![]() So it’s within the 4-installment part of the “creditor” definition. ![]() Afterpay allows the consumer to purchase goods now and pay over 4 equal installment payments. This finance charge or four-installments provision is key for buy-now-pay-later products like Afterpay. In particular, TILA requires either a possible finance charge or payment in more than four installments. But sometimes it has to be granted by a “creditor,” and “creditor” is defined substantially differently by statute. Got that? Credit is generally defined as the right to defer payment of an obligation. The term ‘creditor’ refers only to a person who both (1) regularly extends, whether in connection with loans, sales of property or services, or otherwise, consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement. Truth in Lending’s definition of “credit” is quite similar to CFPA and ECOA/FCRA: the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment. The TILA definition of “creditor” is quite different, however: “Debt” is then defined by the FDCPA as: any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. Thus, If I lend you $10 for lunch, I am not a creditor for ECOA purposes … unless I do so regularly. The Fair Debt Collection Practices Act does not define “credit,” but it has an even broader definition of “creditor” that references debt:Īny person who offers or extends credit creating a debt or to whom debt is owed… In other words, ECOA carves out the casual creditor. The right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.Īs with the CFPA, ECOA and FCRA do not define “debt.” But whereas the CFPA definition of “credit” does not reference a term “creditor” or “debtor,” the definition in ECOA/FCRA does, and ECOA/FCRA defines “creditor” as:Īny person who regularly extends, renews, or continues credit any person who regularly arranges for the extension, renewal, or continuation of credit…. A similar definition of “credit” appears in the Equal Credit Opportunity Act and the Fair Credit Reporting Act (which references ECOA): No definition of “debt” is given in the CFPA. ![]() The right granted by a person to a consumer to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment for such purchase. (I’m not going to get into the state question.) The overarching federal statute, the Consumer Financial Protection Act, defines it as: The first thing to know is that there is not just a single definition of “credit” for federal statutory purposes. Whether those business models are well-founded legally is another matter. Let me briefly recap what is “credit” for different regulatory purposes and then turn to its application to the types of products. Each of these three product types has a business model that is based on it not being subject to some or all “credit” regulation. Today, we seem to be coming back full circle to the question of what constitutes “credit.” We’re seeing this is three different product contexts: buy-now-pay-later products like Afterpay and payday advance products like Bridgit, Dave, and Earnin’ and Income-Sharing Agreements or ISAs (used primarily for education financing). State retail installment loan acts began to override the time-price doctrine, however, and the federal Truth in Lending Act and regulations thereunder eventually made clear that for its purposes the difference was a “finance charge” that had to be disclosed in a certain way. Many states had a time-price differential doctrine that held that when a retailer sold goods for future payment, the differential between the price of a cash sale and that of credit sale was not interest for usury law purposes. A major issue in consumer finance regulation in mid-20th century was what counted as “credit” and was therefore subject to state usury laws and (after 1968) to the federal Truth in Lending Act.
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