Back to Basics, Continued—What About Non-Traditional Installment Loans??? | Denton

The focus of this Back To Basics blog is consumer credit. And, the target audience is the creditors. However, not all consumer loans are the same. Not all creditors are the same. Consumer credit takes many forms.

The common denominator of the consumer credit industry is that its loans and sales on credit are for “personal, family and household use”. The scale of these loans, however, continues to expand as consumers’ needs for financial services increase.

Today, we see consumer loans being issued to fund elective dental and cosmetic procedures, often not covered by insurance. Other such loans are for pet care. And, yes, these are consumer transactions that require all of the state and federal disclosures provided under more traditional consumer financial products.

There are a few differences. Most consumer credit transactions for these types of services are unsecured. Sometimes the laws and regulations that come into play in more traditional installment transactions do not apply to this type of loan. For example, the Military Loans Act would not apply to these loans because these loans are technically purchase money loans, i.e. the proceeds are used to purchase the consumer services provided . (See What is the difference between a purchase price security and a non-purchase price security – and why is it important anyway? for an explanation of the Purchase Funds Loan.) These loans will generally not be subject to the CFPB’s ongoing rule on small loans, as long as the APR associated with the loan does not exceed 36%.

These consumer transactions are often initiated in the office of the service provider — the dentist, the doctor, the veterinarian — at the point of sale. The transaction can then be an indirect loan financed by the supplier, or a direct loan referral from the supplier to a third-party consumer finance company. (See What is the difference between direct loans and indirect loans? for the distinction between direct and indirect lending.) In either case, the creditor must follow all customary disclosure rules, including truth in lending, equal credit opportunity, fair credit reporting, GLB Privacy Policy, Federal Trade Commission Trade Regulation Rules, Telephone Consumer Protection Act, and various state and federal laws relating to the maintenance of records and the protection of customer information.

As the world continues to turn, creative practitioners will continue to expand the types of activities that fall within the definition of “consumer financial services”.

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