Enacted in the past 2 decades to remedy perceived abuses by retailers and creditors.
- Truth-in-Lending Act and regulations
- Magnuson-Moss Warranty Act
- Credit Practices Regulation
Federal Consumer Protection and Disclosures Measures that Regulate Billing
Insure that consumers who are provided credit by banks and businesses are fully appraised of all aspects of the credit arrangements.
- Requires a number of disclosures to be made by banks and businesses extending credit
- Funeral homes are not exempt
Truth-In-Lending Act and the regulations issued pursuant to that Act
Required to make disclosures during any particular transaction if it satisifies a two-part test:
- It qualifies as a creditor under the regulations; AND
- It extends credit to a consumer.
Coverage of the Truth-In-Lending Act
A person or business which extends consumer credit more than 25 times in a year.
- In order to be subject to the truth-in-lending act, a funeral home must be defined as this.
- Funeral home must examine transactions in the past and present calendar year (i.e., if a funeral home extends credit 26 times in 2016, it qualifies as this in 2017)
- The only way to lose this status is to extend credit 25 or less within a year.
A funeral home extends this whenever it imposes a financial charge in a transaction with a natural person OR it enters into a written agreement with a natural person that calls for payments by more than four installments.
The Truthinlending requirements will not apply with these:
- If the obligor is the fiduciary:
- Executor of an estate
NOT Considered Natural Persons
Must disclosures be made?
A funeral home has extended credit 30 times in 2011. In 2012, a funeral director at the funeral home orally agrees to allow a consumer to pay the bill in six installments without interest charges.
Although the funeral home is defined as a "creditor" for all of 2012, it is not required to make a disclosure in this particular case because it was not extending credit. If the agreement were written or if interest charges were imposed, the disclosures would have to be made.
Must disclosures be made?
A funeral home extends consumer credit only 5 times in 2011. By September, 2012, it has extended credit 25 times. On the next customer transaction a funeral director agrees orally to allow a consumer to pay in three installments with a five percent finance charge.
Truthinlending disclosures must be made since the funeral home is extending credit (the finance charge) and it is doing it for the 26th time in one year. The funeral home will now be defined as a creditor for the remainder for 2012 and all of 2013.
Must disclosures be made?
A funeral home which has extended consumer credit 35 times in 2011 is called on January 2, 2012 by the decedent's sister who is serving as executrix of the estate. The funeral director orally agrees to allow the estate to pay the bill in installments with a finance charge.
The funeral home is a creditor for all of 2012 since it extended credit ore than 25 times the previous year. It would also be regarded as extending consumer credit in this transaction, but for the fact that the obligor on the funeral bill is the estate of the decedent. Therefore, since the funeral home is not extending consumer credit for a natural person, the truthinlending disclosures are not applicable.
- Late Charge
- Discount for prompt payment
Finance Charge- 2 Situations Which Concern Funeral Homes
Charges imposed against consumers not making payments when due.
- Not considered finance charges
- Invoice or bill must state that the entire amount of the account is due at a certain time and if not paid in full, a penalty or late charge will be imposed.
- Funeral home must impose the charge against all violators on a consistent basis.
- If a bill is not paid by a certain date, the funeral home should warn the consumer by letter or phone call that the account is overdue and that penalties are being imposed.
Distinguishing Late Charges from Normal Finance Charges
The funeral home must avoid referring to the late charge as these. It is important that the invoice clearly state that the charge is a late charge or penalty imposed for failure to pay the entire account of the bill when due.
Interest Charge, Finance Charge, Carrying Charge, or Service Charge
Until a recent clarification in the TruthinLending Act, merchants who offered this were subject to the TruthinLending disclosures.
- This is no longer the case
- Funeral homes may offer these without being subject to the TruthinLending regulations
Discount for Prompt Payment
Funeral homes that enter into these must be cognizant (knowledgable) of the fact that these arrangements may constitute extensions of consumer credit.
- If funeral home imposes finance charge
- If conumer pays for the funeral services in more than 4 installments
- 25 or more of these in one year will make the status of creditor
Advertisements that list credit terms are goverend by the Truth-in-Lending Act. There are 2 basic requirements:
- The specific credit terms listed in the advertisement must be terms that actually are or will be arranged. (downpayment, amount that will be financed, annual percentage rate)
- If the advertisement lists any of the following items: the amount of downpayment required, amount of any installment payment, the number of payments, the length of the repayment period or the amount of any finance charge, it must also list each of the following items: the amount of the downpayment, the terms of repayment, and the annual percentage rate, using that term. If the annual percentage rate is a variable rate, that fact must also be noted.
If this occurs, an entire set of new Truth-in-Lending disclosures must be made to the consumer. This takes place when the original credit obligation is replaced by a new credit obligation.
