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Retail Installment Sales (Part 2)

Consumer Law Tutorial for Judges in New Mexico

C. Retail Charge Agreements

As with retail installment contracts, the Truth in Lending Act and the Retail Installment Sales Act both apply to retail charge agreements. A creditor who complies with the Truth in Lending Act complies with the Retail Installment Sales Act. §56-1-15.

1. Requirements for Retail Charge Agreements under the Retail Installment Sales Act
The rules governing retail charge agreements are substantially similar to those covering retail installment contracts.

a. A retail charge agreement must be in writing, signed by the buyer, and not contain any blank spaces that are to be filled in after the buyer signs. The retail charge agreement must also contain a notice in bold type that is at least 10-point in size that the buyer should read the agreement before signing, should not sign the agreement if there are any blank spaces in the agreement, and that the buyer is entitled to a copy of the signed agreement. Finally, the retail charge agreement must state the maximum amount and rate of the time price differential to be charged and paid under the agreement. §56-1-3(A).
b. Required Periodic Billing Statements In addition to the original agreement, the seller under a retail charge agreement shall provide the buyer with a statement at the end of each billing period in which there is an unpaid balance. §56-1-3(B). This statement must include the following:
(i) The unpaid balance at the beginning and end of the billing period;
(ii) The dollar amount of each purchase by the buyer during the period, the purchase or posting date, a brief description of the item purchased, and the cash price of each purchase;
(iii) The payments made by the buyer and any other credits to the buyer during the billing period;
(iv) The amount, if any, of the price differential for such period; and
(v) A notation that the buyer may pay the total unpaid balance or any portion of the unpaid balance at any time.

2. Buyer’s Acknowledgment
The buyer’s acknowledgment within the signed agreement that he or she has received a copy of the agreement is presumptive proof that the buyer did actually receive a copy of the agreement and that the agreement did not contain any blank spaces when signed. §56-1-3(A).

3. Requirements for Retail Charge Agreements under the Truth in Lending Act
In open-end credit arrangements, such as retail charge agreements, the Truth in Lending Act requires the creditor to make certain disclosures at the application or solicitation stage, “initial disclosures” before the first transaction, additional disclosures in the periodic billing statements, and subsequent disclosures.

The following information must be provided in all applications or solicitations for any open-ended consumer credit account:

a. The conditions under which a finance charge may be imposed, including any time period in which repayment may be made without a finance charge;
b. The method of determining the balance upon which a finance change will be imposed;
c. The method of determining the amount of the finance charge, including any minimum or fixed amount;
d. Where one or more periodic rates may be used to compute the finance charge, each such rate, the range of balances to which each is applicable, and the corresponding nominal annual percentage rate determined by multiplying the periodic rate by the number of periods in a year;
e. Identification of other charges that may be imposed as part of the plan and their method of computation;
f. If appropriate, a statement that the creditor has taken a security interest in the property purchased as part of the credit transaction or other property; and
g. A statement of the consumer’s and creditor’s responsibilities.

The Truth in Lending Act also requires certain disclosures in each periodic billing statement sent to the consumer.

Lastly, the Truth in Lending Act requires creditors to make two subsequent disclosures: a periodic statement regarding the consumer’s rights when a billing error occurs, and a notice when there is a change in the terms of the credit agreement. The Billing Error Rights Notice provides the consumer with information concerning the creditor’s statutory protections for billing errors and the claims and defenses available to credit card consumers. 15 U.S.C. §1637(a)(7). This notice may be issued by the creditor annually in a long form or in a summarily in each periodic billing statement. 12 C.F.R. §226.9(a).

When the creditor makes certain changes to the terms or conditions of the retail charge agreement, the creditor must notify all consumers affected by the change in writing. Some changes require the creditor to give or mail notice of the change to the consumer at least fifteen days before the effective date of the change. The following changes require fifteen-days written notice:

• an increase in the required minimum payment;
• resumption of normal rates or payments after a temporary reduction or suspension;
• a change in the security interest;
• a change in the billing cycle that increases the minimum payment, makes even a temporary reduction in the free ride period, or would affect the imposition, computation, or determination of the method of determining the balance on which the finance charge may be computed, the finance charge, the periodic rate, or other charges required to be disclosed in the initial disclosure statement;
• the addition of a new feature or device thirty days or more after providing the initial disclosures