Today's Trends in Credit Regulation

Preparing Multiple Contracts? Think Again.
By Thomas B. Hudson

Occasionally, I’ll be conducting a dealer compliance audit and will open a deal jacket that will have two or three fully executed retail installment sales contracts, all with different terms. Because the terms of the transactions are different, the federal disclosures that are built into most retail installment contracts will be different as well.

When I ask why multiple contracts are contained in the deal jacket, I’m frequently told something like, “We don’t know which finance company will buy the deal, so we do different deals to reflect the terms required by the various companies that buy our paper.”

That leads to a lengthy explanation of why the practice is a very bad idea, logically unsound, and in violation of a number of state and federal laws.

Here’s an example of the sort of mischief that can result from multiple disclosures.

Martha Young refinanced her home in 2007. At the closing, the closing agent presented her with three versions of the Truth in Lending Act disclosures. One was dated July 2, 2007, one was dated July 10, 2007, and one was dated the date of the closing, July 19, 2007.

The final disclosure accurately disclosed the information for the loan Young received. The closing agent gave Young the final version to take home and kept the earlier versions. Each version contained different information. The earlier versions were presumably copies of disclosures delivered to Young during the application stage that the creditor wanted signed for recordkeeping purposes.

The loan was eventually assigned to One West Bank, FSB. Young sued the bank in the U.S. District Court for the District of Oregon to rescind the loan under the Truth in Lending Act and for damages under TILA.

The bank moved for summary judgment, arguing that Young had no case. The bank argued that the creditor complied with TILA because the final version was accurate.

The court denied the motion. The court found that the creditor failed to provide “clear and conspicuous” disclosures of the loan terms. The court stated that nothing in the record indicated that the creditor attempted to explain to Young why she was asked to sign different versions of the disclosure. According to the court, a reasonable consumer would not notice and understand the information in the final version if the consumer was asked to sign several versions containing different information without any explanation of why she received different versions.

It is not clear if the court would have been satisfied if the record showed that the closing agent explained that the creditor wanted Young to sign the earlier versions simply to acknowledge receipt of disclosures that had been delivered to her during the application process, but that the final version was the version that applied to the closing itself.

Remember that compliance with the federal Truth in Lending Act is your responsibility, even if you assign your contracts to a bank or sales finance company. If your company prepares multiple contracts, you should pay attention to this case and address the issue with your lawyer.

Young v. One West Bank, FSB, 2012 U.S. Dist. LEXIS 46561 (D. Or. March 30, 2012).

Thomas B. Hudson is a partner in the Maryland office of Hudson Cook, LLP. Tom can be reached at 410-865-5411 or by email at

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