What is consumer ‘‘credit’’? As with most legal issues, the answer is that it depends. This article provides an overview of how stand-alone financing of service contracts, oftentimes broadly labeled as extended warranties, can be structured and outline some of the federal and state consumer lending and credit laws that may apply to payment plan agreements used for service contracts. As with any situation, the details control the outcome.

There is a risk of triggering federal and state consumer financing laws if the language of a service contract financing agreement is unclear or imposes conditions or fees on the purchaser that can be argued to make the obligation anything less than fully cancelable at will. Inconsistent language within the terms of such an agreement or advertising communications can lead to unintended, adverse consequences to service contract obligors and payment plan providers and unwanted regulatory scrutiny. Yet, knowing the applicable rules of the road can help make reaching the desired destination more navigable.

Originally published in Bloomberg BNA’s Banking Report, 104 BBR 850, 4/28/15.