Ohio's Credit Laws
Signing a credit purchase slip or other sales contract can have major legal consequences, creating rights and liabilities for you as well as others. Treat your signature with the importance it deserves. Do not use it carelessly. If you are ever in doubt about signing a document, see an attorney before you sign it.
What documents are needed for installment purchases?
Most of us have bought merchandise on the "time payment" or "installment plan." Buying on the installment plan is the most common method of credit buying. When you buy an item such as a television set or car on the installment plan, you must sign certain papers before you can take the item. Some of these papers can be lengthy and hard to read. These papers may be one or a combination of legal documents: a retail installment sales contract, a security agreement, a conditional sales contract and/or a promissory note. A combination of these instruments may be found in the same paper. Sometimes you may be required to sign in more than one place.
What does a retail sales contract involve?
In Ohio, all retail installment sales contracts or agreements for the purchase of consumer goods must be in writing. The seller is required to give the buyer a copy of this document either when it is signed or when the goods are delivered. There is usually a statement in the contract whereby the buyer acknowledges receipt of a copy of it when it is signed. The receipt in the body of the contract that the buyer has signed is proof that the buyer has received a copy of the contract.
Certain details must appear in the written contract, including the price, down payment, cost of insurance (if any), finance charges, balance due under the contract and details of payments.
By law, a retail seller is allowed to collect certain finance charges. Many retail installment sales contracts provide for an additional charge or penalty against the buyer who is late in making a payment. There are restrictions about when this charge may be made and its amount. If charges are in excess of those allowed by law, the contract may be unenforceable against the buyer. If you believe you are being overcharged, it would be wise to contact an attorney.
What is a security agreement?
You may have heard the term "chattel mortgage," "conditional sale" or "security agreement." No matter what they are called, these documents are designed to create for the seller or lender a security interest in the goods that you are purchasing or are putting up as collateral for your loan.
This security interest is designed to ensure that you will pay your debt. The seller or lender, by obtaining such an interest, will have important rights, including the right to repossess (take back) the goods should you fall behind in your payments. The creation of this interest will normally not interfere with your keeping and using the goods unless or until they are repossessed.
What is a promissory note?
A promissory note is a written promise to pay a sum of money to another person or a company. This note may be sold to a finance company, a bank or an individual. The buyer of the note will generally acquire the same security interest in what you purchased as the original seller had before the note was sold. There are provisions that let you claim, in an action against you for non-payment of the note, legal defenses based on the seller's breach of warranty, fraud and breach of contract. In a consumer transaction, these legal defenses are as good against the buyer of the note as against the original creditor.
A promissory note usually provides that when you fail to pay an installment within a certain period after it is due, the entire balance may become immediately due and payable. This is called an acceleration provision.
Are "cognovit notes" legal?
"Cognovit" comes from a Latin word that means "he has acknowledged." Any paper containing such a note must have a clear warning clause in a conspicuous place that there is such a provision. The clause permits a judgment to be rendered against you when the note becomes due and payable. The language of such a clause authorizes an attorney to appear for you in court and confess judgment in your name in favor of the legal holder of the note for the amount that is due and for court costs. The judgment may be rendered without your being served a summons or given any other notice, and without any hearing or trial.
In Ohio, the "cognovit note" may not be used in consumer transactions or consumer loans executed on and after Jan. 1, 1974.
What if I can't make the payments?
Should you default in making your payments, the seller or lender has the legal right to repossess the goods that serve as collateral for the debt. After the seller has taken the goods back, they may be sold after notification to you, and you may find yourself liable for the difference between the price for which they are sold and the amount you still owe. The law gives you certain rights to redeem the collateral before the seller or lender disposes of it.
On the other hand, the seller or lender may, after notifying you, choose to keep the goods to satisfy your obligation. If the goods are "consumer goods" (that is, they are used or bought primarily for personal, family or household purposes), and you have paid at least 60 percent of the purchase price, the seller or lender may not keep the goods, but must sell them.
In any case, when goods you have purchased are repossessed, it would be wise to see your attorney. He or she can tell you what rights you have with respect to the goods or payments you have made.
If you fail to pay an installment, the seller or owner of the promissory note may, instead of repossessing the article you purchased, get a court judgment against you for the balance owed.
