Regulation Z, also known as TILA or the Truth in Lending Act, is an important financial regulation car dealers must be aware of. TILA requires that all lenders explain the terms of loans in a format that consumers can easily understand, and which can be easily compared to other offers.

Prior to the Truth in Lending Act, it was hard for consumers to understand how different credit offers compared to each other, because credit could be offered under very different terms and expressions of rates. Now under TILA, lenders must provide a TIL disclosure statement which explains the size of the loan, the APR (annual percentage rate), all finance charges, a payment schedule, and the total amount to be paid through the lifetime of the loan.

Virtually all automotive dealerships will be subject to compliance with Regulation Z. If your dealership extends credit to customers, which almost all do, you must ensure that the details of your credit offer comply with TILA requirements. You must offer written disclosures that correctly summarize all finance charges including application fees, service fees, late fees, prepayment charges, and so forth.

Automotive managers without experience in TILA compliance may be tempted to create financing packages and promotions that are overly attractive to consumers, and mask hidden fees and other costs. It’s important to understand that not only is this unethical, it is a serious violation of federal law which can lead to aggressive penalties.

The automotive industry is one of the most heavily regulated industries in the country, and this is especially true in terms of automotive finance. Federal regulators are proactive in finding and penalizing dealers in violation of Regulation Z. Just being “honest” with customers is not enough. Your lending practices must specifically comply with TILA to be legal.


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