Toolkit · Consumer Protection

The High-Cost Lending Response Toolkit

15 U.S.C. § 1638

Type
Toolkit
Jurisdiction
National
Date
2024-02-25
Topic
Consumer Protection

This toolkit assembles the working materials for a high-cost lending problem into modules that can be lifted and used. It supplies an annualized cost calculator, the three free checks that can end a loan entirely, an ACH revocation letter and a bank stop payment order, an extended payment plan request, a disclosure audit grid keyed to the required terms, a Military Lending Act screen, a true lender worksheet, a payoff settlement letter to be signed before any money changes hands, a debt validation request, a title loan and repossession module, a bankruptcy timing screen, a collection defense outline, an exemption protection sheet, a complaint routing table, an alternatives directory, and a screen for earned wage access, buy-now-pay-later, and rent-to-own products. Reference tables cover the authorities, the calendar, and the vocabulary. Every authority cited is linked to its text on uplaw.us.

The High-Cost Lending Response Toolkit

Consumer Protection > High-Cost Lending | Published 25 February 2024 - Updated 1 February 2025 | UpLaw - uplaw.us

Module 2 contains three checks that are free, take minutes, and can void the loan entirely. Run them before anything else.

Keywords: cost, checks, revocation, plan, disclosures, true lender, payoff, title, bankruptcy, prevention

Module 1 — Annualized cost calculator

Amount received: $______ Total fees and charges: $______ Term in days: ______

Step 1 — Periodic rate: fees ÷ amount received = % Step 2 — Periods per year: 365 ÷ term in days = ______ Step 3 — Annualized: Step 1 × Step 2 = **%**

Worked example: $45 on $300 for 14 days → 15% × 26.07 = 391%

Product Amount Fees Days Annualized
This loan
Credit union payday alternative
Credit card cash advance
Small personal loan

The disclosure that must already state this: annual percentage rate · finance charge · amount financed · total of payments · payment schedule — 15 U.S.C. § 1638, 12 CFR Part 1026, within 15 U.S.C. § 1601 and defined at 15 U.S.C. § 1602.

For an earned wage access or cash advance app: treat the expedite fee, subscription, or default tip as the fee, and run the same three steps. A $5 fee on a $100 advance for 7 days is over 260 percent.

Module 2 — The three checks that end cases

Free. Minutes. Any one can void the loan.

CHECK 1 — ACTIVE DUTY STATUS ☐ Borrower on active duty on the date of consummation? ☐ Spouse or dependent? ☐ If yes → 10 U.S.C. § 987. Look for any of these in a covered loan: ☐ Military annual percentage rate above 36% including fees and add-ons ☐ Mandatory arbitration clause ☐ Security interest in a vehicle title ☐ Required account access or allotment ☐ Waiver of consumer protection rights ☐ Missing oral and written disclosures ⚠ Any one of these makes a covered contract VOID FROM INCEPTION. Not damages — the loan never existed.

CHECK 2 — LENDER LICENSING ☐ Lender's name as it appears on the contract: ______________ ☐ Licensed in the borrower's state on the origination date? ☐ Yes ☐ No ☐ Check the state regulator's public licensee database — dispositive more often than any other single check ⚠ Unlicensed lending voids the loan or the interest in many states.

CHECK 3 — THE FINANCE CHARGE ☐ List every mandatory fee in the contract: ______________ ☐ Does the disclosed finance charge include all of them? ☐ Yes ☐ No ⚠ An excluded mandatory fee understates both the finance charge and the rate — the most common violation, with statutory damages and attorney fees at 15 U.S.C. § 1640.

AND THE FOURTH, for a capped state: ☐ Who is the true lender? → Module 6.

☐ Request the COMPLETE PAYMENT HISTORY across the entire sequence in the first letter, every time. It shows the rollovers, the fees, the failed debits, and the pattern.

Module 3 — ACH revocation and stop payment

3A — To the lender

"I revoke any and all authorization for electronic fund transfers from my account ending [last four] at [bank], including any preauthorized recurring transfers, single-entry debits, and remotely created checks or drafts, effective immediately.

Do not initiate any further debit, presentment, or draft against this account or any other account of mine. I have separately instructed my financial institution to stop payment.

This revocation does not waive any claim or defense and is not an acknowledgment of the amount claimed. Please confirm receipt in writing and provide a complete payment history for this loan, including every fee, every renewal, and every payment attempt."

3B — To the bank

*"Please stop payment on all preauthorized electronic fund transfers to [lender] from account [number], effective for any transfer scheduled on or after [date]. This order is given more than three business days before the next scheduled transfer date of [date].

