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Question & Answer
Question: Please settle a debate we are having with our software provider. As we read Regulation Z, it requires us to make a "credit sale" disclosure when we sell and finance repossessed property, such as cars. The software provider believes that we do not need to make a credit sale disclosure because we make fewer than 25 credit sales. Who is right?
Answer: You are. The software vendor is a little confused. The answer lies in §226.18(j) and §226.2(17). §226.18(j) requires any covered creditor to disclose the total sales price when the creditor is also the seller of the goods. The question is then whether the seller of the goods is a covered creditor.
For deciding whether the creditor is covered by Regulation Z, we go to the definition of creditor in §226.2(17). This may be where your vendor is getting confused. A creditor is a person who regularly extends credit that is subject to a finance charge. The term "regularly" is explained in a footnote. It means extending credit more than 25 times per year, or more than 5 mortgage loans per year. The fact is, every bank probably meets one or both of these triggers.
This measurement of "regularly" is broad. It is not limited to a specific type of credit. It is possible that your software vendor has interpreted this footnote to mean that the transactions are not covered until the lender makes more than 25 loans of any specific type. Using this (incorrect) reasoning, if you make 25 or less credit sales per year, they believe you do not have to make the credit sale disclosure. Not so!! Once a lender makes the 26th loan of any kind, or the 6th mortgage, whichever comes first, the lender is a creditor for purposes of Regulation Z and subject to all of its disclosure requirements.
Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 2, 3/00
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