Z-Day

The installment buyer is in for a shock this week. If he applies for a car loan, his banker will have to tell him that the true interest rate is about dou ble the 6% or so that the bank may have been advertising. If he uses a de partment store revolving-credit plan, his next bill will inform him that the 1 1/2%-a-month interest charged on his unpaid balance works out to a yearly interest charge of 18%.

Such candor is required by Federal Reserve Board Regulation "Z," which takes effect July 1. The 59-page regulation tells what stores, banks, finance companies, auto dealers and other cred itors must do to comply with the Truth in Lending Act that Congress passed last year. Among other things, the consumer must be informed in advance of the exact amount of any loan or credit, including insurance premiums, any excess of an installment price over a cash price and the exact length of time he has to pay. He must also be told the precise annual interest charge. In most cases, creditors must also disclose how much total interest the consumer will have to pay.

Three Days of Grace. The intent of the law is to enable consumers to shop around for the best credit terms avail able. Regulation "Z" also strikes an in direct blow at credit rackets. Some home-repair contractors, electricians, plumbers and even morticians have customarily required that the customer sign an agreement giving the creditor a lien on his home. Now the creditor must not only inform the consumer that there is such a lien but give him three business days after signing to think over the deal and cancel it if he chooses -- a requirement that could create an awkward situation for morticians. "Z" will especially affect newspaper advertising.

Retailers can continue to advertise credit in general wording ("Ask About Our E-Z Payments Plan"), but if an ad men tions even one specific term it must go on to list all others. That could embarrass ghetto storekeepers, many of whom lure the poor into expensive installment contracts by trumpeting "No Money Down -- Years to Pay."

The main problem may be enforcement. No fewer than nine federal agencies share responsibility for finding and prosecuting violators, who may be fined up to $5,000 and jailed as long as a year. In addition, a victim may sue for twice the amount of any misrepresented finance charge and collect damages up to $1,000, plus court costs. The heaviest enforcement burden will fall on the Federal Trade Commission. FTC of ficials complain that "Z" will force their agency to regulate 1 ,500,000 more businesses without a penny of extra appropriations from Congress.

This file is automatically generated by a robot program, so reader's discretion is required.