Search
Truth in Lending: 6.2.2.3 Finance Charge on Unpaid Balance
The plan must provide that the creditor may impose a finance charge from time to time on an outstanding unpaid balance. If there is no possibility of imposing a finance charge, the plan is not an open-end credit plan.35 An open-end credit plan may exist even though the creditor does not normally impose a finance charge, provided the creditor has the right to impose a finance charge from time to time on the outstanding balance.36
Truth in Lending: 6.2.2.4 Reusable Credit Line
An open-end plan must include a reusable line of credit: The amount of credit in an open-end plan is generally replenished as the outstanding balance is paid down.46 While the statute’s definition of open-end credit does not mention the replenishment of a credit line, Regulation Z and Official Interpretation’s self-replenishment concept probably is derived from the fact that self-replenishment may constitute an element of whether the creditor “reasonably contemplates repeated transactions.”47
Truth in Lending: 6.2.3.1 General
The label of a plan or account as open-end does not determine its nature for TILA purposes.
Truth in Lending: 6.2.3.2 Legislative History on Spurious Open-End Credit
Over forty years ago, as TILA was being designed, it was recognized that the less informative price tag disclosure requirements for open-end might create the temptation to convert closed-end credit to open-end.
Truth in Lending: 6.2.3.3 Regulatory History and Additional Factors That May Reveal Spurious Open-End Credit
The FRB revised the regulations dealing with the definition of open-end credit in 1981, 1998, and 2001.76 In the 1997–1998 rulemaking, in particular, the FRB considered adding five additional factors to address manipulative use of open-end credit.77 The proposal generated significant opposition from industry sources and in the end, the final amendment added just one provision to the official interpretations clarifying that the creditors’ expectation test was an objective, not subjective one
Truth in Lending: 6.2.3.4 Case Law on Spurious Open-End Credit
The one circuit court case dealing with spurious open-end credit is not helpful. In the 1998 Benion v. Bank One case,81 the Seventh Circuit held that a credit card provided in connection with and dependent upon purchase of a satellite dish was open-end credit. The court found that Bank One’s expectations of repeat use of the credit card were reasonable and the credit was legitimately open-end.
Truth in Lending: 6.2.3.5 Assignee Liability in Spurious Open-End Credit Cases
An issue of concern in some spurious open-end cases is whether the holder of the credit card account is the original lender or the assignee.
Truth in Lending: 6.2.3.6 Other Theories for Attacking Spurious Open-End Credit
The deceptive use of open-end credit to finance large ticket items, such as satellite dishes, can also be attacked under fraud or unfair or deceptive theories. In Carlisle v. Whirlpool Finance National Bank, a jury awarded $580 million in two individual cases joined for trial.88 The trial court, though reducing the award to $300 million, found that the evidence revealed a malicious sales practice designed to target and take advantage of the poor, under-educated elderly, and African-American citizens.
Truth in Lending: 6.2.4.1.1 General
“Credit card” is statutorily defined as “any card, plate, coupon book or other credit device existing for the purpose of obtaining money, property, labor or services on credit.”89 Regulation Z also requires that the card be one “that may be used from time to time” to obtain credit.90 A “device” which can be used only once is not a credit card because it cannot be used from time to time.91 Thus, Regulation Z excludes from the definition of “cr
Truth in Lending: 6.2.4.1.2 Whether cards that access overdraft credit can be considered “credit cards”
The official interpretations provide that a check guarantee card, which can be used repeatedly, is a “credit card” if it accesses a line of credit or overdraft feature. If the guarantee card does not access a line of credit, it is not a credit card.109
Truth in Lending: 6.2.4.1.3 Lines of credit accessed by account numbers
A line of credit accessed by an account number is excluded from the definition of credit card if the account number is merely used to transfer funds into another account (such as a deposit account with the same creditor).130 However, if the account number that accesses the credit line can be used directly to purchase goods or services (e.g., an account number that can be used to purchase goods from the internet), it is a credit card.131 Furthermore, if a card is used to access the credit lin
Truth in Lending: 6.2.4.2 Credit Card Under an Open-End (Not Home-Secured) Consumer Credit Plan
The Credit CARD Act of 2009 added another new definitional term to TILA, as many of its provisions specifically apply to “credit cards under an open-end (not home-secured) consumer credit plan.” Regulation Z defines “credit cards under an open-end (not home-secured) consumer credit plan” to mean an open-end credit account accessed by a credit card, with the exclusion of two specific types of credit cards:133
Truth in Lending: 6.2.4.3 Charge Cards
Regulation Z defines “charge card” as “a credit card on an account for which no periodic rate is used to compute a finance charge.”138 This is similar to the Act’s definition of a charge card as a credit card which is not subject to a finance charge.139 Basically charge cards are credit cards used in connection with accounts on which outstanding balances cannot be rolled over from one billing cycle to another and are payable when a periodic statement is received.
Truth in Lending: 6.2.4.4.1 Definition
In 2016, the CFPB extended Regulation Z to cover certain prepaid accounts that access credit.147 For purposes of Regulation Z, this rule became effective on April 1, 2019.148
The CFPB created a new category called “hybrid prepaid-credit cards.” The term covers a prepaid card under the following conditions:
Truth in Lending: 6.3.2.3.1 Disclosures required in tabular or other special format
“Conspicuous” is not defined.243 However, Regulation Z requires certain disclosures to be made in a tabular format, and those disclosures are subject to specific requirements. These disclosures include:
Truth in Lending: 6.3.2.3.2 Guidance from Uniform Commercial Code
For other open-end disclosures, some guidance as to whether a disclosure is conspicuous can be found from the Uniform Commercial Code’s definition of what is conspicuous.258 The standard is whether a reasonable person (here, the customer) “ought to have noticed it.”259 Something in all capitals, in contrast to normal upper case/lower case used elsewhere in the document, might be conspicuous.260 Larger type or contrasting type or color also ai
Truth in Lending: 6.3.2.3.3 Additional materials
A creditor may add to the required disclosures or intersperse non-promotional information with the required disclosures without violating the “clear and conspicuous” standard.266 For instance, the creditor can add contractual provisions, explanations of contract terms, translations, and disclosures required to be made under state law.267 A card issuer cannot, however, mix in information that contradicts or undermines required disclosures.268
Truth in Lending: 6.3.3.1 “Finance Charge” and “Annual Percentage Rate”
Previously, the terms “finance charge” and “annual percentage rate” were required to be more conspicuous than other required disclosures, but only when the terms were used with a corresponding numerical amount or percentage rate.272 However, one court held that failure to make these terms more conspicuous did not subject the creditor to statutory damages.273 In any event, this requirement was eliminated effective July 2010, except for home equity lines of credit.
Truth in Lending: 6.3.3.2 “Penalty APR”
For disclosures required to be presented in a tabular format, Regulation Z requires that the term “penalty APR” be used for an APR imposed by a creditor for default, delinquency, or similar circumstances.275
Truth in Lending: 6.3.3.3 “Fixed”
Previously, credit card issuers sometimes advertised or disclosed that a credit card’s APR was “fixed,” only to raise the APR later.278 In response to this abuse, the Credit CARD Act prohibited the use of the term “fixed” with respect to an APR for a credit card account, unless the APR will not change or vary for any reason over a time period specified clearly and conspicuously in the terms of the account.279
Truth in Lending: 6.3.3.5 Other Terms
Issuers must use terminology that is consistent.286 Terminology need not be identical, as long as it is close enough in meaning to enable the customer to relate the required disclosures.287 Thus, except for the required terms, a creditor has some flexibility in the descriptive or identifying terms used to make disclosures, but must be consistent in use of such terms.