Overview of Federal Laws and Regulations in Consumer Financial Services

This set includes vocabulary related to federal laws and regulations affecting consumer financial services, particularly in dealership compliance.

Consumer Leasing Act/ Reg M

•The purpose of the Consumer Leasing Act (“CLA”) and its implementing regulation, Regulation M (“Reg. M”), is to ensure that lessees of automobiles receive meaningful disclosures that enable them to compare lease terms with other leases and, where appropriate, with credit transactions. 

•The CLA and Reg. M also regulate the amount of default and early termination fees that may be charged, as well as require the accurate disclosure of lease terms in advertising.

🧠 Mnemonic to Remember: “CLARITY”

Each letter helps you recall a key aspect of the CLA:

C – Compare: Purpose is to help consumers compare leases and credit transactions.
L – Lease Terms: Requires disclosure of all lease terms.
A – Advertising: Ensures lease terms are disclosed accurately in ads.
R – Reg. M: Regulation M is the implementing rule.
I – Information: Must give lessees meaningful information.
T – Termination Fees: Regulates early termination and default fees.
Y – Your Rights: Protects consumer rights through transparency.

Dodd-Frank Wall Street Reform and Consumer Protection Act

•The CFPB (Consumer Financial Protection Bureau)was created under these reforms and is authorized to take action to prevent a “covered person” or “service provider” from committing or engaging in an unfair, deceptive, or abusive act or practice (“UDAAP”) in connection with offering or providing a consumer financial product or service (RISC, Loan, etc.).

•There is no hard and fast rule for what constitutes a UDAAP violation, rather, the CFPB will consider a list of factors and take public policy considerations into account in determining prohibited acts and practices.

🔑 Core Points to Memorize: 1. Who enforces it?

• The CFPB was created under Dodd-Frank.

• It oversees consumer financial products and services (like RISC contracts, loans, and leases).

2. What is UDAAP?

• Unfair

• Deceptive

• Abusive

• Acts or

• Practices

Think: "U Don't Abuse Any People" — a mnemonic for UDAAP!

3. Who does it apply to?

• Covered persons (like dealerships, lenders)

• Service providers (like software vendors handling consumer finance)

4. How is it enforced?

• There’s no strict checklist.

• The CFPB evaluates based on several factors and public policy.

Fair Credit Reporting Act (FCRA)

•The Fair Credit Reporting Act (“FCRA”) and its implementing regulation, Regulation V, regulates consumer reporting agencies (“CRAs”); users of information contained in a consumer report (e.g., creditors); and furnishers of consumer report information (e.g., creditors). 

•The FCRA aims to:

oprotect the privacy of consumer information;

oprevent identity theft;

oimprove resolution of consumer disputes regarding the accuracy of consumer reports;

ootherwise improve the accuracy and integrity of consumer reports; and

omake improvements in the use of, and consumer access to, credit information.

Equal Credit Opportunity Act (ECOA)

•The Equal Credit Opportunity Act (“ECOA”) and its implementing regulation, Regulation B (“Reg. B”), prohibit a creditor from discriminating against an applicant in every aspect of a credit transaction on a prohibited basis:

•race;

•color;

•religion;

•national origin;

sex;

Truth in Lending Act (TILA)

The Truth in Lending Act (“TILA”) and its implementing regulation, Regulation Z (“Reg. Z”), require clear and uniform disclosures of credit terms so a consumer may make informed decisions about entering into a credit transaction by comparing the different offers of credit available.

Sample compliance issues that may arise under TILA & Reg. Z:

•“Federal Box” disclosures;

•“Itemization of Amount Financed” disclosures;

•Additional contract disclosures;

•Accuracy of calculations and numeric disclosures;

•GAP and insurance disclosures;

•Post-consummation disclosures;

•Correction of inaccurate disclosures and timing requirements from discovery of same;

Consumer Leasing Act (CLA)

•The purpose of the Consumer Leasing Act (“CLA”) and its implementing regulation, Regulation M (“Reg. M”), is to ensure that lessees of automobiles receive meaningful disclosures that enable them to compare lease terms with other leases and, where appropriate, with credit transactions. 