What about car insurance?
When automobiles are financed or sold on an installment plan, the seller or financing agency often requires you to insure against damage to the automobile so that the seller's or agency's secured interest in the vehicle is protected. Such insurance can be provided by an ordinary, full-coverage auto insurance policy.
If you fail to obtain or provide proof of insurance, the seller or financing agency may obtain property damage insurance on the vehicle to protect their interests. This is often called "forced placed" insurance, the cost of which is added to the amount you owe on the automobile. Forced placed insurance is generally very expensive. (Remember that Ohio law requires you to keep and provide proof of financial responsibility to satisfy your liability for personal injuries and property damage you cause to others. If you do not carry the required proof of financial responsibility, your driving privileges may be suspended.)
The seller or financing agency may offer you "credit life insurance" and "disability life insurance" that would cover the payments on the vehicle in the event of your death, disability or unemployment. If you are interested in credit life or credit disability insurance, you should investigate them thoroughly. You can often obtain similar coverage from an ordinary life insurance or disability insurance policy much less expensively.
What should I know about credit cards?
Before you "charge it," you should understand the obligations you are assuming and read carefully before signing or accepting them, all applications for charge accounts and credit cards, as well as all charge slips and notices.
Many businesses will allow you to charge for 30 days without interest, while others add interest if an account is not paid within a certain time. If stated in the credit agreement, it is legal for a creditor to charge you as much as 25 percent annual interest on the unpaid balance. You might find it better for your budget to obtain a personal loan to pay for a major purchase rather then to put that debt on a high-interest credit card.
How can I check my credit rating?
The amount of "credit power" you have is based on many factors. These include income, how you have handled repayment on other credit purchases, how much you owe on other installment loans, and so on. Sometimes you may want to check your credit rating.
The Fair Credit Reporting Act gives the consumer some rights against the use of wrong information in the files of credit bureaus. In part, the act provides:
You have the right to know the "nature and substance of all information."
You have the right to be told the source of almost all information if credit is denied.
You have the right to be told the names of any firms that received your credit record during the previous six months (or two years if the report was furnished for employment purposes).
You have the right to obtain the information free of charge from the credit agency if you have been denied credit, insurance or employment within 30 days of your inquiry. Otherwise, the reporting agency is permitted to charge a reasonable fee for making the disclosure.
The credit bureau must investigate any information that you feel is incorrect. If the information proves incorrect, the agency must remove it from its files and on your request, inform those who have received the information of its removal.
After investigation, you can write a brief statement of your side of the story to put in the file. At your request, the agency must send your version of the dispute free of charge to anyone who has denied you credit within the past 30 days. If you ask, the agency also must send a copy of your version of the dispute to selected other businesses for a reasonable fee.
You have the right to have a consumer report withheld from anyone who, under the law, does not have a legitimate business need for this information.
While the Fair Credit Reporting Act gives you certain rights, it does impose some restrictions. It does not give you the right, when you visit the credit bureau, to receive a copy of or to physically handle your file, and it does not apply when you apply for commercial credit or business insurance.
The Federal Trade Commission is responsible for enforcing the act.
What other liability could I have?
On occasion you may be subject to legal liability arising out of a transaction even though you have not signed anything or know of it. For example, one partner in a partnership may be held liable for acts or agreements of other partners, or a husband or wife may be responsible for a spouse's charge accounts or installment purchases, in certain situations, such as when both spouses are signatories on the account.
Another situation in which you may be liable occurs when you are asked to co-sign a note or guarantee the payment of the debt of a friend or relative. Be sure you understand all the circumstances before you sign because you may have to pay the amount of the debt even though you received no benefit.
Check before you sign
Read every paper you are asked to sign, including the fine print.
Don't sign any paper that has blank spaces on it. Every space should be filled in.
Compare the total charges - cost of item plus credit charges, etc. - with the cash price.
Don't rely on sales talk. Oral promises usually are not enforceable unless included in the contract.
Don't sign if you can't understand the words.
Take your time. Don't be in a hurry.
If in doubt, consult your attorney, who can do more good before you sign than after.
Keating Ritchie & McGary - 5300 Socialville-Foster Road, Suite
140 - Mason, Ohio 45040 - 513.234.0567 - 513.234.0886 (fax)