Closed-End Credit Transaction Under TILA Law Office of Matthew A. Dunaway Attorneys Birmingham Alabama

Closed-End Credit Transaction Under TILA

Posted by: Matthew Dunaway
March 10, 2008
Topic: Truth In Lending Act - TILA

Closed-end credit refers to a credit extended for a particular period of time and is set on a specific amount. For instance, if you purchase a washing machine under the closed-end agreement, a specific payment must be paid within a fixed time period (a specific number of week or months). The credit must be repaid in full within that time period.

Usually, a closed-end credit also includes fixed finance charges and other kind of interests in the credit. While you repay back the amount, these charges are also included. Closed-end transactions can be concluded in shape of a retail installment contract. Other than this, the transaction may take the form of a sales slip. However, the agreement includes the notification of acquiring the purchase sum through installment payments.

Since a consumer must repay the amount within a definite end date, a closed-end credit is considered to be entirely opposite to that of the revolving line of credit, which is the most common practice followed in case of credit cards. Some of the most common examples of closed-end credit include mortgages, auto loans, home improvement or personal loans.

In case of closed-end consumer credit sales for home improvement financed purchase, the contractor makes a deal of home modernization with a consumer. He then forwards his offer to fund the purchase via installments.

Several household appliances can be purchased through closed-end credit. Some of the common appliances, for instance refrigerators, consumer electronics, and even furniture, can be vended through closed-end credit by retailers. However at present, retailers are mostly seen using a store credit card in order to conclude their transactions. But then, installment contract has not lost its popularity yet. The utilization of credit to finance service purchases have met with new developments in recent times.

While purchasing a home, the credit structure involves the application of interest rates. Here the rate of interest might vary or be stagnant. Auto loans are also given for a specific period of time. But then, the terms and conditions are different from home loans and interest rates are possibly fixed.

In case of closed-end credit transactions, the amount financed, the specific time, installment schedule, and the finance charge is discussed and fixed between the consumer and the lender. While advertising for a closed-end credit, one must be careful to include the particular disclosures and triggering terms in the document. The following points must be included in the advertisement:

The amount which must be given as down payment
The amount of any other kind of payment
The number of payments that must be made
The specific time period of the payment
If there is any finance charge, then that amount is to be paid

While the above triggering terms are mentioned, the subsequent disclosures must be incorporated in the advertisement as well. They include:

The amount to be paid as annual percentage rate
The conditions of the payment
The sum or the percentage that must be paid as down payment

The disclosures to be included in closed-end credit are clearly defined and regulated under the Truth in Lending Act and it's incorporating Regulation Z. The law states that the disclosures must be mentioned clearly. They must be offered to the consumer in writing, so that he/she can refer to the documents later before the loan closing.

Sometimes, these disclosures are included in the loan agreement. At such times, they must be presented separately from the rest of the loan details. Since they are quite significant to consumers, the disclosures can be put in a separate boxed section in the documents or can be printed in bold.