The Federal Reserve Board on Tuesday proposed revisions in its Truth-in-Lending commentary to address closed-end credit and late payments.
To determine when a loan qualifies as closed-end, lenders should look at the purpose of the credit, according to the Fed. "If the retailer of pianos establishes a line of credit for the purpose of purchasing a piano, it is unlikely that the creditor can reasonably contemplate repeated transactions," it said. That means the lender must consider the credit as closed-end, which triggers more disclosures than open-end credit.
Also, loans for higher-priced items generally should be treated as closed-end credit because consumers are unlikely to use the credit line for additional purchases. For instance, a $5,000 credit line for a $4,500 satellite television system is not open-end credit because the consumer is unlikely to pay down the loan and buy another satellite dish, it said.
Finally, the Fed said lenders must make reasonable judgments. For instance, it would be more reasonable to assume customers will repeatedly draw on a line of credit from a thrift than from a company that finances the purchase of aluminum siding.
In the late payment section, the Fed said banks must disclose revised annual percentage rates if interest rates rise when borrowers do not repay on time. A general description, such as, "The rate will increase if the customer fails to remain in good standing," is not specific enough, the Fed said.