What changes have been made recently to Regulation Z?

On April 6, 1998 the Board of Governors of the Federal Reserve System enacted a final rule amending the interpretation of Regulation Z. The law hasn't changed, just the interpretation of it within the scope of the Regulation Z Commentary. To most of us, this is no big deal. It only affects loans where the trade-in value of a vehicle is less than the amount owed to the prior creditor. Effectively, this means that the new interpretation only kicks-in when the customer is "upside down" on the amount he owes on his trade-in vehicle. This may be thought of as a "lien shortfall". He owes more to his prior finance company than the vehicle is worth so his lien payoff is more than the value of his trade-in resulting in a negative value for his trade-in. Effective October 1, 1998 the down payment (cash + trade) may only be used to reduce the cash price of the vehicle. A negative trade-in value could cause the appearance of an increase in cash price thus causing this new interpretation to kick in. To keep things simple, when you have an upside down trade you should show a value of zero for the Trade-in value and then show the upside down amount simply as an "Amount Paid To Others On Your Behalf". The FIADA contract already has a position under "Itemization of Amount Financed" [line 4(G)] to contain this information. Make sure that you indicate who you are making the payoff "to" and indicate that you are making the payment "for" a lien shortfall and then enter the shortfall amount. This is all that it takes to satisfy the new interpretation. Remember, this is NOT a new law. This is simply a re-interpretation of an existing law. Some finance companies are changing their forms to show more information such as trade-in, lien and the resultant lien shortfall. This is acceptable, but not necessary. The Bill of Sale already shows all trade and payoff information and consequently putting the details on a Retail Installment Contract is repetitious and not required.

Department of Financial Services Examinations

If you are involved in retail installment finance, you may expect to be visited once each year, unless specific cause exists, by a state examiner from the Florida Department of Financial Services. I have heard dealers say they don't have to worry about this, because they don't charge interest on their loans. That is not true. If you allow a customer to make payments to you over a period of time you are required to have a finance license and you will be examined whether you charge interest or not. Also, whether or not you charge interest, you must purchase Documentary Stamps for your retail installment contracts.

Most Buy-Here Pay-Here dealers are licensed under Chapter 520 Part I, Florida Statutes, (retail installment sales of motor vehicles). If you have questions about licensing, you should call your local office of the Department of Financial Services.

Now, back to the subject of examinations. The state examiner who audits you must operate under specific guidelines as established by the Department of Financial Services. These guidelines originate from Chapter 520, F. S., but are expanded upon by certain Rules of Law. These Rules will generally offer more specific clarification of the intended law, and therefore are valuable to you when you wish to research a specific question or practice. Your local office of the Department of Financial Services, will give you a copy of their booklet, Florida's Retail Installment Sales Act and Regulations, which covers the appropriate Statutes and Rules.

This department does not regulate automobile purchase orders (sales orders), but does regulate finance contracts pertaining to those purchases. This may sound like a play on words, but it is very important that you understand this fact. Your sales order may specify an extra charge for Notary Service or Dealer Preparation and the total amount of the purchase may be increased by these amounts. But, if you were to identify Notary Service and Dealer Preparation on the face of the finance contract as specific charges, you would be in violation and would be forced to rebate those charges and the portion of interest that was charged on those items. In short, you may bury those charges legally into the total purchase price of the vehicle, and show them on a buyers order, but you may not itemize them on a finance contract. If you make this type of mistake and get caught, you will be forced to examine your old deals, and make restitution to past customers.

When the examiner visits you, he will identify himself and will state his purpose. He may just make a cold call by just dropping in, or he may phone for an appointment. If you, the owner or manager, are not present it is not unreasonable for you to advise your staff to ask him to contact you for permission to enter. He could press the issue, but most usually will be willing to set-up a future appointment. You really would be wise to be present during an audit whenever possible. The examiner will first check his records to see which contract was the last one examined at your previous audit. His examination will probably start there, unless there were some loose ends hanging from the last audit that should be checked.

Your finance license must be current and must be hung in a conspicuous place. And, if you are buying or selling contracts to other dealers or lenders, that will be noted and a check will be made to assure that they are also properly licensed.

A count of the number of contracts in existence during the audit period will be made, and the number of contracts selected at random to be audited will be some percentage of that total number of contracts. The examiner will choose which ones he wants to audit.

