Back to Basics, continued – What About Non-Traditional Installment Loans??? | The tone

The focus of this Back To Basics blog is on consumer finance. And the target audience are believers. However, all consumer finance is not created equal. Not all believers are the same. Consumer finance takes many forms.

The common denominator of the consumer finance industry is that its loans and loan sales are for “personal, family and household use.” However, the breadth of this lending continues to increase as consumer needs for financial services grow.

Today we find consumer loans granted to finance elective dental and cosmetic procedures – often not covered by insurance. Other such loans are designed for pet care. And yes, these are consumer transactions that require all of the state and federal disclosures associated with the more traditional consumer financial products.

There are some differences. Most consumer finance transactions for these types of services are unsecured. Sometimes the laws and regulations that apply to more traditional installment business do not apply to this type of lending. For example, the Military Credit Act would not apply to these loans because these loans are technically purchase money loans—that is, the proceeds are used to purchase the consumer services provided. (See What is the difference between a purchase money security interest and a non-purchase money security interest – and why is it even important? for an explanation of purchase money allocation.) These loans are generally not subject to the pending CFPB Small Dollar Loan Rule so 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 funded by the provider or a direct loan referral by the provider to an external consumer finance company. (See What is the difference between direct lending and indirect lending? for distinguishing between direct and indirect lending.) In all cases, the lender must follow all standard disclosure rules, including truth in lending, equal credit opportunities, fair credit reporting, GLB privacy, Federal Trade Commission trade regulations, telephone consumer protection law, and the various state and state laws regarding the retention and protection of customer information.

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

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