Sunday, September 18, 2011

Truth-in-Lending for Contractors

Most contractors don’t get into the money-lending business – at least not on purpose. Contractors want to be paid in full when the work is done. But at least occasionally, you’re going to bump into the Federal Truth-in-Lending (T-I-L) Act.  Here’s how it happens:

You’re bidding a job for a homeowner and:
  • Offer to take an IOU for part of the job, OR
  • Agree to stretch out payments after work is done, OR
  • Recommend a lender.
On purpose or by accident, that puts your bid under the T-I-L Act. Fail to make the required disclosures and you’re liable for both the overcharges and your client’s attorney fees. That’s not what any contractor wants.

Offering credit is powerful stuff. It can help close any deal. Everyone knows that. And it’s just as true for construction work as it is for any major purchase. Banks, finance companies and car dealers are good at T-I-L compliance. That’s their business. You’ve seen the pages of fine print. If you want to offer credit as part of your proposal, here’s what T-I-L requires:
  • The name of the creditor.
  • The cash price if paid on completion.
  • The down payment and all other payments prior to completion.
  • Any other charges, fees, credits or deductions.
  • The interest rate on the amount financed.
  • The amount financed.
  • The finance charge in dollars.
  • The annual percentage rate (APR) used to figure the finance charge.
  • The number of payments.
  • The amount of each payment.
  • The due date for each payment.
  • The total of all payments.
  • The total sale price including the finance charge.
  • The charge for late payments.
  • The pre-computed finance charge, if any.
  • Whether there is a prepayment penalty.
  • Whether the loan is assumable.
  • What secures the loan.
  • When the finance charge begins to accrue.
Note that these disclosures have to be in the construction contract any time you recommend a lender – even if T-I-L disclosures are also in the note prepared by the lender.

Most contractors aren’t eager to deal with this level of detail. You’re well advised to get help the first time you venture into T-I-L territory. One good source: Construction Contract Writer does all the work for you – figuring the APR and making all required disclosures right in the construction contract.

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