June 5, 1986
|FROM:||George A. Markert, Assistant Director
|RE:||Federal Trade Commission Credit Practices Rule|
Certain provisions of the Federal Trade Commission Credit Practices Rule (Federal Register, Vol. 49, No. 42, March 1, 1984, pp. 7789-90) may apply to your court, particularly to claim and delivery actions when the lenders attempt to gain possession of household goods, given as security for loans, upon default in payment of the loans. Generally, household goods in the possession of the consumer may not be used as collateral for a loan, unless that loan was for the purchase of those household goods. For example, "furniture" is a household good. If I buy a sofa from XYZ Furniture Company, that furniture company may take a security interest in that sofa, and later repossess it should I not make payments on it, provided no relevant State or Federal statutes (truth-in-lending, deceptive trade practices, etc.) have been violated. The XYZ Furniture Company may assign its interest to a credit company, and the credit company would have the same rights as the furniture company. However, should I decide that I need ready cash, and borrow money from ABC Finance Company, ABC Finance Company may not take a security interest in the sofa.
Please pay close attention to the definitions found in this Rule. In particular, please note that household goods include:
personal effects (including wedding rings)
of the consumer and his or her dependents. Household goods do not include:
works of art
electronic equipment (except one TV and one radio)
jewelry (except wedding rings)
The Federal Rule also prevents collection of certain late charges (§ 444.4). As an example, assume I purchase a washing machine from XYZ Furniture Company and agree to make payments of $50 per month. I miss my January payment (which was due on January 5, with late charges of $2.50 payable after January 10). On February 5, I make a $100 payment (for the months of January and February). XYZ Furniture Company may assess a penalty for the late January payment but may not assess a penalty for the February payment. Creditors used to reason that the failure to pay the January late charges created a continuing delinquency.
I would also call your attention to the provisions protecting co-signors of notes, and the requirements that creditors give notice to co-signors of their potential liabilities, before the obligation is signed.