What has to be disclosed before a credit sale closes

Form and timing come before content

The rules govern how the disclosures appear before they govern what they say, and the form requirements are unusually prescriptive.

The creditor has to make them clearly and conspicuously in writing, in a form the consumer may keep. Electronic delivery is permitted subject to the federal electronic signatures statute's consent requirements.

They have to be grouped together, segregated from everything else, and must not contain information not directly related to the required disclosures. A handful of named items may be given together with or separately from the rest, including the creditor's identity and certain insurance and security interest disclosures.

Two terms have to stand out. Where "finance charge" and "annual percentage rate" are required to be disclosed together with a corresponding amount or rate, they have to be more conspicuous than any other disclosure, with the creditor's identity the only exception.

On timing, the default is short: the creditor has to make the disclosures before consummation of the transaction. Special rules exist for mortgages, variable-rate transactions and private education loans, and there are two delay provisions covered below.

The list itself

The content requirement is a list, disclosed as applicable, and reading it as a list is the most useful thing a buyer can do with it.

The identity of the creditor making the disclosures. The amount financed, using that term, with a brief description such as the amount of credit provided to you or on your behalf, computed by taking the principal or the cash price less any down payment, adding other amounts financed that are not part of the finance charge, and subtracting any prepaid finance charge.

An itemization of the amount financed, showing proceeds distributed directly to the consumer, amounts credited to the consumer's account with the creditor, amounts paid to other persons on the consumer's behalf with those persons identified, and the prepaid finance charge. A creditor need not provide it if it instead states the consumer's right to receive a written itemization, gives a space to indicate whether it is wanted, and the consumer does not ask.

The finance charge, using that term, with a brief description such as the dollar amount the credit will cost you. The annual percentage rate, using that term, with a description such as the cost of your credit as a yearly rate; a stated small-transaction exemption removes that item where both the finance charge and the amount financed fall below named thresholds.

The payment schedule, meaning the number, amounts and timing of payments scheduled to repay the obligation. The total of payments, using that term, with an explanation such as the amount you will have paid when you have made all scheduled payments.

In a credit sale, the total sale price, using that term, described as the total price of the purchase on credit including the down payment.

The items about what goes wrong, and what it costs to leave early

Four items on the list describe the parts of a deal that only matter later, and they are the ones most often skimmed.

Prepayment. Where the finance charge is computed by applying a rate to the unpaid principal balance, the disclosures have to state whether or not a charge may be imposed for paying all or part of the principal before it is due. Where the finance charge is of another kind, they have to state whether the consumer is entitled to a rebate of any finance charge on prepayment in full or in part.

Late payment. Any dollar or percentage charge that may be imposed before maturity due to a late payment has to be disclosed, other than a deferral or extension charge.

Security interest. The fact that the creditor has or will acquire a security interest in the property purchased as part of the transaction, or in other property identified by item or type.

Contract reference. A statement that the consumer should refer to the contract document for information about nonpayment, default, the right to accelerate the maturity of the obligation, and prepayment rebates and penalties.

That last item is worth reading for what it concedes. The disclosure sheet is not the agreement. It is a standardised summary that points at the agreement for the terms governing what happens when payments stop.

The mail and telephone order exception

Anyone buying online has a direct interest in one paragraph of the timing rule.

Where a creditor receives a purchase order or a request for an extension of credit by mail, telephone or facsimile, without face-to-face or direct telephone solicitation, the creditor may delay the disclosures until the due date of the first payment.

That permission is conditional. Certain information for representative amounts or ranges of credit has to be made available in written or electronic form to the consumer, or to the public, before the actual purchase order or request. The listed items include the cash price or principal loan amount, the total sale price, the finance charge, the annual percentage rate with variable-rate details where the rate can increase, and the terms of repayment.

A second delay provision covers a series of sales. Where a credit sale is one of a series made under an agreement providing that subsequent sales may be added to an outstanding balance, the creditor may delay the required disclosures until the due date of the first payment for the current sale, subject to conditions.

The practical reading is that in a distance sale, published representative terms can substitute for a pre-purchase disclosure sheet. So the terms a buyer sees before ordering may be a representative range rather than the numbers for their own transaction, and the transaction-specific set arrives later.

Estimates, later events, and what the disclosures do not promise

Two provisions govern accuracy, and they cut in opposite directions.

The disclosures have to reflect the terms of the legal obligation between the parties. Where information necessary for an accurate disclosure is unknown to the creditor, the creditor discloses on the best information reasonably available at the time and has to state clearly that the disclosure is an estimate.

On the other side, if a disclosure becomes inaccurate because of an event that occurs after the creditor delivers it, the inaccuracy is not a violation, though new disclosures may be required under other provisions. Where disclosures are given early and a subsequent event makes them inaccurate, the creditor has to disclose again before consummation.

The rules also permit certain roundings and irregularities to be disregarded in the calculations, including the fact that payments are collected in whole cents, that scheduled dates may shift off non-business days, that months differ in length, and leap years, along with defined tolerances for an irregular first period.

The honest summary for a buyer is that the disclosure regime standardises the vocabulary and the layout of a credit offer. It makes two offers comparable on the same named terms. It does not make an offer good, and it does not decide whether an instalment plan is the right way to buy anything.

The cost of stopping, the renewal behaviour and the total actually paid over the life of the arrangement still have to be read off the contract the disclosures point at.

Sources

Each document below is named as it names itself, with the date printed on that document rather than the day it was read.

1. Title 12 Code of Federal Regulations Section 1026.17, General disclosure requirements, Regulation Z, read paragraph (a) through paragraph (h) — form and segregation at (a)(1), the conspicuousness rule at (a)(2), timing at (b), the legal-obligation and estimate rules at (c), the effect of subsequent events at (e), early disclosures at (f), the mail or telephone order delay at (g) and the series of sales delay at (h) — Electronic Code of Federal Regulations, Office of the Federal Register, December 2013
2. Title 12 Code of Federal Regulations Section 1026.18, Content of disclosures, Regulation Z, read paragraph (a) through paragraph (p) — creditor, amount financed and its computation, itemization and the right-to-request alternative, finance charge, annual percentage rate, variable rate, payment schedule, total of payments, demand feature, total sale price, prepayment, late payment, security interest, insurance and debt cancellation, and the contract reference statement — Electronic Code of Federal Regulations, Office of the Federal Register, December 2013
3. United States Code Title 15, Section 1638, Transactions other than under an open end credit plan — read at subsection (a), paragraphs (1) through (19), including the amount financed and the right to a written itemization at (a)(2)(B), the finance charge at (a)(3), the annual percentage rate at (a)(4), the total of payments at (a)(5), the payment schedule at (a)(6) and the total sale price at (a)(7), 2024 Main Edition — Office of the Law Revision Counsel, U.S. House of Representatives, January 2025