Open-End Credit Transactions Under TILA Law Office of Matthew A. Dunaway Attorneys Birmingham Alabama

Open-End Credit Transactions Under TILA

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

An open ended credit is generally described as an agreement or a pre-approved loan between the borrower and the financial institution or the lender. The loan can be put to use by the borrower repeatedly, however, only to a particular limit and must be repaid subsequently before the payments turn overdue.

To put it simply, an open-end credit account is the one where the lender lends a certain amount and allows the borrower to borrow the same amount once the earlier payments are made. Thus, you can make repeated purchases and even take loans. The payments can either be done in full or in installments. The borrower and the lender should decide upon the pre-approved amount through an agreement.

Open-end credit is also known as "line of credit" and "revolving line of credit". The common examples of open-end credit include:

Home equity credit lines
Department store or service station credit cards
Bank credit cards
Overdraft privilege on checking accounts

While you establish an open-end credit account, you must sign up on an agreement, which holds all the terms. The financial institution or the lender must provide the borrower with a printed copy of the signed agreement. Make sure that with a credit card, the said requirements elucidated in the agreement can be met by you.

Once you sign up the agreement, use the card or sign on the first sales slip, it is assumed that you comply with the terms of the agreement. For private individuals and consumer credit transactions, there are limits on interest rates or finance. The limit is fixed on a certain amount. However, on first lien mortgage transactions and business accounts, no limits are fixed.

If an account is opened jointly by you and your spouse, under the Marital Property Law, you must sign the agreement stating the account will be put to use only for family transactions. Here too, once the agreement is prepared, your spouse must get a copy of the agreement as well. In any open-end credit agreement prior to making any kind of transaction, a written document must be provided by the financial institution disclosing all the terms.

Firstly, the finance charges are imposed under some conditions, which must be disclosed. The borrower must be notified of the grace period. Within this time he can pay off the balance, and thus, avoid facing a finance charge. The finance charge is computed on a particular balance. The business must state how the balance is calculated. Along with that, they must also mention the process to fix the finance charge.

The annual percentage rate and periodic rate of the finance charge must be stated. In case the rate changes, the borrower needs to be notified. However, they must offer the borrower adequate written clarifications stating the conditions, which determined the rate change. In each billing cycle, a minimum payment is necessary. The borrower should also be informed about the amount.

In case an annual fee is charged and if there is a provision of requirement of security interest, the amount must be informed. If there are any billing errors, you must be informed of the rights you can use to dispute them. The financial institution with which you have an open-end account must give you a statement for every billing period. In each billing period, you can have a credit balance above $1.00.

Once you get your bill, and before you pay it, you must evaluate certain things. At the beginning of the billing cycle, check the outstanding balance. You must also check whether the date and sum of each payment, rebate, refund, and the adjustments are written on the account. Check whether the annual percentage rates and periodic rates are provided along with the amount of the interest and the balance on which the interest is calculated. The outstanding balance the account holds, the closing calendar date of the billing cycle and the grace period must also be mentioned.