Legal & Compliance
Contractor Financing Compliance Guide
Stay on the right side of regulations when offering financing. This guide covers TILA requirements, advertising rules, disclosure requirements, and how to avoid common compliance mistakes.
Compliance Quick Facts
- Licensing: Lender holds all licenses
- TILA: Applies to advertised terms
- Data: Never store customer SSNs
- Records: Keep 3-5 years minimum
Quick Answer
Contractor financing compliance: follow TILA disclosure requirements, don’t make credit decisions, use platform-provided materials. Training reduces legal risk. Document all financing conversations.
Why Compliance Matters
When you offer financing to customers, you’re entering regulated territory. While your financing partner handles most compliance requirements, you still need to understand the rules to avoid problems:
Legal Protection
Proper compliance protects you from lawsuits, regulatory fines, and disputes with customers.
Customer Trust
Clear, honest disclosures build trust and reduce post-sale issues or cancellations.
Partner Requirements
Financing partners require compliance. Violations can result in losing your dealer status.
Good News: Most Compliance Is Handled For You
When you partner with established financing platforms like GreenSky, Wisetack, or Service Finance, they handle most compliance requirements. They provide compliant marketing materials, application processes, and disclosures. Your job is mainly to use their materials correctly.
Truth in Lending Act (TILA) Basics
The Truth in Lending Act is the primary federal law governing consumer credit disclosures. Here’s what contractors need to know:
What TILA Requires
TILA requires clear disclosure of credit terms so consumers can compare financing options. Key requirements include:
- APR disclosure: The annual percentage rate must be prominently displayed
- Total cost transparency: Customers must know the total amount they’ll pay
- Fee disclosure: All fees and charges must be clearly stated
- Consistent format: Disclosures must use standardized language and formatting
When TILA Applies to You
TILA applies to you primarily in advertising. If you advertise specific financing terms, you trigger disclosure requirements:
| You Say This… | TILA Requires… |
|---|---|
| “Financing available” | No additional disclosure needed |
| “Low monthly payments” | No additional disclosure needed |
| “0% APR financing” | Term, regular APR after promo, qualifications |
| “$279/month” | APR, term, loan amount, qualifications |
| “$500 down, $200/month” | Full disclosure of all terms |
The “Triggering Terms” Rule
Certain specific claims “trigger” full TILA disclosure requirements. These triggering terms include:
- Specific monthly payment amounts (“$279/month”)
- Down payment amounts (“$500 down”)
- Number of payments (“60 monthly payments”)
- Finance charge or interest rate amounts (“8.99% APR”)
Safe Harbor: Use Platform-Provided Materials
The easiest way to stay compliant is to use marketing materials provided by your financing partner. They’ve already ensured TILA compliance. When you create your own ads with specific terms, you take on compliance responsibility.
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Start Offering FinancingAdvertising Rules and Best Practices
How you advertise financing matters for compliance. Here are the rules and best practices:
Safe Advertising Claims
These general claims don’t trigger TILA disclosure requirements:
Compliant General Claims
- “Financing available”
- “Flexible payment options”
- “Easy monthly payments”
- “Apply for financing today”
- “Low monthly payments available”
- “Payment plans available for qualified buyers”
Claims That Require Disclosures
If you use specific terms, you need full disclosures. Examples and required additions:
Specific Claim: Requires Disclosure
Ad copy: “New HVAC system for just $279/month*”
Required disclosure: “*Based on $15,000 loan at 8.99% APR for 60 months. Example based on creditworthiness. Actual terms may vary. Subject to credit approval.”
0% APR Claim: Requires Disclosure
Ad copy: “0% financing for 12 months!*”
Required disclosure: “*0% APR for 12 months available to qualified buyers. After promotional period, standard APR of 9.99%-24.99% applies based on creditworthiness. Minimum purchase $2,500. Subject to credit approval.”
Prohibited Advertising Claims
Avoid these claims entirely—they’re either illegal or create compliance problems:
Don’t Say
- “Guaranteed approval”
- “No credit check required”
- “Everyone qualifies”
- “Instant approval for all”
- “Bad credit? No problem!”
Say Instead
- “Quick credit decisions”
- “Soft credit check available”
- “Options for various credit profiles”
- “Fast approval process”
- “Multiple lender options”
Avoid Bait-and-Switch
Never advertise terms that aren’t actually available. If you advertise “0% APR,” that option must genuinely exist for qualified customers. Advertising one rate and offering another is illegal and will result in serious consequences.
Required Disclosures
Several types of disclosures may be required depending on your state and the type of financing:
Pre-Application Disclosures
Before a customer applies for financing, they should understand:
- That financing is provided by a third-party lender, not you
- That approval is based on creditworthiness
- That terms will be disclosed upon approval
- That applying may involve a credit check
Most financing platforms display these disclosures automatically in their application flow.
Contract Disclosures
Your home improvement contract should include:
- Clear statement of total project cost
- Payment terms (if paying over time)
- Reference to financing agreement as a separate document
- Cancellation rights per state law
Fee Disclosures
If you charge different prices for cash vs. financed jobs, disclose this clearly:
Proper Price Difference Disclosure
“Project total: $18,000”
“Cash discount: $500 (pay in full at completion)”
“Cash price: $17,500”
“Financing available with approved credit.”
