I'm having a disagreement w/a co-worker, can you guys help us out please?

Can a revolving line of credit ever be considered 'closed-end'? Doesn't 'open-end' and 'revolving' mean the same thing? And 'closed-end' is just simply not revolving credit?

My co-worker thinks that you can have a closed-end revolving LOC w/a stated maturity date and the agreement stated in the note that the LOC is not automatically renewable. (Basically, saying that the bank is not obligated to keep the LOC renewed each year at maturity.)

This came about as we were discussing that we need to make sure we are meeting Reg. Z requirements for personal lines of credits. My co-worker thinks that if you have a 'closed -end' personal (unsecured) LOC, reg. z requirements don't apply. (BTW, this has a fixed rate.)

Hope that makes sense and thank you in advance for your help w/this.

The maturity date has nothing to do with whether the credit meets the definition of closed-end credit or open-end credit. Stop and think, all HELOCs have a maturity date, all credit cards have a maturity date (the card's expiration date).

Open-end credit is simply a credit product where the lender reasonably anticipates recurring transactions. See 226.2(20).

Well, I didn't think so but here is his argument to that. Your credit card LOC doesn't stop or mature just because your card expires. The credit card company just mails you new card(s), they don't ask if you want to renew your credit line w/them, etc.

Heloc's (the ones I am used to anyway) have an expired date in which the draw period ends and then it is put into an installment note but I couldn't place it (or explain it very well) that that is the same as having a simple stated maturity date as you would for just an unsecured LOC.

I think you are corret, I am just having a hard time explaining it well enough to convince my co-worker. You always words things much better than I can, Dan.

Boy howdy, your co-worker needs some education! The expiration on the credit card is the companies opportunity to NOT renew it!

He needs to get maturity dates off his mind..that has NOTHING to do with close-end vs open-end. Open end loans are revolving lines...the go and up and down with a limit to the maximum "draw" amount. A closed-end loan can be a set amount given at closing (like for an auto purchase) or a constuction loan where you draw up to a certain limit, but can't then decrease and re-draw.

That's your difference in a nutshell..can the balance "float"...if so it's open-end credit.

That's what I was taught and just needed to be sure I wasn't crazy.

I need to find some in the regulation that will 'prove' this to him. Can someone help me fully explain what (i)and (ii) mean in Sct. 226.2(20)?

Ask this co-worker where in the definition of open-end credit is a maturity date referred to. Also go to the Commentary for 226.2(20) for additional explanations.

A credit card does not have a guaranteed renewal. Once the card expires your open-end credit line expires if the issuer decides not to renew the card for some reason.

2. Termination of credit privileges. When an open-end account is terminated without being converted to closed-end credit under a written agreement, the creditor must continue to provide periodic statements to those consumers entitled to receive them under §226.5(b) (for example, when an open-end credit plan ends and consumers are paying off outstanding balances) and must continue to follow all of the other open-end credit requirements and procedures in subpart B.


It's plain and simple.....if you allow repeated draws/advances against the account as the balance is paid down then it is open-end credit and must follow the requirements of Subpart B of Reg. Z.

"Heloc's (the ones I am used to anyway) have an expired date in which the draw period ends and then it is put into an installment note"

Actually, if your original plan documents call for a draw period and then a repayment period, they are still part of the open-end plan during the repayment period and have to be treated under the open-end rules for the duration of the loan, including monthly periodic statements.