The focus of this Back To Basics Blog is consumer finance. And, the target audience is creditors. All consumer finance though is not the same. All creditors are not the same. Consumer finance takes many forms.

The common denominator of the consumer finance industry is that its loans and credit sales are for “personal, family and household use.” The breadth of such lending though continues to expand as the needs of consumers for financial services grow.

Today, we find consumer loans being made to finance elective dental and cosmetic procedures—often not covered by insurance. Other such loans are for pet care. And, yes, these are consumer transactions that require all the state and federal disclosures given in connection 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 come into play in the more traditional installment transactions do not apply to this type of lending. For example, the Military Lending Act would not have application to these loans as these loans are technically purchase money loans—that is, the proceeds are used to purchase the consumer services provided. (See What’s the Difference Between a Purchase Money Security Interest and a Non-Purchase Money Security Interest - and Why Does It Matter Anyway? for an explanation of purchase money lending.) These loans generally will not be 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 service provider’s office—the dentist, the physician, the veterinarian—at the point of sale. The transaction then can be an indirect loan financed by the provider, or a direct loan referral from the provider to a third-party consumer finance company. (See What is the Difference Between Direct Lending and Indirect Lending? for the distinction between direct and indirect lending.) In either event, the creditor must follow all the customary disclosure rules, including Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, GLB Privacy, Federal Trade Commission Trade Regulation Rules, Telephone Consumer Protection Act, as well as the various state and federal laws on record keeping and safeguarding of customer information. 

As the world continues to turn, creative practitioners will continue to expand the types of activity that come within the definition of “consumer financial services.” 

Please Note: This is the two hundred-eighteenth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.