Placing Floor Rate On Existing HELOCs
Answer by Andy Zavoina and David Dickinson, BOL Guru Guru Bios
Question: With interest rates continuing to decline, is it permissible to give a 30 day notice to current HELOC customers and place a floor rate?
Answer: After reading Section 226.5b(f) of Regulation Z, you will discover that creditors may NOT initiate unilateral ANY unfavorable change to HELOCs. In spite of the fact that other types of open end credit accounts can be administered this way, the HELOC is subject to much tougher rules.
Notice, however, that the prohibition only addresses unilateral changes. With the customer's agreement, you can modify anything. Although customers may not accept a floor with nothing in return, you might interest them in both a floor and a generously low ceiling. It's important to note that mutually agreeable modifications must be negotiated with each customer - you still can't impose changes across the board.
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