I have revoked the payee's authorization directly and enclose a copy. If any further debit is presented, please decline it and notify me. Please confirm in writing that the order has been entered, its duration, and any renewal requirement."

☐ Both sent, by a method that proves delivery ☐ Authority: 15 U.S.C. § 1693, 12 CFR Part 1005; withdrawal-attempt restrictions at 12 CFR Part 1041 ☐ If a post-dated check is outstanding, consider closing the account and opening one elsewhere ☐ Move federal benefit deposits to an account with nothing else in it — 42 U.S.C. § 407 ⚠ Neither letter cancels the debt. They stop the overdraft cascade, which is frequently costing more than the loan.

Module 4 — Extended payment plan request

"I am requesting the extended payment plan available under [state statute] for loan [number], dated [date].

I understand there is no additional charge for this plan and that this request is made before the current due date of [date]. Please provide the plan terms in writing within [period stated in the statute].

If you contend no such plan is available, please state the basis in writing."

☐ Many states REQUIRE it, at no additional charge, on request ☐ ⚠ Frequently available only BEFORE default, and only once per year ☐ Lenders do not volunteer it. Ask by name, in writing, with proof of delivery ☐ A refusal to offer a required plan is itself a violation

Module 5 — Disclosure audit grid

Required term Disclosed Correct? Note
Annual percentage rate ☐ Compare to Module 1
Finance charge ☐ Every mandatory fee included?
Amount financed ☐ Less than face because fees financed?
Total of payments ☐
Payment schedule ☐ Balloon or amortizing?
Security interest ☐ Vehicle title disclosed?
Late charges ☐
Prepayment terms ☐
Add-on products ☐ Optional? Disclosed as optional? Financed at the loan rate?
Extended payment plan ☐ Disclosed where the state requires it
Arbitration clause ☐ Rejection window? — 9 U.S.C. § 2
Choice of law and forum ☐ Bank or tribe named? → Module 6
Lender identity and license number ☐ Frequently the most valuable line

Authority: 15 U.S.C. § 1638, 12 CFR Part 1026; open-end products at 15 U.S.C. § 1637; dwelling-secured at 15 U.S.C. § 1639; consumer leases at 15 U.S.C. § 1667. Damages: 15 U.S.C. § 1640.

Module 6 — True lender worksheet

For any loan exceeding a state rate cap where a bank or a tribe appears in the documents.

Whose name is on the note? ______________ Whose brand is on the storefront, the website, and the statements? ______________ Who took the application and set the credit policy? ______________ Who funded the loan, and for how long did they hold it? ______________ Who services it and collects it? ______________ Who bears the loss on default? ______________ Who receives the revenue? ______________

BANK PARTNERSHIP. The lender's theory is rate exportation — Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299 (1978) — with fees treated as interest, Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996), and state laws that significantly interfere preempted, Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996). The counter: predominant economic interest. And state enforcement against non-bank entities survives — Cuomo v. Clearing House Association, L.L.C., 557 U.S. 519 (2009). ☐ Obtain the program agreement ☐ Holding period ☐ Loss allocation ☐ Credit policy authority

TRIBAL LENDING. Arm-of-the-tribe analysis: ☐ Method of creation ☐ Stated purpose ☐ Tribal ownership and control ☐ Tribe's intent to share immunity ☐ Who receives the revenue ☐ Does the designated arbitral forum actually exist and function? An illusory forum is a defense to the clause

⚠ A loan at 300 percent in a state capping rates at 36 percent may be void, voidable, or perfectly enforceable depending entirely on which structure produced it.

Module 7 — Payoff settlement letter

⚠ Get this signed BEFORE any money changes hands.

"This confirms our agreement that payment of $[amount] by [date] resolves loan [number] in full; that no further amount will be sought from me by you, any affiliate, or any assignee; that you will not sell or refer this account for collection; and that you will report the account as paid and satisfied to any consumer reporting agency to which you have furnished information.

Please countersign and return before [date]. I will pay by [cashier's check / money order]. I am not authorizing any electronic debit for this payment."

☐ Open with the principal, not the accrued total ☐ Get it in writing first ☐ ⛔ Never give a new ACH authorization for a settlement payment ☐ Verify the credit furnishing afterward — 15 U.S.C. § 1681i

Module 8 — Debt validation request

"I dispute this debt and request validation under 15 U.S.C. § 1692g. Please provide: 1. The original loan agreement bearing my signature. 2. The complete transaction and payment history from origination. 3. The identity of the original creditor. 4. The complete chain of assignment. 5. The lender's license number in [state] on the date of origination.

