Kelli is in the market to buy a new-to-her Electric Vehicle because the cost of gas is almost unaffordable. Kelli sees an ad for used EVs on sale through an online car sales website and initiates a sales transaction through the website. Using the reading materials below and outside sources, discuss what must be disclosed to Kelli if she should wish to obtain a loan to pay for one of the EVs on the lot. Are there any limits on the cost of the loan for Kelli?

The amount of consumer debt, or household debt, owed by Americans to mortgage lenders, stores, automobile dealers, and other merchants who sell on credit is difficult to ascertain. One reads that the average household credit card debt (not including mortgages, auto loans, and student loans) in 2009 was almost $16,000.Ben Woolsey and Matt Schulz, Credit Card Statistics, Industry Statistics, Debt Statistics, August 24, 2010, http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics- 1276.php. This is "calculated by dividing the total revolving debt in the U.S. ($852.6 billion as of March 2010 data, as listed in the Federal Reserve's May 2010 report on consumer credit) by the estimated number of households carrying credit card debt (54 million)." Or maybe it was $10,000.Deborah Fowles, "Your Monthly Credit Card Minimum Payments May Double," About.com Financial Planning, http://financialplan.about.com/od/creditcarddebt/a/CCMinimums.htm. Or maybe it was $7,300.Index Credit Cards, Credit Card Debt, February 9, 2010, http://www.indexcreditcards.com/creditcarddebt. But probably focusing on the average household debt is not very helpful: 55 percent of households have no credit card debt at all, and the median debt is $1,900. Liz Pulliam Weston, "The Big Lie about Credit Card Debt," MSN Money, July 30, 2007. In 2007, the total household debt owed by Americans was $13.3 trillion, according to the Federal Reserve Board. That is really an incomprehensible number: suffice it to say, then, that the availability of credit is an important factor in the US economy, and not surprisingly, a number of statutes have been enacted over the years to protect consumers both before and after signing credit agreements. The statutes tend to fall within three broad categories. First, several statutes are especially important when a consumer enters into a credit transaction. These include laws that regulate credit costs, the credit application, and the applicant's right to check a credit record. Second, after a consumer has contracted for credit, certain statutes give a consumer the right to cancel the contract and correct billing mistakes. Third, if the consumer fails to pay a debt, the creditor has several traditional debt collection remedies that today are tightly regulated by the government. The Cost of Credit Lenders, whether banks or retailers, are not free to charge whatever they wish for credit. Usury laws establish a maximum rate of lawful interest. The penalties for violating usury laws vary from state to state. The heaviest penalties are loss of both principal and interest, or loss of a multiple of the interest the creditor charged. The courts often interpret these laws stringently, so that even if the impetus for a usurious loan comes from the borrower, the contract can be avoided, as demonstrated in Matter of Dane's Estate (Section 27.3 "Cases").Some states have eliminated interest rate limits altogether. In other states, usury law is riddled with exceptions, and indeed, in many cases, the exceptions have pretty much eaten up the general rule. Here are some common exceptions: Business loans. In many states, businesses may be charged any interest rate, although some states limit this exception to incorporated businesses. Mortgage loans. Mortgage loans are often subject to special usury laws. The allowable interest rates vary, depending on whether a first mortgage or a subordinate mortgage is given, or whether the loan is insured or provided by a federal agency, among other variables. Second mortgages and home equity loans by licensed consumer loan companies. Credit card and other retail installment debt. The interest rate for these is governed by the law of the state where the credit card company does business. (That's why the giant Citibank, otherwise headquartered in New York City, runs its credit card division out of South Dakota, which has no usury laws for credit cards.) Consumer leasing. "Small loans" such as payday loans and pawnshop loans. Lease-purchases on personal property. This is the lease-to-own concept. Certain financing of mobile homes that have become real property or where financing is insured by the federal government. Loans a person takes from her tax-qualified retirement plan. Certain loans from stockbrokers and dealers. Interest and penalties on delinquent property taxes. Deferred payment of purchase price (layaway loans). Statutory interest on judgments. And there are others. Moreover, certain charges are not considered interest, such as fees to record documents in a public office and charges for services such as title examinations, deed preparation, credit reports, appraisals, and loan processing. But a creditor may not use these devices to cloak what is in fact a usurious bargain; it is not the form but the substance of the agreement that controls. As suggested, part of the difficulty here is that governments at all levels have for a generation attempted to promote consumption to promote production; production is required to maintain politically acceptable levels of employment. If consumers can get what they want on credit, consumerism increases. Also, certainly, tight