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Truth in Lending: 6.1.1 Overview of TILA Requirements for Open-End Credit

TILA includes both disclosure and substantive requirements for open-end credit, including credit cards and home equity lines of credit secured by the consumer’s dwelling (HELOCs). This chapter analyzes TILA’s disclosure requirements for open-end credit, primarily for credit cards and other forms of open-end credit that are not home-secured.

Truth in Lending: 6.1.2 Major Changes to TILA Open-End Credit Provisions

Major changes were made to TILA’s open-end credit requirements in the 2009 to 2011 time period. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 added a number of substantive protections and disclosure requirements. There were also wholesale revisions to Regulation Z’s open-end credit disclosures.

Truth in Lending: 6.1.3 Organization of This Chapter

Section 6.1 gives an introduction and a roadmap for this chapter. Section 6.2, infra, sets forth the key definitions for “open-end credit,” and analyzes the issue of spurious open-end credit. It also includes a specific subsection regarding credit card terms, including special definitions of “creditor” for credit cards.

Truth in Lending: 6.1.4 Practical Advice About Credit Cards for Financially Distressed Consumers

In many cases, consumers who come forward with problems concerning their credit card accounts are financially overwhelmed. Identifying TILA violations and other consumer claims or defenses may only partially resolve the consumers’ needs. Consumers may be able to obtain relief by use of strategies such as debt prioritization, bankruptcy, and aggressive defense in collection actions. At the same time, practitioners should also consider educating consumers about careful use of available credit to avoid new problems in the future.

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: 6.2.3.3 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: 6.2.3.6 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: 6.2.4.1.3 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: 6.3.2.1 General

The requirement that open-end disclosures be clear and conspicuous is similar to that for closed-end credit.232 Cases dealing with whether a closed-end credit disclosure is clear and conspicuous should also apply to open-end credit.233

Truth in Lending: 6.3.2.2 Clear

The official interpretations explain the phrase “clear and conspicuous”: open-end credit disclosures must be in a “reasonably understandable” form.236 Convoluted legalese should not comply with requirement,237 as clarity is examined “from the standpoint of the ordinary consumer.”238

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