Truth in Lending: 8.5.1.4 Charges Excluded from “Other Charges”
Certain charges are not considered “other charges” for purposes of the initial disclosure.358 But it is less clear whether these charges are excluded from the periodic statement.
Certain charges are not considered “other charges” for purposes of the initial disclosure.358 But it is less clear whether these charges are excluded from the periodic statement.
The official interpretations explicitly exempt credit-limit increases from the ban on changing the HELOC terms because it is perceived to “unequivocally benefit the consumer.”361 The official interpretations also say no change-in-terms notice is required when increasing a consumer’s credit limit.362
Sometimes, though not always, creditors must give notice when changing the terms of a home equity line of credit (HELOC).366 The following subsections discuss four categories: changes that require fifteen days advance notice; notice by the effective date; notice after the change; and changes requiring no notice at all.
When making the following changes, HELOC creditors must mail or deliver written notice of the change at least fifteen days before the effective date of the change (unless the borrower has already agreed to the change) before:367
When the borrower agrees to a change in terms, the creditor may mail or deliver the notice as late as the effective date of the change.373 This exception, however, only applies to “unusual” changes that are “relatively unique” to an individual homeowner, such as replacing the collateral for a loan or where the creditor can advance additional credit or where the creditor raised the minimum payment.374 Creditors are not permitted to presume assent to the changes through the consumer’s use of the a
Creditors must also provide notice when prohibiting additional credit extensions or reducing the consumer’s credit line pursuant to section 1026.40(f)(3)(i) or (vi).377 The notice must provide specific reasons for the action taken and must be mailed to each affected consumer no more than three business days after taking action.
According to Regulation Z, HELOC creditors are not required to provide a change-of-terms notice when making changes resulting from an agreement involving a court proceeding (such as a settlement)380 or when reducing any finance charge or other charges.381 But, effective October 1, 2022, the exception for reducing charges does not apply to changing the margin in conjunction with replacing the LIBOR as the index specified in the contract.382
TILA and Regulation Z impose important substantive limitations on home equity line of credit (HELOC) contracts and HELOC creditors. The limitations apply to assignees and holders, as well as the original creditors. The limitations apply to both the draw and repayment periods of a HELOC, and to any renewal or modification of the HELOC agreement.388
A creditor must refund all fees paid by the consumer to anyone in connection with an application for a HELOC if any disclosed term changes (other than one resulting from a variable rate index change) before the plan is opened, and if, as a result of the change, the consumer decides not to enter into the plan.392 All fees paid in connection with the plan are subject to this requirement, including fees paid to third parties (e.g., insurance premiums and appraisal fees) as well as those paid directly to the creditor.
Neither the creditor nor any other person may impose a nonrefundable fee in connection with an application for a HELOC until three business days after the disclosure and required brochure have been received by the consumer.398 If the disclosures are mailed, the consumer is considered to have received them three business days after they were mailed.399
HELOCs may not have a variable rate unless the controlling index is both publicly available and not under the control of the creditor.403 A publicly available index need not always be published in a newspaper, but it must be independently verifiable by a consumer.404 Section 8.6.7.3, infra, describes what happens if the specif
The creditor’s ability to change the APR (i.e., the interest rate405) on a HELOC is more limited than for non-home-secured lines of credit. A HELOC creditor may not change the interest rate except in the following circumstances:
With the exception of the three circumstances described below, creditors may not terminate a HELOC and accelerate payment of the balance before the scheduled expiration of the HELOC plan412 (except for reverse mortgage transactions subject to Regulation Z § 1026.33). For example, unlike non-home-secured open-end credit, a HELOC may not be terminated simply because the interest rate has reached the maximum rate cap.413
Except for the circumstances described below, a creditor may not unilaterally change the terms of a HELOC plan, including increasing or adding any fees, after the account has been opened.430 This includes third-party fees for services.431 Creditors may, however, pass on increases in taxes and property or credit insurance that is otherwise properly excluded from the finance charge.432 A creditor may also have the right to change the terms where it w
A creditor may implement changes set forth in the contract that are contemplated on the occurrence of an event, as long as the triggering event and the resulting change are stated with specificity.434 For example, in an employee loan program, the contract could provide for a higher rate if the consumer’s employment with the creditor ends. Similarly, a creditor also could have a step rate schedule in which specified changes in the rate would occur on certain dates.
A creditor may change the index and margin used under a variable rate HELOC if the original index becomes unavailable. Historically, this provision has rarely been used. But it became more relevant when the widely used LIBOR (London Interbank Offered Rate) index ceased publication on June 30, 2023.438
A creditor replacing the LIBOR may follow the general rules in § 8.6.7.3.1, supra, or another set of rules written exclusively for the LIBOR. They are slightly different. Under the LIBOR rules, creditors were authorized from April 1, 2022 to replace it and the contractual margin, rather than wait until the LIBOR became unavailable in 2023.
Creditors may change the terms after a plan is opened if the consumer expressly agrees in writing to the change at that time.450 For example, a consumer and creditor could agree in writing to change repayment terms from interest-only payments to amortizing payments that reduced the principal balance.451 The written agreement, however, remains subject to the other provisions of Regulation Z.
After the plan has been entered into, creditors may make changes that “unequivocally benefit” the consumer for the remainder of the plan.455 Examples of such beneficial changes include offering the consumer the option of lower monthly payments, extending the plan on the same terms, and temporarily reducing rates or fees (as long as they are not increased later to levels higher than originally disclosed).456 But a change-in-terms notice may be required if, after a temporary reduction, the credito
The Act allows unilateral changes in “insignificant terms,” while Regulation Z permits “insignificant changes” to terms.459 Regardless of that distinction, this exception is “intended to address operational problems that would otherwise result if literal compliance with the blanket prohibition were required.”460 It includes changes in the creditor’s billing address, billing cycle date, and payment due date (as long as the grace period, if any, is not reduced).
Homeowners may rely on their HELOCs to fund emergency expenses or pay recurring costs, such as a child’s college tuition. In either case, the sudden and unexpected reduction in credit availability may leave a homeowner in desperate straits.462 As a result, TILA and Regulation Z specify only six circumstances where a creditor may unilaterally suspend credit or reduce the credit limit:463
The creditor must give each affected consumer written notice with “specific reasons” for the action when prohibiting additional extensions of credit or reducing the credit limit for one of the above reasons.481 (Creditors are not required to provide this notice when freezing or reducing a credit limit in lieu of termination and acceleration for one of the reasons listed in Regulation Z § 1026.40(f)(2), as described in the official interpretations to that paragraph.482) When providing the specifi
Consumers may dispute a creditor’s decision to restrict credit privileges by requesting reinstatement of the privilege.485 If the restriction was imposed for one of the reasons listed in Regulation Z § 1026.40(f)(3)(i) or (vi),486 the creditor must provide a written a notice with specific reason for the creditor’s action.487 If the creditor requires the consumer to request reinstatement of the privileges, the notice will explain the procedure for d
HELOCs, like other mortgage loans, are considered “high cost” if they meet a threshold, or “trigger,” based on either the APR or the total points and fees included in the loan.