Until validation is provided, cease collection activity. Do not contact me by telephone; all communication must be in writing."

Conduct that is independently actionable — 15 U.S.C. § 1692: ☐ Threatening arrest or prosecution over a post-dated check — 15 U.S.C. § 1692e. A check knowingly accepted as post-dated is a payment instrument, not a fraud ☐ Misrepresenting the amount, status, or identity ☐ Threatening unavailable action ☐ Third-party contact beyond location information ☐ Contact after a written cease letter ☐ Damages and attorney fees — 15 U.S.C. § 1692k

Module 9 — Title loan and repossession module

BEFORE ☐ Photograph the vehicle and odometer ☐ Registration and insurance current ☐ Remove personal property ☐ Note any starter-interrupt device or tracker, and whether it was disclosed ☐ Consider bankruptcy BEFORE the sale — the stay at 11 U.S.C. § 362 stops repossession; chapter 13 can strip the loan to the vehicle's value

DURING — breach of the peace checklist ☐ Force used or threatened? ☐ Locked garage or closed structure entered? ☐ Proceeded over a contemporaneous objection? ☐ Law enforcement used to compel surrender? ☐ Deception used for access? ☐ Document: video · witnesses · exact location · statements made ⚠ A wrongful repossession is a claim in itself, and it frequently defeats the deficiency as well.

AFTER ☐ Demand the notice of disposition in writing — time, place, and the right to redeem ☐ Calendar the redemption period: ______ ☐ Retrieve personal property; document any refusal — a separate claim ☐ Test whether the sale was commercially reasonable in method, manner, time, place, and terms ☐ Claim any surplus. ⚠ Several states permit title lenders to keep it — check the statute ☐ Defend the deficiency — improper notice or an unreasonable sale frequently defeats it entirely ☐ See Motor Vehicle Law for Consumers: A Comprehensive Guide to Sales, Financing, Warranties, and Lemon Laws

Module 10 — Bankruptcy timing screen

☐ Is a repossession sale imminent? → the stay at 11 U.S.C. § 362 stops it. File before the sale ☐ Is a garnishment or levy in progress? → the stay stops it ☐ Were any of these loans taken within the last few months? ⚠ A very recent loan may be challenged as presumptively non-dischargeable. Disclose every loan to counsel ☐ Chapter 7 — discharge of unsecured debt under 11 U.S.C. § 727 ☐ Chapter 13 — strip a title loan to the vehicle's value; cure other arrears over three to five years ☐ Means test and exemption analysis run before choosing a chapter ☐ ⛔ Take no new high-cost loans while contemplating a filing ☐ See Preparing and Filing a Consumer Bankruptcy Case: A Practical Checklist

Module 11 — Collection defense and exemption protection

IF SUED ☐ ⚠ ANSWER. A default judgment is how these debts become permanent and enables garnishment and levies ☐ Demand the chain of documents — contract, complete payment history, every assignment ☐ Affirmative defenses: unlicensed lending · rate cap violation via true lender · disclosure violations, 15 U.S.C. § 1638 · contract void, 10 U.S.C. § 987 ☐ Counterclaim where supported — it changes the economics immediately ☐ Check the limitation period, and whether a partial payment restarted it

AFTER JUDGMENT ☐ ⚠ Exemption claim deadline is frequently DAYS ☐ Federal benefits protected — 42 U.S.C. § 407 ☐ Identify the source of every dollar, with statements showing deposit descriptions ☐ File the claim of exemption with the court and notify the bank in writing ☐ Check wage garnishment caps and the protected floor ☐ Move to vacate a default judgment where service was defective or the address stale ☐ Dispute every credit furnishing — one debt generates several entries: 15 U.S.C. § 1681, 15 U.S.C. § 1681i

Module 12 — Complaint routing

Route Best for
State regulator (banking / financial institutions / consumer credit) Licensing, rate caps, rollover limits, extended payment plans
State attorney general Patterns, unlicensed lending, unfair practices
Federal consumer complaint system Any stalled matter — 12 U.S.C. § 5481, 12 U.S.C. § 5511
Unfair or abusive practices 12 U.S.C. § 5531, 12 U.S.C. § 5536, 15 U.S.C. § 45
Collection abuses 15 U.S.C. § 1692k
Credit reporting 15 U.S.C. § 1681i
Military coverage The service branch legal assistance office, plus the regulator
Pattern enterprise 18 U.S.C. § 1961, 18 U.S.C. § 1962

☐ The arbitration clause does not affect any of these routes.

