A finance agreement is a legally binding contract between two parties. One party to the contract agrees to provide the other with money and the other party agrees to repay the loan with interest. The loan is usually provided so that the borrower can complete the purchase of an asset. For example, the purchase of a car would be completed through a finance agreement in which the purchaser of the car is the borrower and the car dealer is the lender.
Finance agreements are used by consumers so they can buy big-ticket items for which they do not have enough cash on hand. They are also used by businesses if spending on expansion or purchasing expensive new equipment is part of their business plan.
The finance agreement document should include details on how much money the borrower receives under the agreement, what interest rate is charged on the loan, and when payments are due. Of course, the agreement would also spell out what would happen in the event the borrower defaults on their payments.
Indiana law regulates consumer finance agreements so as to protect consumers from possible abuses. An Indiana lawyer consultation would help a person understand exactly what a finance agreement is and how to protect their interests if they want to enter into one.
What Are Indiana-Specific Finance Agreement Requirements?
Indiana has a number of finance agreement laws that regulate consumer finance agreements in a number of ways. Specifically, Indiana has adopted the Uniform Consumer Credit Code (UCCC), which applies to a variety of consumer credit transactions. Among its provisions are the following:
- The interest rate and other finance charges that can be collected from a borrower are limited. Also, excessive fees are prohibited.
- Transparency and full disclosure of all terms and conditions are required.
- Precomputed loans are prohibited in Indiana, because they result in unfair charges if the borrower pays the loan off early.
- There are limits on non-refundable prepaid finance charges. This prevents lenders from collecting excessive upfront costs from the borrower.
What Types of Finance Agreements Are Recognized in Indiana?
The Indiana UCCC applies to consumer credit transactions. Specifically, it applies to the following:
- Consumer Loans: Consumer loans include credit extended to individuals as opposed to businesses for personal, family, or household purposes. Usually, a finance charge is collected by the lender if the debt is payable in more than 4 installments. Examples of consumer loans are payday loans, agreements to finance buying a car, and unsecured personal loans.
- The federal Truth in Lending Act (TILA) and the Indiana UCCC require retail installment contracts offered by retail outlets such as appliance and furniture stores to clearly inform borrowers of all financing terms.
- Retail Installment Contracts: A retail installment contract is a legal document in which a buyer of some product promises to pay for the product in periodic payments over a defined period of time, e.g., monthly payments for 3 years. These contracts are governed by the federal TILA and the Indiana UCCC in order to protect consumers. The federal TILA requires lenders to disclose the terms of any agreement in order to prevent deceptive practices. The agreement should include a detailed breakdown of the payment schedule, the interest rate, and any additional fees that are charged.
- Revolving Charge Accounts: A revolving account gives a borrower spending flexibility with an open credit line up to a maximum specified limit.
- Some kinds of revolving credit, e.g., credit cards, remain available to a consumer indefinitely. Other types, such as home equity lines of credit (HELOCs), may have a fixed term. At the end of the term, a consumer cannot borrow from their HELOC.
- “Revolving credit” is a term that refers to credit options that offer changing balances, e.g., a credit card. A person may pay a minimum payment monthly and the balance they owe may change from month to month. Credit cards, personal lines of credit, and home equity lines of credit (HELOCs) are all usually revolving accounts.
- Consumer Leases under $50,000 Not Secured by Real Property: These are lease agreements for items that are not real estate, e.g., car leases, leases of furniture, or leases of equipment, e.g., generators. They are usually for a term of more than 4 months, but the exact term depends on the product leased. The lease provides for payment on a regular basis, often monthly, and may include other charges and fees, e.g., late payment fees.
Certain provisions of the Indiana UCCC define the kinds of credit arrangements to which it applies. There are other types of finance agreements, for example, agreements between a lender and a business, but they are not covered by the UCCC. Rather, they would be subject to Indiana contract laws. Of course, Indiana contract law also applies to consumer finance agreements.
Consumer loans include credit extended to individuals as opposed to businesses and are for personal, family, or household purposes. Common examples are payday loans, auto financing agreements, and unsecured personal loans. Retail installment contracts, the kind that provide financing for the purchase of furniture or appliances, require sellers to disclose all financing terms clearly to the borrower.
Leases structured as consumer credit transactions, including rent-to-own agreements for real property, are also regulated to prevent lenders from disguising loans as leases to get around consumer protections. The Indiana UCCC also applies to some financing agreements for home renovation projects. Some contractors offer financing for projects to homeowners, and they are subject to UCCC regulation to protect homeowners from predatory lending.
What Is Contained in a Finance Agreement?
According to the Indiana UCCC, lenders must provide clear and accurate disclosures under the federal Truth in Lending Act (TILA). The Indiana UCCC incorporates the TILA. This ensures that a consumer receives a detailed disclosure of interest rates, finance charges, the terms of repayment of a loan and any other fees. This information must be disclosed before a consumer commits to a loan agreement.
A finance agreement is also likely to include terms and conditions about what can happen if a dispute arises or the borrower fails to make payments as the agreement provides. These provisions can be of great importance to a consumer. An individual who is planning to sign a finance agreement would be well-advised to consult an Indiana lawyer to review any finance agreement they may be thinking of signing.
What Are Some Legal Issues Associated with a Finance Agreement in Indiana?
It is important for consumers to know that Indiana law prohibits precomputed loans. In a precomputed loan arrangement, the lender calculates the total interest that will be charged on a loan in the beginning when the loan is initiated. This is different from non-precomputed loans, in which interest is computed as payments are made and the principal amount owed is reduced.
Basically, the amount of interest a borrower pays on a precomputed loan is higher than the interest that is paid on a loan for which the interest is calculated in the usual manner.
A precomputed loan is made up of:
- The amount the borrower receives, the amount financed
- The interest for the loan term precomputed at the beginning of the loan term
- Any prepaid finance charges the lender may charge, e.g. a loan origination fee.
These amounts, the loan amount financed, the precomputed interest and any prepaid finance charges, are added together to establish the beginning account balance. A borrower’s monthly loan payment would be this beginning balance divided into their periodic loan payments.
A consumer borrower in Indiana would want to question their lender to make sure the interest on any loan to which they agree is not precomputed.
Is a Damages Award Available?
A lender’s violation of a provision of the UCCC can lead to both financial and even criminal consequences for the lender. Borrowers can go to court and sue for a money damages award for such violations as the failure to disclose terms, charging unauthorized fees, or deceptive practices.
A borrower could be awarded money damages to compensate them for their actual economic losses, statutory damages, and attorney’s fees. Courts may impose three times actual damages if proven violations are intentional.
The Indiana Department of Financial Institutions can revoke or suspend a lender’s license if they engage in conduct that amounts to fraud or such abusive practices as duress. A lender can be required to pay an administrative fine of as much as $10,000 per violation.
In extreme cases, criminal charges may be brought against a lender for such criminal offenses as knowingly charging usurious interest rates or falsifying loan documents. Misdemeanor or felony criminal charges are possible.
Do I Need a Lawyer for a Financial Agreement in Indiana?
There are more complications to consumer lending than are mentioned here. If you are thinking of taking out a consumer loan, you want to consult an Indiana contract lawyer. Your lawyer can review any contract that has been presented to you by a lender. Your lawyer can tell if the contract complies with Indiana law and protects your rights. Your lawyer can also tell you exactly what kind of performance the contract will demand of you.
Or, if you are having a problem with a consumer loan, you also want to talk to an Indiana contract lawyer. Your lawyer can analyze your contract and tell you if its provisions violate Indiana law. They can tell you what steps you can take to protect your rights and get the relief you need from an oppressive loan deal.
