Automotive loans can be a constructive way of supplementing your car payment as they are typically more affordable than financing. Still, before you sign on the dotted line and get that loan, it’s essential to know what laws protect you in case of a dispute.
What Laws Protect Car Buyers?
1. Equal Credit Opportunity Act – This law protects consumers in the credit realm. It requires that any entity that extends credit, such as a car dealership, does so without discrimination based on color, religion, or national origin. There are a few specific exceptions to this rule, however, such as insurance companies and secured lenders extending loans through collateral.
2. Truth in Lending Act – This act dictates what information must be disclosed by creditors before you make your purchase. For example, lenders must provide you with an estimate of all fees associated with the purchase and disclosure of any penalties for paying off a loan early. It also mandates that lenders disclose the monthly payment, any teaser or incentive interest rates, and all costs associated with your loan.
3. Federal Trade Commission – This agency regulates the sale and advertising of loans in the United States. If a car dealership is engaged in marketing tactics that trap consumers into purchasing a car they can’t afford, it could be against this law. This would be similar to the mortgage industry, where you are required to receive full disclosure of costs and estimate how long it may take to pay off your mortgage loan.
4. Consumer Finance Protection Bureau – Congress created this agency in the Dodd-Frank Act, which was created to protect consumers from abusive lending and other financial practices.
5. Automobile dealerships – In states governed by the National Automobile Dealers Association, 80% of car dealers must abide by a code of ethics, which includes “the obligation to sell only to a consumer creditworthy to acquire a motor vehicle that is needed for personal or family use and…comprehensive disclosure of all pertinent facts to the consumer.” More than 150 companies currently maintain this code, but some states still have their own rules and regulations governing car purchases.
6. Lemon laws – If a car has a defect that occurs within the first year and is deemed covered by Lemon Laws, you can return the car for a full refund as long as there’s nothing wrong with it besides the previous defect. The same applies if you can show that your vehicle has been damaged due to a known defect. If this occurs, it is essential to try to resolve the issue with the car dealership before returning it so that you can get reimbursed for any repairs already performed.
7. The Truth in Lending Act – This act requires that creditors disclose the finance charge and any other fees associated with your loan. The only thing they are not required to disclose is any options you may have to refinance the loan.
8. Fair Credit Reporting Act -This act requires that consumer credit reports not be used in a discriminatory way based on your race, religion, or national origin, among other categories. It also prohibits employers from denying you employment based on information found in your report.
9. Federal Trade Commission – This agency regulates the sale and advertising of loans in the United States. If a car dealership is engaged in marketing tactics that trap consumers into purchasing a car they can’t afford, it could be against this law. This would be similar to the mortgage industry, where you are required to receive full disclosure of costs and estimate how long it may take to pay off your mortgage loan.