limits on interest rates cause creditors to deny credit to the less creditworthy, which may not be helpful to the lower classes. That's the rationale for the usury exceptions related to pawnshop and payday loans. Disclosure of Credit Costs Setting limits on what credit costsas usury laws dois one thing. Disclosing the cost of credit is another. The Truth in Lending Act Until 1969, lenders were generally free to disclose the cost of money loaned or credit extended in any way they saw fitand they did. Financing and credit terms varied widely, and it was difficult and sometimes impossible to understand what the true cost was of a particular loan, much less to comparison shop. After years of failure, consumer interests finally persuaded Congress to pass a national law requiring disclosure of credit costs in 1968. Officially called the Consumer Credit Protection Act, Title I of the law is more popularly known as the Truth in Lending Act (TILA). The act only applies to consumer credit transactions, and it only protects natural-person debtorsit does not protect business organization debtors. The act provides what its name implies: lenders must inform borrowers about significant terms of the credit transaction. The TILA does not establish maximum interest rates; these continue to be governed by state law. The two key terms that must be disclosed are the finance charge and the annual percentage rate. To see why, consider two simple loans of $1,000, each carrying interest of 10 percent, one payable at the end of twelve months and the other in twelve equal installments. Although the actual charge in each is the same$100the interest rate is not. Why? Because with the first loan you will have the use of the full $1,000 for the entire year; with the second, for much less than the year because you must begin repaying part of the principal within a month. In fact, with the second loan you will have use of only about half the money for the entire year, and so the actual rate of interest is closer to 15 percent. Things become more complex when interest is compounded and stated as a monthly figure, when different rates apply to various portions of the loan, and when processing charges and other fees are stated separately. The act regulates open-end credit (revolving credit, like charge cards) and closed-end credit (like a car loanextending for a specific period), andas amended laterit regulates consumer leases and credit card transactions, too. Figure 27.1 Credit Disclosure FormBy requiring that the finance charge and the annual percentage rate be disclosed on a uniform basis, the TILA makes understanding and comparison of loans much easier. The finance charge is the total of all money paid for credit; it includes the interest paid over the life of the loan and all processing charges. The annual percentage rate is the true rate of interest for money or credit actually available to the borrower. The annual percentage rate must be calculated using the totalfinance charge (including all extra fees). See Figure 27.1 "Credit Disclosure Form" for an example of a disclosure form used by creditors. Consumer Leasing Act of 1988 The Consumer Leasing Act (CLA) amends the TILA to provide similar full disclosure for consumers who lease automobiles or other goods from firms whose business it is to lease such goods, if the goods are valued at $25,000 or less and the lease is for four months or more. All material terms of the lease must be disclosed in writing. Fair Credit and Charge Card Disclosure In 1989, the Fair Credit and Charge Card Disclosure Act went into effect. This amends the TILA by requiring credit card issuers to disclose in a uniform manner the annual percentage rate, annual fees, grace period, and other information on credit card applications. Credit Card Accountability, Responsibility, and Disclosure Act of 2009 The 1989 act did make it possible for consumers to know the costs associated with credit card use, but the card companies' behavior over 20 years convinced Congress that more regulation was required. In 2009, Congress passed and President Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the Credit Card Act). It is a further amendment of the TILA. Some of the salient parts of the act are as follows: Restricts all interest rate increases during the first year, with some exceptions. The purpose is to abolish "teaser" rates. Increases notice for rate increase on future purchases to 45 days. Preserves the ability to pay off on the old terms, with some exceptions. Limits fees and penalty interest and requires statements to clearly state the required due date and late payment penalty. Requires fair application of payments. Amounts in excess of the minimum payment must be applied to the highest interest rate (with some exceptions). Provides sensible due dates and time to pay. Protects young consumers. Before issuing a card to a person under the age of twenty-one, the card issuer must obtain an application that contains either the signature of a cosigner over the age of twenty-one or information indicating an independent means of repaying any credit extended. Restricts card issuers from providing tangible gifts to students on college campuses in exchange for filling out a credit card application. Requires colleges to publicly disclose any marketing contracts made with a card issuer. Requires enhanced disclosures. Requires issuers to disclose the period of time and the total interest it will take to pay off the card balance if only minimum monthly payments are made. Establishes gift card protections.Consumers Union, "Upcoming Credit Card Protections,"