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TILA Disclosures Given to Business Entity (Reg Z)

If TILA disclosures are provided in a loan to a business entity and the APR is understated - is this a violation of regulation Z although loans to business entities are exempt from the coverage of Regulation Z?

by Randy Carey:

Official Interpretation

3(a) Business, Commercial, Agricultural, or Organizational Credit

1. Primary purposes. A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt.

Whether this constitutes being deceptive would be a business decision.


by Andy Zavoina:

If the loan is exempt from Reg Z, the Reg Z penalties would not be applicable. But if the disclosures were misleading and inaccurate, especially if this was a pattern or practice, I could easily see a UDAP enforcement action if this was a consumer and I would look at any state laws that protect businesses from unfair or deceptive practices if the borrower is not protected as a consumer. Regardless, the borrower could still sue a lender and allow a jury or judge to determine if there was any fraudulent activity and historically incorrect disclosures would not be favorable to a lender.


by Richard Insley:

If this is truly an exempt business purpose loan, there can't be violations of Reg. Z. The legal concepts of "finance charge" and "annual percentage rate" are a creation of the TILA and they are defined in terms of "consumer credit." When the business credit exemption applies, the transaction does not meet the definition of "consumer credit" and therefore there is no FC or APR to disclose.

With Reg. Z, there are ALWAYS exceptions...and it is possible to shoot yourself in the foot. Should the contract documents frame the credit agreement using terms (APR, FC, etc.) that don't have to be disclosed, the lender may recreate by contract what was excused by regulation.

First published on 02/16/2020

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