Important Info for Car Loan Lawsuits

If you’re applying for a car loan, or have issues with an existing loan, it’s important to know your legal rights—and to keep an eye out when lenders violate them…

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Editor’s Note: FairShake is not an attorney, law firm, or financial advisor. Our content team conducts research to the best of our ability to ensure this content is accurate, but it does not replace professional financial or legal advice.

In this article

  • What are the most important laws that apply when taking out a car loan?
  • What protections do the laws provide?
  • What can I do if a salesperson lied to get me to take out a car loan?
  • Can car loans be discharged in bankruptcy?


the foreground shows the headlight portion of a new car. the background shows a ground of people at a table in a car showroom

Image via @notquitemax / Unsplash

Consumers are using FairShake to share their complaints and seek help against big car lenders like Ford Credit, GM Financial, Honda Financial Services, Hyundai Capital, Nissan Finance, and Toyota Financial. 

We also see complaints against large but lesser-known lenders like Exeter Finance, Santander Consumer USA, and Westlake Services.

What are the most important laws that apply when taking out a car loan? What protections do they provide?

When taking out a car loan, you’re protected by a variety of federal (and state) laws that apply to car sales and to offering credit products (like loans) more generally.

Some of laws that apply to car loans include:

Truth in Lending Act

The Truth in Lending Act (TILA) requires that creditors provide a written disclosure of important terms when offering loans, including the annual percentage rate (APR), finance charge, monthly payment amount, payment due dates, amount financed, length of the credit agreement, and any charges for late payment.

If a lender (like a car dealer) fails to provide this information prior to obtaining your signature, they’ve violated the Truth in Lending Act and you may have a legal complaint. 

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Consumer Leasing Act

The Consumer Leasing Act is a federal law that requires whoever is offering a lease (in this case the dealer or leasing company), to disclose certain information before a lease is signed. Required information includes the amount due at lease signing or delivery; the number and amount of monthly payments; and all other fees charged under the agreement, such as license fees, taxes, payments due at the end of the lease, any charges for excess mileage.

Additionally, the disclosures must include penalties charged for late payment or default; conditions under which the lease can be ended early (and penalties for doing so); if you have a right to buy the vehicle at the end of the lease and the price to do so.

Uniform Commercial Code

The Uniform Commercial Code (UCC) is a set of laws enacted at the state level to govern commercial transactions. Every state and DC has adopted all or most of the UCC. Article 2 of the UCC defines key laws that protect you in buying or leasing a car including lemon laws and express warranties.  Article 2A of the UCC applies specifically to leases.

  • Lemon laws enable purchasers to have a defect repaired, or to receive a replacement or a refund. You can find more information on your state’s lemon laws here.
  • An express warranty is a fact or promise provided by the seller that becomes enforceable by the buyer as a “basis” of the sale. 

Equal Credit Opportunity Act

The Equal Credit Opportunity Act is a federal act that prohibits denying credit, or charging more for credit, based on a list of protected factors including race, color, religion, national origin, sex, marital status, age, and receipt of public assistance.

Credit Practices Rule

The Credit Practices Rule is a regulation from the Federal Reserve that, among other things, protects the rights of cosigners on loans. Creditors must provide a written notice to potential cosigners about their liability if the other person fails to pay. The Act also prohibits late charges in some situations and prohibits creditors from using certain contract provisions that the government has found to be unfair to consumers.

Consumer Credit Protection Act

The Consumer Credit Protection Act requires certain creditors to provide consumers with information if the creditor denies them financing.

Magnuson-Moss Warranty Act

The Magnuson-Moss Warranty Act applies to any consumer goods used by individuals or families with a retail price of $15 or more, and requires any seller making an express warranty to fully disclose the warranty’s terms and conditions. Sales agreements may not limit consumers’ rights under any implied warranties; may not impose any duties on consumers to take advantage of warranties other than notifying the seller of defects; and the seller must attempt repair, replacement, or refund if possible

Read more on what to consider when shopping for a car loan at the Consumer Financial Protection Bureau.

Also from FairShake:

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What can I do if a salesperson lied to get me to take out a car loan?

If a salesperson lied to you about the terms of a car loan, or the terms weren’t what they promised, there are laws protecting you—and ways to pursue your rights.

Some common tactics by creditors that violate the Truth in Lending Act (TILA) include failing to accurately disclose the finance charge and APR or applying penalty fees exceeding TILA limits.

State attorneys general can enforce state consumer protection and fair lending laws under the Universal Commercial Code mentioned above.

If you were misled by a lender you are entitled to take action against them.

If you realized your loan isn’t what you were promised, we’d like to hear about it below.

If you were sold a car with defects you didn’t know about, you can also pursue your rights under the law.

If your car is under warranty, lemon laws require the vehicle manufacturer to repair it. If your vehicle cannot be repaired or a defect is too severe, you are entitled to a refund or a replacement vehicle. If they cannot do so after a reasonable number of attempts, they must either replace or refund your vehicle.

The specifics of lemon laws vary by state, however. In some states lemon laws only cover new vehicles, while in other states they apply to both new and used vehicles.

The federal Magnuson-Moss Warranty Act (“Mag-Moss”) is a “federal lemon law,” which covers all products that come with a written warranty (not just cars). It can be a good alternative for consumers who do not qualify for their state’s particular lemon law.

If you’re having issues with a lemon, tell us about it below.

Car loan issues? Let us know

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Can car loans be discharged in bankruptcy?

Filing for bankruptcy can break a contract requiring repayment to a lender for a car loan. This depends on the type of bankruptcy you file, though:

Under a Chapter 7 bankruptcy or “liquidation bankruptcy,” a car loan will not be discharged because it is a secured debt.

  • Secured creditors—which include car loan holders— can require you to sign a reaffirmation agreement. A reaffirmation agreement between the creditor and debtor waives the discharge of debt in a pending bankruptcy proceeding. You will be required to maintain your monthly payments – upon default, the creditor has the right to repossess your car.
  • However, Chapter 7 grants you the right to redeem your car. To redeem your vehicle, you must pay a lump sum equal to its replacement value, which can be much lower than the amount that remains on your loan.

A Chapter 13 bankruptcy, or “wage earners bankruptcy” permits a debtor to keep the property and pay debts over time, usually three to five years. 

  • Additionally, if the balance of your loan is more than your car is worth, you can pay back the balance based on the current value rather than the contracted loan balance. This is known as a “cram down” and can lower your payment if you owe more than the car is worth.
  • If you default on payment schedule coming out of Chapter 13 bankruptcy, the lender can still repossess your car.

You can also “surrender” a vehicle with a car loan by returning it to the lender. Bankruptcy filers can return a financed car to the lender if they: paid too much for the vehicle, can’t afford the monthly payment, or don’t want the vehicle or the car loan associated with it.

How can I complain to the government about an auto lender?

If you think a car lender has violated your rights, options for complaining about rights violations include submitting a complaint to the Consumer Financial Protection Bureau or to your state’s attorney general.

How can I find a lawyer to help with my car loan?

If you want to take action yourself, tell us below how to handle your complaint…

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