•The CLA and Reg. M also regulate the amount of default and early termination fees that may be charged, as well as require the accurate disclosure of lease terms in advertising.

Sample compliance issues that may arise under the CLA & Reg. M:

•Required disclosures;

•Events triggering re-disclosure;

•Renegotiation and extension disclosures;

•Rent charge issues;

•Estimation of fees and taxes issues;

Correction of inaccurate disclosures;

Gramm-Leach-Bliley Act (GLBA)

The Gramm-Leach-Bliley Act (“GLBA”) governs the treatment of consumers’nonpublic personal information (“NPI”).  GLBA requires financial institutions, which include dealers and sales finance companies:

•to provide notice to customers about their privacy policies and practices;

•describes the conditions under which a financial institution may disclose NPI about consumers to nonaffiliated third parties; and

•provides a method for consumers to prevent a financial institution from disclosing that information to most nonaffiliated third parties.

USA PATRIOT Act

•The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”) was enacted in 2001 to deter and punish terrorist acts in the United States and around the world and to enhance law enforcement investigatory tools. 

•The purpose of the USA PATRIOT Act is to prevent terrorism, in part, by detecting, monitoring and preventing the financing of terrorist activities.

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UDAAP VS UDAP

UDAP: Unfair, Deceptive Acts Examples include misleading advertising, charging hidden fees, or taking advantage of vulnerable consumers. (based on state laws)

UDAAP:Acts or practices that are unfair, deceptive, or abusive towards consumers, as identified by the Consumer Financial Protection Bureau (CFPB).

example: everything UDAP covers + exploiting a customers confusion or lack of understanding, and unfairly taking advantage of their circumstances. (CFPD = Federal Law)

Hot Spot

A compliance hotspot is where things are most likely to go wrong — or get the company in trouble with regulators like the FTC, CFPB, IRS, OSHA, EPA, or others, depending on the industry.

FTC= Federal Trade Commission: Watches for false advertising, bait-and-switch tactics, deceptive financing terms, or misuse of customer data.

CFPB= Consumer Financial Protection Bureau: Oversees financing, disclosures, lending discrimination and consumer protections in financial services.

What is an Adverse Action Notice?

It’s a document that explains to the applicant:

1. That credit was denied (or other negative action was taken),

2. The main reasons for the denial or unfavorable terms, and

3. Their rights under federal law (usually under the Equal Credit Opportunity Act [ECOA] or Fair Credit Reporting Act [FCRA]).

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💬 When Must It Be Given?

• Within 30 days of receiving a completed credit application.

• Also required if:

  • Credit is offered on worse terms than requested.

  • An existing account is closed or credit is reduced.

IRS Cash Reporting Rule

The IRS Cash Reporting Rule requires businesses — including automobile dealerships — to file Form 8300 when they receive more than $10,000 in cash from a customer in a single transaction or in related transactions within 15 days of receiving the cash.

✅ Cash equivalents if under $10,000 and used in a transaction over $10,000:

• Cashier’s checks

• Money orders

• Bank drafts

• Traveler’s checks

❌ NOT cash:

• Personal checks

• Credit card payments

• Wire transfers

• Bank-financed loans

Acceleration Clause

An acceleration clause protects the creditor’s ability to recover funds quickly after a default — and it’s a standard part of most vehicle finance contracts.

Office of Foreign Assets Control (OFAC)

•The Office of Foreign Assets Control (“OFAC”) is unit of the U.S. Department of Treasury. 

•The OFAC was created in December 1950 after China entered the Korean War to block Chinese and North Korean assets subject to U.S. jurisdiction. 

•The primary purpose of the OFAC is to administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals against terrorists, drug traffickers and other threats to the national security, foreign policy or economy of the United States. 

Magnuson Moss Warranty Act

•MagMoss regulates warranties on consumer products.

•Purpose is to make warranties on consumer products more readily understood and enforceable and to provide FTC with means to protect consumers.

•MagMoss imposes a number of specific disclosure requirements in connection with written warranties.

•Warrantors and sellers must ensure written warranties are available where consumer goods are sold so consumers can read before making a purchase.