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Truth in Lending: 4.5.7.4 Estimates in Simple Interest Transactions

The official interpretations specifically allow creditors to treat disclosures as estimates in “simple-interest” (actuarial) transactions.621 The rationale for this position is apparently that actuarial interest can only be precomputed and disclosed by assuming that payments will be made on the dates specified in the credit contract.

Truth in Lending: 4.5.7.5 Estimated Payment Start Date

The official interpretations allow a creditor to estimate when payments will commence in two limited circumstances: first, where the consumer may become obligated on a credit contract that contemplates the delayed disbursement of funds based on a contingent event, such as the completion of home repairs, and, second, where disclosures accompany loan checks that are sent by mail.623

Truth in Lending: 4.5.7.6 Per Diem Interest

A creditor is permitted to disclose per diem interest based on information actually known to the creditor at the time the disclosure documents are prepared.624 Even if the amount of per diem interest charged is understated beyond the tolerances allowed elsewhere, and even if the disclosures are not labeled as estimates, all affected disclosures are considered accurate as long as the creditor used the information available to it at the time of preparation of the disclosure.625 Presumably, this pr

Truth in Lending: 4.5.8 Effects of Minor Variations and Irregularities

In addition to labeling disclosures as estimates, creditors may also disregard what the official interpretations call “minor variations”626 and “irregularities.”627 Most of these variations and irregularities arise in the calculation of the annual percentage rate or payment schedule and are discussed below in those sections.628

Truth in Lending: 4.5.9 When Redisclosures Must Be Made Before Consummation

Sometimes after a creditor has made disclosures, but before consummation, a “subsequent event” will make those disclosures inaccurate.635 For example, the disclosures may have assumed closing costs lower than actually incurred.636 That may affect, inter alia, the amount financed, the itemization of the amount financed, the finance charge, and the total of payments.

Truth in Lending: 4.5.10.1 Special Demand Obligation Disclosures

There are also special disclosure rules for demand obligations.650 Generally, the creditor must make disclosures for a demand obligation based on an assumed maturity of one year.651 If an alternate maturity date is stated in the legal obligation (which is determined by applicable law), then the disclosures should be based on that date.652 The creditor must disclose that the obligation is a demand obligation and, where the disclosures are based on a

Truth in Lending: 8.1.1 Introduction

This chapter discusses TILA’s rules for open-end credit that is secured by a residence, more often called a home equity line of credit or HELOC. HELOCs are governed by the general TILA rules that apply to all consumer credit as well as rules limited to open-end credit, including some rules specific to just open-end credit secured by a consumer’s principal dwelling.

Truth in Lending: 8.1.2 History

HELOCs became increasingly common after Congress passed the Home Equity Loan Consumer Protection Act in 1988,8 covering any agreement to open a HELOC plan or any application to open a HELOC after 1989.9 At that time less than six percent of homeowners had a HELOC. But, by 2007, that number had more than tripled.10

Truth in Lending: 8.1.3 Scope of HELOC Rules

Regulation Z’s HELOC rules apply to open-end credit plans that are secured by the consumer’s dwelling.19 The official interpretations emphasize that section 1026.40, which contains the disclosure rules, “is not limited to plans secured by the consumer’s principal dwelling.”20 The Act contains a special definition of “principal dwelling,” defining it to include any second or vacation home of the consumer, but only for purposes of sections 1647 and 1665b, whic

Truth in Lending: 8.2.1 Introduction

Creditors offering home equity lines of credit (HELOCs) must comply with all standard TILA provisions for advertising open-end credit.44 There are also special requirements for advertising HELOCs.45 Significant changes in the advertising rules took effect in 2009.46 Note, however, that TILA provides no private remedy for violations of its advertising rules.47 Nevertheless, it

Truth in Lending: 8.2.2 Trigger for HELOC Advertising Disclosures

Generally, the HELOC advertising requirements are triggered by any reference in a HELOC advertisement to payment terms (including the length of the plan, how the minimum payments are determined, and the timing of such payments) or by any reference to finance charges, APRs, or other charges (i.e., terms required to be disclosed in the account-opening disclosures under sections 1026.6(a) and 1026.6(b) of Regulation Z).48

Once the advertising disclosure requirements are triggered, the creditor must set forth:

Truth in Lending: 8.2.4.1 General

In the past, one of the most common abuses in advertising HELOCs was the use of “teaser rates” (more technically called “discount rates”). Creditors would often advertise very low rates for HELOCs without also clearly disclosing that the HELOCs were variable-rate plans and that the discounted teaser rates would soon be replaced by substantially higher rates based on the index and margin of the plan.

As a result, the regulations provide for special disclosures in two cases:

Truth in Lending: 8.2.4.2 Initial Discounted and Premium Rate Disclosures

If a creditor states an initial rate that is not based on the index and margin used to make later rate adjustments in a variable rate plan, the creditor must make certain disclosures.62 This initial rate can be lower or higher than the rate that would have resulted from application of the plan’s usual index and margin.

For an initial discounted or premium rate, the creditor must disclose:

Truth in Lending: 8.2.4.3 Promotional Rate and Promotional Payment Disclosures

Special disclosures apply to HELOC advertisements with promotional rates or payments. A promotional rate is a rate that is not based on the plan’s usual index and margin in a variable rate plan and is less than a reasonably current APR that would result from application of the usual index or margin.68 A promotional rate does not have to be the first or initial rate that applies in a plan but can occur at any point in the plan.

Truth in Lending: 8.3.1.1 General

Creditors are required to make special “early” disclosures at the time an application is provided to the consumer.100 These disclosures are in addition to the HELOC-specific and general “account-opening” disclosures.101

Truth in Lending: 8.3.1.2 Brochure

Both creditors and third parties providing applications must furnish consumers with a brochure available from the CFPB describing HELOC plans.115 The brochure describes HELOC plans, including their potential advantages and disadvantages. The brochure also provides guidance on how to compare HELOC plans with closed-end credit.

Truth in Lending: 8.3.2.1 General

Apart from the exceptions discussed in the following subsection, the disclosures and the brochure must be given to the consumer at the time an application is provided to the consumer.118