One of the great offers sometimes made by retail installment sellers is a “same-as-cash” option. The concept here is that the consumer can pay for the goods or services over some defined period of time without incurring a finance charge, as long as the consumer keeps his or her end of the bargain. This is an attractive offer to many of us; and it is a proven winner in the world of retail sales marketing.

With this said, though, how does the installment seller go about disclosing the same-as-cash transaction to the consumer for Federal Truth-in-Lending disclosure purposes?  I’ve spent a considerable amount of time over the years reviewing just this question. Depending upon how the transaction option offer is presented, I’ve settled on a solution.

When the same-as-cash option is presented to the consumer conditioned upon the consumer’s compliance with specified repayment terms, the option is really one for the consumer to elect—that is, presuming that the consumer complies with the option offer conditions, he or she may exercise the option. That is, the option is one for the consumer to elect upon fulfillment of certain conditions—not one for the creditor to impose.

The legal obligation between the retail installment seller and the consumer is based on the initial contractual terms—generally calling for the repayment of the obligation in a specific number of payments, on certain dates with a finance charge—but with a “condition subsequent” contract term that if the consumer completely performs, the finance charge will be disregarded upon the consumer’s election. Whether the consumer complies with the option offer is dependent upon the consumer’s performance; and, only if the consumer performs is the same-as-cash option then available.

So, since the Truth-in-Lending Act requires disclosure in terms of the legal obligation, and since the legal obligation between the parties leaves to the consumer a unilateral right to exercise the same-as-cash option (assuming full compliance), the disclosures should be made as though the obligation will be repaid pursuant to the contract terms absent the exercise of the option offer.

This may not be a perfect disclosure solution, but I think that it is the safest way to make a closed-end disclosure of a same-as-cash option offer in connection with a retail installment sale.

Practice Pointer (for Retail Sellers and Indirect Lender Assignees):  Make certain that the terms of the “same-as-cash” option are clearly spelled out in the installment sales contract.

Please Note: This is the one hundred forty-fifth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.