There is a fundamental difference between the Truth-in-Lending Act disclosure statement that is used for a direct loan, and that which is used in an installment sale. The difference is that the latter requires the additional 5th box within the Federal Box labeled “Total Sale Price.”
The Total Sale Price box is the location for disclosing the consumer's total cost of the credit sale transaction, inclusive of the downpayment, finance charge and any ancillary charges. This disclosure is not a part of a direct loan disclosure statement, where the relevant information about the total obligation is described as the “Total of Payments,” and is found in the 4th box within the Federal Box.
The sales contract disclosure also includes the Total of Payments. The reason for an additional disclosure in the credit sale context is that in order for the consumer to truly understand the totality of the financial commitment, the credit sale disclosure format includes this additional piece of information.
Interestingly, credit sales contracts or installment sales contracts are sometimes referred to as “indirect loans.” Such name reflects the fact that installment sales contracts are often purchased right after the point-of-sale by a lender, who has a pre-agreed arrangement with the credit seller to take assignment of the contract. So, these transactions really are not loans at all—they are sales made “on credit” by a seller. Hence, there is a need for the Total Sale Price disclosure.
It is important for lenders, who purchase or take assignment of consumer credit sales contracts, to be certain that the disclosure format used is the installment sales contract disclosure format. Otherwise, the finance company as assignee will be liable for the disclosure violation, since such violation will be very much “apparent” on the face of the instrument that is assigned. While assignees have certain defenses to Truth-in-Lending violations, the assignee defense does not apply to defects that can be determined on the face of the disclosure. The absence of the Total Sale Price box stands out like a sore thumb.
It is also interesting to note that in many jurisdictions, credit sellers are not required to be licensed. So, there often is no regulatory authority looking over their shoulders to make certain that their forms and processes are Truth-in-Lending compliant. In the final analysis, that makes the assignee—the contract purchaser—ultimately responsible for its dealers' compliance.
Practice Pointer: Carefully review the contract disclosure forms used by those with whom you do business. Ultimately, the consumer finance company will bear the responsibility for Truth-in-Lending compliance.