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Credit Matters

The federal Consumer Credit Protection Act, 15 USC 1601 et seq., also referred to as the Truth in Lending Act, assures that consumers receive specific information regarding the terms, conditions, and final cost of financing. It also requires disclosure of other information that will contribute to a meaningful choice and decision to finance the purchase.

If buyers finance their purchase of vehicles, they most likely will execute a document known as a security agreement, which gives their creditor a security interest in their vehicles. Under most state laws, if they seriously default on car payments, their creditor may repossess their vehicle, sometimes without advance notice. Although they generally have a right to “cure” the default and redeem the vehicle, they normally have to pay the entire balance on the car, not just the payments in arrears. Most financing agreements contain “acceleration clauses” which permit the termination of the installment payments once default occurs. Some states have laws that permit creditors to reinstate the contract terms once buyers pay the amount in arrears.

If buyers do not redeem the vehicle, the creditor may keep their vehicles to satisfy the debt, even if the vehicles are worth more than the debt owed. This is referred to as “strict foreclosure.” However, if buyers have paid at least 60 percent of the purchase price, they generally are entitled to any excess money recouped from the vehicle’s sale above and beyond the balance owed. Buyers are also entitled to take part in the bidding at the sale.

Inside Credit Matters