Requirements and Prospects for a New Time to Payoff Disclosure for Open End Credit Under Truth in Lending

Abstract

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Public Law 109-8, April 2005) made significant changes to procedures for managing consumer bankruptcy petitions, but it also included amendments to the Truth in Lending Act. Notable among the Truth in Lending changes is a section providing for new disclosures on the length of time it will take consumers to repay open end credit accounts in full if they make only the minimum required payments. This paper explores the range of assumptions necessary for the calculations underlying the new required disclosures, examines the sensitivity of the disclosures to variations in the assumptions, and explores the potential for inaccuracy in the required disclosures based upon consumers' use of their open end credit accounts. For the latter exploration, the paper examines consumer survey evidence and employs a large longitudinal sample of credit card accounts to measure how often consumers' actual patterns of use of their credit card accounts match the assumptions of the new disclosure.