However, by establishing an open-end credit account with a limit of at least $500, the consumer would save the additional $159 annually in premiums (assuming no transaction costs to opening the account), would only need to exercise the credit option in the event of a loss, and could extend the repayment over three years or more.
The cost of open-end credit is given by the after-tax interest rate R, and |Rho^ is the subjective time-discount factor.(5) Using subscripts to denote time, expected utility E(U) is given by
Note that the insurance premium is paid up front, while any uninsured loss (L - V) is paid for with open-end credit in the second (uncertain) period and a tax deduction of (L - V)T is received for uninsured losses.
The general open-end credit
disclosures must be provided before the first transaction, which typically occurs at closing.
(b) Prohibited acts or practices for dwelling-secured loans; open-end credit. In connection with credit secured by the consumer's dwelling that does not meet the definition in section 226.2(a)(20), a creditor shall not structure a home-secured loan as an open-end plan to evade the requirements of section 226.32.
Under Subpart E, a new Section 226.34--Prohibited Acts or Practices in Connection with Credit Secured by a Consumer's Dwelling; Open-end Credit is added; and
(iii) In the case of a credit card relationship or other open-end credit
relationship, you no longer provide any statements or notices to the customer concerning that relationship or you sell the credit card receivables without retaining servicing rights; or
Section 114 of the Conference Report would amend TILA to require that creditors offering open-end credit plans, such as credit cards, provide additional disclosures about minimum payments as well as arrangements in which consumers may "skip payments" while interest continues to accrue on the unpaid balance.
Regarding these additional disclosures, the Board recognizes the value of ensuring that consumers better understand the implications of making minimum payments on open-end credit plans.
For example, there are separate rules for closed-end credit, such as automobile or home mortgage loans, and for open-end credit
, such as credit cards or home equity lines of credit.
Under the current Truth in Lending Act, creditors that mention specific costs in advertisements for any type of open-end credit
product must also disclose other relevant cost information.
Before the enactment of HELCPA, home equity credit plans were treated like other types of open-end credit
plans for purposes of account disclosure and advertising rules under Regulation Z.