Complete Home & Office Legal Guide/Complete Home and Office Legal Guide (Chestnut) (1993).ISO/tut/ftcloan.stb

Text File | 1993-08-01 | 9KB | 215 lines

/* The Federal Trade Commission has instituted rules which
require businesses to give "Miranda Warnings" to cosigners. In
addition, the previous practice of small loan companies of taking
liens on household goods was ruled to be an unfair trade
practice. Finally, this section of the law also limits wage
assignments. The cosigner warning, such you need to prepare one,
can be obtained from the document preparation menu. As usual, we
explain the gobbledygook along with the law. */

    CREDIT PRACTICES- REGARDING COSIGNERS; WAGE ASSIGNMENTS;
LIMITATIONS OF LIENS ON CONSUMER LENDING

           16 Code of Federal Regulations, Section 444


Section 444.1

Definitions--

     (a) "Lender." A person who engages in the business of
lending money to consumers within the jurisdiction of the Federal
Trade Commission.

     (b) "Retail Installment seller." A person who sells goods or
services to consumers on a deferred payment basis or pursuant to
a lease-purchase arrangement within the jurisdiction of the
Federal Trade Commission.

     (c) "Person." An individual, corporation, or other business
organization.

     (d) "Consumer." A natural person who seeks or acquires
goods, services, or money for personal, family or household use.

     (e) "Obligation." An agreement between a consumer and a
lender or retail installment seller.

     (f) "Creditor." A lender or a retail installment seller.

     (g) "Debt." Money that is due or alleged to be due from one
to another.

     (h) "Earnings." Compensation paid or payable to an
individual or for his or her own account for personal services
rendered or to be rendered by him or her, whether denominated as
wages, salary, commission, bonus, or otherwise, including
periodic payments pursuant to a pension, retirement, or
disability program.

     (i) "Household goods." Clothing, furniture, appliances, one
radio and one television, linens, china, crockery, kitchenware,
and personal effects (including wedding rings) of the consumer
and his or her dependents, provided that the following are not
included within the scope of the term "household goods":

     (1) Works of art;

     (2) Electronic entertainment equipment (except one
television and one radio);

     (3) Items acquired as antiques; and

     (4) Jewelry (except wedding rings).

     (j) "Antique." Any item over one hundred years of age,
including such items that have been repaired or renovated without
changing their original form or character.

     (k) "Cosigner." A natural person who renders himself or
herself liable for the obligation of another person without
compensation. The term shall include any person whose signature
is requested as a condition to granting credit to another person,
or as a condition for forbearance on collection of another
person's obligation that is in default. The term shall not
include a spouse whose signature is required on a credit
obligation to perfect a security interest pursuant to State law.
A person who does not receive goods, services, or money in return
for a credit obligation does not receive compensation within the
meaning of this definition. A person is a cosigner within the
meaning of this definition whether or not he or she is designated
as such on a credit obligation.

Section 444.2

Unfair credit practices--

     (a) In connection with the extension of credit to consumers
in or affecting commerce, as commerce is defined in the Federal
Trade Commission Act, it is unfair act or practice  within the
meaning of Section 5 of that Act for a lender or retail
installment seller directly or indirectly to take or receive from
a consumer an obligation that:

     (1) Constitutes or contains a cognovit or confession of
judgment (for purposes other than executory process in the State
of Louisiana), warrant of attorney, or other waiver of right to
notice and the opportunity to be heard in the event of suit or
process thereon.

/* Many states still recognize cognovit (or other phrase)
promissory notes, which allow the owner of the note to appoint an
attorney to represent you, to go to Court and get a judgment if
the holder of the note claims that the note wasn't paid. Of
course, other states do not allow these, even if signed. The FTC
has ruled that these notes are not lawful in consumer
transactions. */

     (2) Constitutes or contains an executory waiver 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
subject to a security interest executed in connection with the
obligation.

/* A few states allow the maker of a note to waive exemptions
that they are otherwise entitled to; the FTC here rules that the
practice is unlawful. */

     (3) Constitutes or contains an assignment of wages or other
earnings unless:

     (i) The assignment by its terms is revocable at the will of
the debtor, or

     (ii) The assignment is a payroll deduction plan or
preauthorized payment plan, commencing at the time of the
transaction, in which the consumer authorizes a series of wage
deductions as a method of making each payment, or

     (iii) The assignment applies only to wages or other earnings
already earned at the time of the assignment.

     (4) Constitutes or contains a non possessory security
agreement in household gods other than a purchase money security
interest.

/* It is lawful if you buy a product with a loan for the lender
to have a lien on it. */

Section 444.3  Unfair or deceptive cosigner practices--

     (a) In connection with the extension of credit to consumers
in or affecting commerce, as commerce is defined in the Federal
Trade Commission Act, it is:

/* Virtually 99%+ of all transactions will fall within the
definition of interstate commerce. */

     (1) A deceptive act or practice within the meaning of
section 5 of that Act for a lender or retail installment seller,
directly or indirectly, to misrepresent the nature of extent of
cosigner liability to any person.

     (2) An unfair act or practice within the meaning of section
5 of that Act for a lender or retail installment seller, directly
or indirectly, to obligate a cosigner unless the cosigner is
informed prior to becoming obligated, which in the case of open
end credit shall mean prior to the time that the  agreement
creating the cosigner's liability for future charges is executed,
of the nature of his or her liability as a cosigner.

     (b) Any lender or retail installment seller who complies
with the preventative requirements in paragraph (c) of this
section does not violate paragraph (a) of this section.

     (c) To prevent these unfair or deceptive acts or practices,
a disclosure, consisting of a separate document that shall
contain the following statement and no other, shall be given to
the cosigner prior to becoming obligated, which in the case of
open end credit shall mean prior to the time that the agreement
creating the cosigner's liability for future charges is executed:

                       NOTICE TO COSIGNER

     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 that 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 a part of YOUR
credit rating.

     This notice is not the contract that makes you liable for