Frame as Discount, Not Surcharge
Present cash pricing as a “discount” rather than framing financed pricing as a “surcharge” or “fee.” Legally and psychologically, “save $500 with cash” works better than “add $500 for financing.”
Compliant Financing Made Easy
Our platform handles TILA compliance and provides approved marketing materials.
Get Started FreeState-Specific Rules
Beyond federal TILA requirements, some states have additional rules for home improvement contractors offering financing:
States with Notable Requirements
| State | Key Requirements |
|---|---|
| California | Home Improvement Contract Act requires specific disclosures. Right to cancel within 3 business days. Additional requirements for mechanics’ liens. |
| New York | Home Improvement Contractor Registration. Specific contract requirements. Additional consumer protections for home improvement financing. |
| Texas | Specific requirements for home equity lending. Careful distinction between home improvement loans and home equity loans. |
| Florida | Construction lien law requirements. Contractor licensing requirements that intersect with financing disclosure. |
| Maryland | Home Improvement Commission registration. Specific contract language requirements. |
Your Financing Partner Handles State Licensing
The good news: your financing partner is responsible for maintaining proper lending licenses in each state. When you partner with established platforms, they’ve already ensured they can legally offer consumer credit in your state.
Verify Your Partner’s Coverage
Before signing up with a financing platform, confirm they’re licensed to operate in all states where you do business. Major platforms like GreenSky, Wisetack, and Service Finance operate nationwide, but smaller or regional lenders may have limitations.
Data Security and Customer Information
Handling customer financial information correctly is critical for compliance and trust:
What You Should NOT Do
- Never collect SSNs yourself: Let customers enter directly into the lender’s app
- Never write down account numbers: Don’t keep paper records of financial data
- Never store credit info: Don’t save card numbers, bank accounts, or SSNs in your systems
- Never email financial data: Sensitive info should go through secure channels only
What You SHOULD Do
- Use the platform’s app: Hand your tablet to the customer to enter their own info
- Verify identity carefully: Make sure the applicant is who they say they are
- Protect customer privacy: Don’t discuss financing details in front of others
- Keep agreements secure: Store signed contracts safely, but not raw financial data
Simple Rule
If you never have the sensitive data, you can’t lose it or misuse it. Let the financing platform collect, store, and protect all customer financial information. Your job is just to facilitate the application—not to handle the data.
Record Keeping Requirements
Proper documentation protects you in disputes and audits:
What to Keep
- Signed contracts: The home improvement contract with scope, price, terms
- Financing acknowledgments: Customer’s acknowledgment that they chose financing
- Completion certificates: Documentation that work was completed satisfactorily
- Communications: Important emails or texts about the project and financing
- Change orders: Any modifications to the original scope and how they affected financing
How Long to Keep Records
- Minimum: 3 years for most states
- Recommended: 5-7 years for full protection
- Tax records: Follow IRS guidelines (typically 7 years)
Your financing partner maintains their own records of all financing transactions, but having your own documentation provides backup and protects you in disputes.
Frequently Asked Questions
What is TILA and how does it apply to contractors?
The Truth in Lending Act (TILA) requires clear disclosure of credit terms in advertising and documentation. When contractors advertise specific financing terms (APR, monthly payments, loan terms), they must include required disclosures. Most financing platforms handle TILA compliance automatically.
Do contractors need a lending license to offer financing?
No. When contractors partner with licensed lenders (like GreenSky, Wisetack, etc.), the lender holds all necessary licenses. Contractors act as “dealers” or “merchants,” not lenders, and don’t need separate lending credentials.
What disclosures are required when advertising financing?
If you advertise specific terms (like “0% APR” or “$279/month”), you must include: APR, loan term, any fees, and that terms vary based on creditworthiness. Use disclaimers provided by your financing partner to ensure compliance.
Are there state-specific financing rules contractors should know?
Yes. Some states have additional requirements for home improvement contracts and financing disclosures. California, for example, has specific contractor financing rules. Your financing partner should be licensed in all states where you operate and can provide state-specific guidance.
What advertising claims are prohibited?
Avoid claims like “Guaranteed approval,” “No credit check,” or specific rates without disclosures. Don’t promise approval that isn’t certain. Avoid bait-and-switch tactics where advertised terms differ from actual terms offered.
How should contractors handle customer financial information?
Never collect or store customer SSNs, bank account numbers, or other financial data yourself. Let customers enter sensitive information directly into the lender’s secure application. Your financing platform handles all PCI/data security requirements.
What records should contractors keep for financing compliance?
Keep copies of signed contracts, financing agreements, completion certificates, and customer communication for at least 3-5 years. Your financing platform maintains its own records, but having your own documentation protects you in disputes.
Can contractors charge different prices for cash vs. financed jobs?
Generally yes, but disclose any pricing differences clearly. You can offer “cash discounts” but shouldn’t penalize customers for choosing financing. Frame it as a discount for cash rather than a surcharge for financing.
Offer Financing with Confidence
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