Particular attention will be given to the maximum amount of interest allowed by law based on the age of the vehicle. You may make the mistake of considering a vehicle to become a year older just because new vehicles were announced in September or October. This is not how the state allows it. All vehicles, other than current year models, become a year older on January first of each year. Maximum allowable interest rates are specified in Chapter 520.08, Florida Statutes.

A minimum finance charge of $25 may be charged on any motor vehicle retail installment contract.

Documentary (DOC) Stamps must be purchased. Even though Department of Financial Services personnel do not regulate DOC Stamps, they do verify if you are complying with the law that requires the purchase of DOC Stamps. Title, registration and lien fees are allowed only when supported in fact according to official Division of Motor Vehicles fee schedules and receipts.

An acquisition fee of $25 may be deducted from the base interest amount prior to calculating any interest rebate for early payoffs.

Rebates are computed as follows: Rule of the 78s for interest, life insurance, Accident and Health insurance. Pro-rata for mechanical or physical damage insurance.

If you sell insurance products, your insurance license must be on display. Each customer who buys insurance must sign to show that he requested that insurance. You may insist that he protects you with insurance, but you may not insist that he must purchase it from you instead of someone else. If an insurance product is cancelled but the note continues on, the interest portion of the note that pertains to the insurance product must be rebated as well as the unearned portion of the premium.

When computing interest refunds, the number of months earned is computed from the first scheduled due date of the contract rather than from the date of origination of the contract. An additional month is considered to be earned when the payoff is one day or more after a scheduled due date. If the contract is paid out prior to the first scheduled payment date, one month is considered earned. Only one month is considered earned at the beginning of the contract, no matter how many days between the contract date and the first due date.

Late charges may be applied on a payment that is over 10 days late at a rate of 5% only if the customers contract lists provisions for such charges. Don't be confused, you may not charge late charges on the entire late balance, only on a specific payment or portion of a payment. Once charged on a payment, you may not charge again on that particular payment even if another 10 days goes by without payment. Never charge late fees on late fees.

The statutes specify certain contents and size characteristics of a finance contract. If you have a home-made version that you are using, be careful that your attorney has properly examined it and that it complies with the law.

Both borrower and lender must sign. Initials or fictitious names are not adequate for the lenders. The Regulation Z box on the contract must be completed, and the accurate Annual Percentage Rate must be indicated, even though you did your initial interest calculations using Add-on rates. Your APR rate must be accurate to within 1/8 of a percentage point over or under.

The regulations concerning contract extensions and additional interest charges thereon are pretty involved. It is my opinion that you would be better off doing an early payoff of the old note, and then issue a new finance contract. This happens so seldom, it is easy to make a mistake and be chastised later. A new contract is much safer.

CHAPTER 69V-50

MOTOR VEHICLE SALES FINANCE 69V-50.001 Miscellaneous Charges

69V-50.002 Excessive Charges, Correction 69V-50.005 Insurance Cancellation

69V-50.007 Contracts for Purchase of Mobile Homes in Conjunction with Real Estate Transactions 69V-50.055 Application Procedure for Motor Vehicle Retail Installment Seller License (Repealed) 69V-50.058 Motor Vehicle Retail Installment Seller Branch Office License (Repealed)

69V-50.070 Motor Vehicle Retail Installment Seller and Motor Vehicle Retail Installment Seller Branch Office License Renewal and Reactivation (Repealed)

69V-50.075 Prepaid Finance Charge

69V-50.080 Calculation of Finance Charge for Contracts Providing for Unequal or Irregular Installment Payments 69V-50.085 Disclosures Required by Section 520.07(3), F.S

69V-50.001 Miscellaneous Charges.

Other than the items and charges properly included as part of the cash price as defined in Section 520.02(2), F.S., the following are the only charges permitted to be made by the retail installment seller. All authorized charges are permitted only to the extent they are actually paid, used, or disbursed for the purposes stated.

(1) Charges for taxes, prescribed by law, to the extent same are not included as part of the cash price.

(2) Charges for official fees as defined in Section 520.02(9), F.S., and charges for licenses and other fees prescribed by law.

(a) In order to support motor vehicle license charges and liens for perfecting any security interest in the collateral, the registration form provided by the Department of Motor Vehicles shall be maintained. In addition, the month of birth of the retail buyer must be shown on the face of the contract and the trade-in amount must be clearly described.

(b) Charges for documentary excise tax must be supported by attaching documentary stamps to the appropriate document and canceling or by paying the appropriate amount of tax directly to the Department of Revenue and maintaining documentation necessary to determine compliance.

