The federal Truth in Lending Act (TILA) protects consumers in their dealings with lenders by requiring full disclosure of the cost of credit. Full disclosure allows consumers to shop around for the best deal. Under TILA, information about that must be revealed includes the term of the loan, the total amount of the loan, the annual interest rate and the number, amount and due dates of all payments.

In most financed auto sales, the dealer initially acts as the bank because they write a Retail Installment Sale Contract. However, the dealer almost immediately sells the car loan to the actual
bank. Because the dealer was the one to initially offer the credit, the dealer is required to give the TILA disclosures.

The most common form of TILA violation found in auto sales is the hidden or disguised finance charge. In this situation, the cost of purchase is greater to a credit buyer than a cash buyer.
However, the difference in the cost is hidden in the sale by things like GAP insurance, extended third party warranties and other add-ons. These hidden costs are not included in the TILA disclosure and thus violate the law. Under TILA, an aggrieved consumer can sue for up to $2,000 is statutory damagers, actual damages and attorneys’ fees.