- If new obligation is only extended or deferred, the Truth-in-Lending disclosure are not made
- If the annual percentage rate is decreased, new Truth-in-Lending diclosures are not mandated
- Terms of the credit obligation are changed as a result of a court proceeding (bankruptcy), no new disclosures are required.
Even though this does not require the issuance of a new set of disclosures, various minor disclosures must be made if a fee is charged as a result of the extension or referral, and the credit obligation is not one in which the finance charge is determined simply by the application of a percentage rate to the unpaid balance.
- In that event, the creditor must set out the amount of the fee, the amount deferred or extended, and the date to which payment is deferred or extended.
These disclosures must appear on a seperate form from the funeral contract or bill and they must be made prior to the consummation of the sale.
- Amount financed
- Finance charge
- Annual percentage rate
- Payment schedule
- Total of payments
- Total sale price
- Prepayment penalty or rebate
- Late payment
- Security interest
Two disclosures required under this item:
- The consumer must be told the "amount financed" - The funeral home, in making this disclosure, must use the term "amount financed" and must explain it as "the amount of credit provided to you or on your behalf."
- Itemized statement by the funeral home of the amount financed. In place of providing this, the funeral home may provide a statement informing the consumer that he or she is entitled to a written itemization of the amount financed and a space for the consumer to indiciate if one is desired. If the consumer does not elect to have one provided, the funeral home is excused from this requirement.
Calculated by taking the cash price, adding any other amounts which are advanced by the funeral home but which are not part of the finance charge, and subtracting the downpayment and prepaid finance charge.
Calculating Amount Financed
The funeral home must disclose that amount which it is charging to extend the credit.
- Must be reffered to as "finance charge"
- Must be explained as "the dollar amount the credit will cost you."
- Cost of insurance premiums must be a part of this charge, unless they are disclosed seprately.
- Does not include taxes, license fees, legal fees, registration fees, and the like.
A total of all credit costs:
- Service charge
- Carrying charge
- Loan fee
- Finder fee or similar charge
- Timeprice differential
- Credit reports
- Insurance premiums if disclosed seprately
Calculating Finance Charge
Under the TruthinLending regulations, if the amount financed is $1,000.00 or below and the finance charge is stated within $5.00 of the actual financial charge, the stated finance charge will be deemed accurate.
- For all amounts above $1,000.00, the regulations provide a tolerance of $10.00
Accuracy of Finance Charge
The funeral home must use the term "Annual Percentage Rate" and provide the explanation that this is "the cost of your credit as a yearly rate."
- Possible to be increased after the sale, funeral home must disclose the circumstance under which this rate can be increased, how the increase would affect the consumer's payments, whether the increase has any limitations, and an example of the payment terms that would result from the increase.
Annual Percentage Rate
Considered accurate if it is not more than one eigth of one percent above or below the actual percentage rate.
- For irregular transactions (i.e. where the payments are not equal), the tolerance is increased to one fourth of one percent.
Accuracy of Annual Percentage Rate
Creditors are permitted to disregard the fact that months have different numbers of days and the occurrence of leap year.
- Easiest method: obtain a copy of the Federal Reserve Board's Annual Percentage Rate Tables, Volume I-- obtained at Federal Reserve System or from any Federal Reserve Bank
Calculating Annual Percentage Rate
Funeral home is required to disclose this, including:
- Number, amount and timing of all payments
- In the case of a demand obligation whre there is no maturity date, the funeral home is required to disclose the due dates for interest payments for the first year only.
- In the event the payments vary because the finance changes apply to an unpaid principal balance, the funeral home must disclose the largest and smallest payments in the series and explain that the payments will vary.
The funeral home should disclose the sum of payments under the payment schedule. It should do this under the heading "Total of Payments" and must explain that term as meaning "the amount you will have paid when you have made all scheduled payments."
Total of Payments
The sum of the cash price, the finance charge and may amount financed by the funeral home which was not included in the finance charge.
- The funeral home is required to use the term "Total Sale Price" in making the disclosure
- Funeral home must explain that it is "the total price of your purchase on credit, including your down payment of $______."
Total Sale Price
- The funeral home must state whether there is a penalty for prepaying the obligation.
- If the funeral home provides a rebate for prepayment, it must so state
Prepayment Penalty or Rebate
If a charge will be imposed against the consumer in the event of a late payment, the funeral home must disclose the amount of the penalty.
If this is obtained by the funeral home, it must disclose the fact and identify the secured property by type or item.
If two or more persons purchase the funeral, the TruthinLending disclosures need be provided only to the primary obligor.
- If the two persons are joint and equal obligors, the disclosures may be given to either one of them.
- The funeral home should always provide the customer with the copy of the TruthinLending disclosures and retain the original form for at least two years.
A federal statute which governs express and implied warranties.
- As sellers, funeral homes are providing warranties on the merchandise they sell even though they do not manufacture it.
- i.e.- when a funeral home sells a casket they warrant by implication that the casket is sound to hold the body. If the bottom falls out of the casket, the funeral home as breached this warranty.