(3) Charges for insurance purchased by the retail buyer to the extent such charges are not included as part of the finance charge as defined in Section 520.02(5), F.S. The type of such insurance shall be specifically noted on the contract. Vendors Single Interest Insurance (V.S.I.) coverage issued to a contract holder on a blanket form may also be written in addition to the buyer’s physical damage coverage, and a charge made to the buyer provided the contract contains a provision authorizing the contract holder to purchase the V.S.I. coverage. Should the contract holder purchase V.S.I. coverage at the time the contract is signed, the contract holder shall deliver or cause to be delivered to the buyer evidence of insurance at the time the contract is signed and the buyer shall receive a copy of the policy within thirty (30) days from the date the contract was signed.

(4) Charges for other benefits such as service agreements or warranties bargained for and purchased by the retail buyer to the extent said charges are supported in fact. The type of such benefits shall be specifically noted on the contract. The contract holder shall deliver or cause to be delivered to the buyer evidence of such benefits at the time the contract is signed and the buyer shall receive a copy of the policy within thirty (30) days from the date the contract was signed.

Specific Authority 17.29, 520.994(5) FS. Law Implemented 520.02, 520.07 FS. History–Renumbered from 3-6.01 to 3D-50.01 on 8-26-75, Amended 11-1-77, 4-22-84, Formerly 3D-50.01, Amended 7-10-96, 12-8-99, Formerly 3D-50.001.

69V-50.002 Excessive Charges, Correction.

If the sales finance company discovers that, as a result of an inadvertent clerical error or some other unintentional mistake, the finance charge to a buyer is in excess of the amount permitted, or that any other charges in the contract are excessive, it shall immediately notify the buyer in writing of such overcharge. The overcharge, plus any finance charge that may have been assessed thereon, shall be credited to the account balance, and the buyer shall be notified in writing of any reduction of contractual payments. Contracts paid in full containing excessive charges which were not previously given credit should be

corrected by making a refund to the buyer.

Specific Authority 520.994(5) FS. Law Implemented 520.08 FS. History–Renumbered from 3-6.02 to 3D-50.02 on 8-26-75, Amended 1-10-79, Formerly 3D-50.02, Amended 7-10-96, Formerly 3D-50.002.

69V-50.005 Insurance Cancellation.

When a retail installment contract is pre-paid and said contract contains a premium charge for credit life and/or accident and health insurance, and the holder is agent for the underwriting company, the act of prepayment will be considered to be an act of cancellation of the insurance in accordance with Rules and Regulations of the Office of Insurance Regulation.

Specific Authority 520.994(5) FS. Law Implemented 520.07, 520.09 FS. History–New 4-11-70, Amended 11-17-73, Renumbered from 3-6.05 to 3D-50.05 on 8-26-75, Formerly 3D-50.05, 3D-50.005.

69V-50.007 Contracts for Purchase of Mobile Homes in Conjunction with Real Estate Transactions.

(1) When a mobile home or trailer is sold on a motor vehicle Retail installment sales contract, as defined by Section 520.02, F.S., and such sale is in conjunction with a sale of real property on an installment sales contract or agreement for deed, and the terms of such dual sale are combined into one (1) contract or agreement, no part of the terms of sale or the usual and customary closing cost in conjunction with the real estate sale contract shall be combined with the terms of sale and the closing cost permitted under Part I of Chapter 520, F.S., with regard to the motor vehicle sales contract. The terms and conditions of the sale and such closing cost in connection with the sale of the real property shall be itemized and separately stated; and the terms of sale and closing cost in connection with the sale of the mobile home or trailer shall be separately stated, except that the aforesaid terms and cost may be combined in order to arrive at a total cost or indebtedness.

(2) Nothing in subsection (1) above shall prohibit the terms and costs pertaining to the sale of real estate from being on a separate real estate contract nor the terms and costs pertaining to the sale of a mobile home or trailer from being on a separate motor vehicle retail installment sales contract.

(3) The selling price plus closing cost and interest or finance charges on such transaction may be combined into one note and mortgage securing the total indebtedness, provided that the provisions of subsection (1) are complied with.

(4) It is the intent of this rule to assure that the closing cost and finance charges permitted under Part I of Chapter 520, F.S., shall be limited to or computed only on that portion of the contract terms as are directly related to the sale of a motor vehicle as defined by Section 520.02, F.S.

(5) Nothing in this rule shall be construed to avoid compliance by any seller with any other laws, state or federal, which may be applicable to such transactions.

