsequent purchases from the seller from whom he had bought goods under a retail installment contract. At the seller’s option, those subsequent purchases may be included in and consolidated with the previous retail installment contract. Under the Retail Installment Sales Act, the subsequent purchases are treated as separate installment agreements, even though they may have been consolidated in the previous contract. §56-1-2(M).

When subsequent purchases are consolidated into the previous installment contract, the buyer does not have to execute a new contract covering each subsequent purchase. Instead, it is sufficient if the seller prepares a written memorandum containing the information in items f-m listed above for the requirements for a retail installment contract. §56-1-2(M)(2).