One of the bad things about being a lawyer is that, well, sometimes you sound like a lawyer. Nobody, especially me, wants to read pages of legal jargon that could easily be stated in a single, comprehensible sentence. Unfortunately, that is not always possible because most of us have to deal with the laws after they are written and writing laws can be a 
messy business. I provide you, loyal readers, with this warning because as issues with laws pertaining to transactional documents are reviewed in detail, it becomes apparent why they say that there are two things you never want to see made: laws and sausages (originally attributed to Otto Von Bismarck, but repeated by just about every politician thereafter).
Again, in true lawyerly style, the answer is sort of. The law applies to those issuing credit. But were it that easy, people wouldn’t need lawyers, and I shudder to think of a world without lawyers. As you might have guessed, the devil is in the details, and the detail here are a tad foggy. Foggy enough that not every nuance can be covered in this article, so if you need more information, feel free to contact me.
The elusive answer to our seemingly simple question starts with Subpart A of Part 226 of Title 12, let’s just call it Reg Z. In Part 226.1(c)(1) we are instructed that “this regulation applies to each individual or business that offers or extends credit…” There are then four conditions, that I am paraphrasing) that must be met for the law to apply: 1) the credit must be extended to consumers, 2) the credit must be offered regularly, 3) the credit is payable with interest or in more than four installments and 4) the credit is for consumers (as opposed to businesses). OK. Not real neat and clean, but not sausage either.
Wait. What does it mean to offer credit regularly? My kids borrow money from me all the time, so am I covered under Reg Z? Of course not. First, my kids never pay me back (they did try to pay me with mortgage backed derivatives, but only a 7 year old would fall for that, right?). Besides being ripped off by my kids, there is more to this coverage issue.Credit Card issuers are covered under certain provisions even if the four criteria are not met. Credit cards issued to businesses are bound by certain provisions of Reg Z. So are some entities who don’t actually provide credit, but who provide applications for home-equity credit. You can find that in section 226.5b (if you’re really bored).
And what about foreign lenders (which was the question at ccctoday.com that prompted this post)? The comments right now indicate that the law will be binding on foreign lenders doing business in the United States, just like they are now. But this is a rolling implementation and everything is subject to change. For example, credit unions were exempted from some of these laws as recently as February 1, 2010
Well, I hope that clears every thing up for all of you out there on the internets. Seriously, the fact is these laws create many questions, perhaps even more than they answer. And it will take some time to shake out the bugs from these complex, occasionally conflicting, consistently confusing statutes and regulations. This will get clearer as we hit the implementation deadlines and the Federal Reserve Board issues interpretive opinions. In the meantime, we will continue to examine the many aspects of these laws, how you can use this time of change as an opportunity to improve your customer communications, improve your bottom line and remain in compliance with whatever they throw at us!
In closing, if you take just one thing away from this article, it should be that if your business issues credit in the US in any way, shape or form, you had better get some advice on the compliance issues you face. That is what we do at White Space Marketing, though we look at the legal issues with a focus on TransPromo, marketing and customer communications. Don’t face this alone. There are good attorneys and consultants who can help you navigate these treacherous waters and sail into a safe, calm and profitable harbor.
Thanks for reading this article. If I can answer any questions, please feel free to contact me or leave a comment.