Specific Authority 520.994(5) FS. Law Implemented 520.02(1), 520.07, 520.08 FS. History–New 10-21-75, Formerly 3D-50.07, 3D-50.007.

69V-50.055 Application Procedure for Motor Vehicle Retail Installment Seller License.

Specific Authority 520.03(2), 520.994(5) FS. Law Implemented 120.60(1), 520.03(2) FS. History–New 11-5-87, Amended 5-9-90, 11-11-90, 9-28-94, 8-9-95, 7-10-96, 9-29-96, 12-8-99, Formerly 3D-50.055, Repealed 12-20-07.

69V-50.058 Motor Vehicle Retail Installment Seller Branch Office License.

Specific Authority 520.03(2), 520.994(5) FS. Law Implemented 120.60(1), 520.03(2) FS. History–New 11-11-90, Amended 8-9-95, 7-10-96, 9-29-96, 12-8-99, Formerly 3D-50.058, Repealed 12-20-07.

69V-50.070 Motor Vehicle Retail Installment Seller and Motor Vehicle Retail Installment Seller Branch Office License Renewal and Reactivation.

Specific Authority 520.03(2), (3), 520.994(5) FS. Law Implemented 520.03(2), (3), 520.994(5) FS. History–New 11-5-87, Amended

11-11-90, 12-18-93, 9-29-96, 12-8-99, 12-25-00, Formerly 3D-50.070, Repealed 12-20-07.

69V-50.075 Prepaid Finance Charge.

Any fee designated as a loan processing fee, not to exceed $200.00, on a motor vehicle retail installment contract shall be treated as a prepaid finance charge and disclosed as such pursuant to Section 520.07(2)(a)3., F.S. The loan processing fee together with other finance charges assessed on a motor vehicle retail installment contract shall not exceed the finance charge limitation in Section 520.08, F.S. In the event that the buyer prepays the motor vehicle retail installment contract, the buyer shall receive a prorated refund of the loan processing fee as required by Section 520.09, F.S.; provided, however, in accordance with Section 520.085(1)(c), F.S., if the motor vehicle retail installment contract is a simple interest contract, no prorated refund is required.

Specific Authority 520.994(5) FS. Law Implemented 520.07, 520.08, 520.085, 520.09 FS. History–New 10-17-94, Amended 7-10-96, 12-25-00, Formerly 3D-50.075.

69V-50.080 Calculation of Finance Charge for Contracts Providing for Unequal or Irregular Installment Payments.

(1) For purposes of construing Section 520.08, F.S., the following terms are defined:

(a) “Monthly payments” means installment payments substantially equal in amount and payable in successive monthly increments. Provided, however, that the first payment may exceed one month by as much as fifteen (15) days and the additional finance charge for such excess days may be added to the first payment.

(b) “Unequal installment payments” means installment payments which are not substantially equal in amount.

(c) “Irregular installment payments” means installment payments which are payable in other than successive monthly increments.

(2) As indicated in Section 520.08(3), F.S., when a retail installment contract provides for unequal or irregular installment payments, the finance charge may not exceed a rate which will provide the same yield as is permitted on monthly payment contracts under Section 520.08(1) and (2), F.S., having due regard for the schedule of payment.

Specific Authority 520.994(5) FS. Law Implemented 520.08 FS. History–New 2-10-98, Formerly 3D-50.080.

69V-50.085 Disclosures Required by Section 520.07(3), F.S.

The itemizations required by Section 520.07(3), F.S., may appear on a disclosure statement separate from all other materials, or it may be placed on the same document as the contract or other information so long as it is clearly and conspicuously segregated from everything else on the document. However, contracts will not be required to either repeat or include in the segregated written itemization required by Section 520.07(3), F.S., the disclosures of Section 520.07(3)(f), F.S., relating to the number of scheduled payments, the amount of each payment, and the date of the first payment, if such disclosures are placed on the same document as the contract and made in the contract in compliance with the federal Truth in Lending Act,

The itemizations required by Section 520.07(3), F.S., may appear on a disclosure statement separate from all other materials, or it may be placed on the same document as the contract or other information so long as it is clearly and conspicuously segregated from everything else on the document. However, contracts will not be required to either repeat or include in the segregated written itemization required by Section 520.07(3), F.S., the disclosures of Section 520.07(3)(f), F.S., relating to the number of scheduled payments, the amount of each payment, and the date of the first payment, if such disclosures are placed on the same document as the contract and made in the contract in compliance with the federal Truth in Lending Act,