Module 13 — Alternatives directory

Fill this in for the client's actual area, with names and phone numbers. Abstract advice does not compete with a storefront.

Option Name / contact Cost
Credit union payday alternative loan Capped — an order of magnitude cheaper
Credit union or community lender personal loan
Employer advance or small-loan program Frequently interest-free
Utility assistance program Free
Emergency rental assistance Free
Medical charity care / bill negotiation Free to reduced
Local emergency fund Free
Legal aid / consumer clinic Free
Credit card cash advance Expensive — still far cheaper
Family, with a written schedule —

☐ ⛔ Not on this list: a second high-cost loan · debt settlement companies · credit repair services

Module 14 — Newer products screen

Product The question that matters
Earned wage access / cash advance app Is the fee genuinely optional? Is the free option usable? Is the tip preset? Is repayment mandatory ACH? Is the pattern sequential?
Buy now, pay later What are the late and returned-payment fees? How many concurrent plans? Do card-style dispute rights apply — 15 U.S.C. § 1666i?
Open-end line of credit Structured under 15 U.S.C. § 1637 to avoid closed-end rollover limits?
Rent-to-own / lease-purchase Total cost versus retail price — 15 U.S.C. § 1667. Reinstatement rights?
Refund anticipation product Cost against a certain future payment
Pension advance Is the stream even assignable?
Lawsuit funding Non-recourse in form; extremely expensive in effect

Run Module 1 on each. The annualized number is what changes the conversation.

Module 15 — Prevention plan

☐ Join a credit union today, on a day when nothing is urgent, and confirm whether it offers a payday alternative loan ☐ Write down the local assistance programs for utilities, rent, and medical bills — Module 13 ☐ Ask the employer about an advance or small-loan program ☐ When a shortfall arrives, call the ORIGINAL CREDITOR FIRST. Nearly every one accepts a payment plan ☐ Reject the arbitration clause during any rejection window ☐ Never sign an ACH authorization without knowing how to revoke it ☐ Keep federal benefits in a separate account with nothing else in it ☐ ⚠ If a high-cost loan is unavoidable, write down BEFORE SIGNING exactly how the balloon payment will be made. If the answer is "I will renew it," the product has already worked as designed

Reference table — the authorities

Provision Subject
15 U.S.C. § 1601 Truth in lending — purpose
15 U.S.C. § 1602 Definitions
15 U.S.C. § 1638 Closed-end disclosures
15 U.S.C. § 1637 Open-end disclosures
15 U.S.C. § 1639 High-cost mortgages
15 U.S.C. § 1640 Damages and attorney fees
15 U.S.C. § 1667 Consumer leases
12 CFR Part 1026 Lending regulations
12 CFR Part 1041 Payment withdrawal restrictions
15 U.S.C. § 1693 Electronic transfers
12 CFR Part 1005 Transfer regulations
10 U.S.C. § 987 Military Lending Act — void contracts
12 U.S.C. § 5531 Unfair, deceptive, abusive practices
12 U.S.C. § 5536 Prohibited acts
15 U.S.C. § 45 Unfairness and deception
15 U.S.C. § 1692e False or misleading collection
15 U.S.C. § 1692g Validation
15 U.S.C. § 1692k Collection damages and fees
11 U.S.C. § 362 Automatic stay
11 U.S.C. § 727 Discharge
42 U.S.C. § 407 Benefit exemption
9 U.S.C. § 2 Arbitration

Reference table — the calendar

When What
Today Module 3 — both letters
This week Module 2 — the three checks
Before the due date Module 4 — the extended payment plan
Before default Module 7 payoff negotiation
3 business days before any debit The stop payment order
Before a repossession sale Module 10 bankruptcy screen
On service of a lawsuit Module 11 — answer
Within days of a levy Module 11 exemption claim
Any time Module 12 complaints
Before the next shortfall Modules 13 and 15

Reference table — what the words mean

The term What it actually means
"Fee" A two-week charge that annualizes to triple digits
"Renewal" Paying the fee again without reducing principal
"Rollover limit" Frequently evaded by same-day repay-and-reborrow
"Extended payment plan" A free right most states require — and lenders never volunteer
"ACH authorization" The account access that produces the overdraft cascade
"True lender" Who actually bears the risk and takes the revenue
"Arm of the tribe" Whether sovereign immunity genuinely attaches
"Breach of the peace" The line self-help repossession may not cross
"Deficiency" What is still owed after the car is sold — defeated by improper notice
"Void from inception" The Military Lending Act remedy — the loan never existed

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