Common Violations

Open-End Credit and Regulation Z
Given the fact that Schumer wants to enhance his box, it is a good time to look at the common Truth in Lending violations in open-end credit. Before revising Regulation Z, the question should be whether changes or enhancements to the "Schumer Box" are really needed. We can get an important indicator from the common violations.

According to the FDIC, the most common open-end disclosure violations occur in program disclosures for home equity lines of credit, ?226.5b(d). Slightly more than 11% of the FDIC's TIL citations are on this violation. OCC also identified "failure to disclose payment terms on home equity plans as the most common violation of open-end rules.

The Federal Reserve examiners report a different "most common" violation in open-end credit. The most common violation of open-end credit is ?226.7(e), the balance on which the finance charge is computed. Many of these violations result from inconsistent or inaccurate methods of balance calculations. Close behind this is the failure to disclose a correct historical example, ?226.5b(12)(xi).

Where, in all this, are the problems with the Schumer box? Apparently they exist primarily in the mind of Mr. Schumer. For compliance, the most important approach is to ensure that all promotional material, including the Schumer Box, should be clear, straightforward, and non-deceptive.

Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 6, 6/00