Magnuson-Moss Warranty Act
The law allows sellers or merchandise to do this, but only if the seller does it by using specific language that is presented to consumers in a clear and conspicious manner.
- Advisable to place this disclosure in bold face print on the Casket and Outer Burial Container Price Lists as well as the Statement of Funeral Goods and Services Selected.
Disclaimer of Warranties
- District of Columbia
- New Hampshire
- West Virginia
States that Prohibit Sellers of Consumer Goods to Disclaim Implied Warranties
Although the funeral home as a seller does not offer its own expressed warranties, many of the casket and vault manufacturers do offer warranties on their products.
- Funeral homes are not liable for warranties made by manufacturers, however, funeral homes may be viewed as adopting those warranties if they make certain written or oral representations.
- Funeral directors should insure that they qualify all of their claims by saying that it is the manufacturer which warrants that the casket is water-proof, etc.
- All representations regarding the casket should be tied to the manufacturer's warranties.
Adoption of Manufacturers' Warranties
As sellers, funeral homes are obligated by law to make available to consumers copies of the manufacturer's warranties.
- Make available to any buyers, prior to sale, the text of any written manufacturer's warranty.
- Funeral homes can comply in two ways.
Display of Manufacturers' Warranties
- Funeral homes can clearly and conspicuously display the text of the warranty in close conjunction with the product being sold.
- Funeral homes can maintain a binder or series of binders which contain each warranty. The binder should be labeled "WARRANTIES", should be properly indexed according to product, should be updated as new products are offered, and should be maintained in a location which provides the buyer with ready access to the binder. Either the binder or a sign advising the consumer of the binder's presence must be displayed in a manner reasonably calculated to draw the buyer's notice.
Two Ways for Funeral Homes to Comply with the Display of Manufacturers' Warranties (Magnuson-Moss Warranty Act)
When a funeral home enters into a retail installment contract with a customer by which it permits the customer to pay for a funeral purchase over time through a note, account, or similar debt instrument, the funeral home must insure that a debt instrument is in compliance with this regulation.
- 6 basic requirements
FTC Credit Practices Regulation
- Cognovit Note or Confession of Judgement
- Executory Waiver
- Assignment of Wages
- Security Interest in Household Goods
- Co-signor Practices
- Late charges
6 Basic Requirements of the FTC Credit Practices Regulation
It is a violation of the Federal Trade Comission Act for a funeral home, directly or indirectly. to take or receive from a consumer a debt instrument that constitutes or contains a cognovit or confession of judgement, warrant of attorney, or other waiver of the right to notice and the opportunity to be heard in th event of suit or process thereon.
Cognovit Note or Confession of Judgement
Debt instruments utilized by funeral homes in retail installment sales to consumers may not consitute or contain one of these or a limitation of exemption from attachment, execution, or other process on real or personal property held, owned by, or due to the consumer unless the waiver applies solely to property which is subject to the security interest which is executed in connection with the obligation.
- Since most goods sold by funeral homes cannot be attached in a collection suit, funeral homes' debt instruments should not contain these or limitation of exemptions from attachments.
The FTC Practices Regulations prohibit a debt instrument used by a retail installment seller in a consumer transaction from constituting or containing an assignment of wages or other earnings unless:
- The assignment by its terms is revocable at the will of the debtor, or
- The assignment is a payroll deduction plan or pre-authorized payment plan, commencing at the time of the transaction, in which the consumer authorizes a series of wage deductions as a method of making such payment, or
- The assignment applies only to wages or other earnings already earned at the time of the assignment.
Assignment of Wages
No debt instrument between a retail installment seller and a consumer may constitute or contain a non-possessory security interest in household goods other than a purchase money security interest.
Security Interest in Household Goods
- Personal effects (including wedding rings)
Household Goods (Cannot be used as Security Interest)
- Works of art
- Electronic entertainment equipment (except one television and one radio)
- Antiques (any item over 100 years old)
- Jewelry (except wedding rings)
Not Considered Household Goods (Can be used as Security Interest)
Under the Federal Trade Comission Act, it is a deceptive act or practice for a lender or a retail installment seller to directly or indirectly misrepresent the nature or extent of a cosignor's liability.
- It is also a violation of the Act for a lender or retail installment seller, directly or directly, to obligate a cosignor unless the cosignor is informed prior to being obligated, of the nature of the cosignor's liability.
- To prevent these deceptive acts, a notice should be provided to all cosignors on a seperate document.
"You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become part of your credit record.
This notice is not the contract that makes you liable for the debt."
Notice to Cosignor
It is a violation of the Federal Trade Commission Act for a lender or retail installment seller to levy a late charge on a payment which is otherwise a full payment for the applicable period when only delinquency is attributable to late fees which were assessed on that installment.
- A late fee cannot be charged on a timely installment payment if the only problem with that payment is that it did not include a late charge payment for a previous delinquency.