Our bank has open-end variable rate (tied to an independent index) non-HELOC credits with floors. Since we have a floor the index is now considered to be under the bank's control effective Oct. 1, 2011. My interpretation is that if we want to avoid change in terms notices every time the rate changes we need to amend the terms of those loan agreements to eliminate the floors. It also appears we need to issue a change in terms notice when we amend the loan agreements to eliminate the floor. Am I correct, and does this change in terms notice trigger the right to opt out.

Bump. I have the same question.

Here are 2 articles I've found helpful in trying to figure out these changes going into effect Oct. 1:

http://www.creditunionmagazine.com/articles/reg-z-rate-changes

http://www.creditunionmagazine.com/articles/the-14day-question

I'm not sure about triggering the right to opt-out...

Thanks for the links!

Thanks for the links.
Here's a new twist. What happens if the index rate increases but it does not bring the rate above the floor on the loan. Is a notice required since the rate to the borrower is still the floor rate. Does it only change when the increase in the index causes the rate to go above the floor and any subsequent increases?

My apologies, but another twist. This relates to my previous question about a rate increase that does not bring the customer's effective rate above the floor. The loan documents can typically refer to the customer's rate or APR being prime plus a margin of "x"% with a floor of 7.50%. Since the regulation refers to increases in the "APR" and the customer's "APR" did increase with an increase in prime (it just did not increase above the floor). So what happens in that instance, notice or no notice. I know I'm splitting hairs, but I think it is a legitimate question.

Curious as to whether others are going to modify their LOC's to remove floors to avoid the 45-day prior notice requirement (anybody else think this is exactly the outcome that the Feds wanted?)...

The 14 day notice only applies to those open end loans with no grace period, correct?

No, the 14 day requirement applies even if there's no grace period. See 226.5(b)(2)(ii)(B)(2).

Thank you. One more question, this does not apply to home secured open end credit, right? In reading, it looks like home secured is still covered under 226.5b.

Does the employee discount disclosure change only apply to disclounted credit cards or other open end products and if so - does that mean HELOC's as well as out other lines.

There are specific requirements for HELOCs in 226.5b, but these general requirements apply to all open-end credit plans, including HELOCS.

Which change are you guys referring to? I am reading RIN No. 7100-AD55 and from what I can tell, it seems to cover only open end accounts accessed by a card (unless it can be accessed to purchase goods or services.) Am I missing something?

Apparently, I've missed something too...

I was responding to lmh0104's questions about the periodic statement requirements in 226.5 - at least I thought that's what the questions pertained to since there was a reference to 14 days. Maybe I misunderstood the questions. If so, I apologize.

Well, the original poster's question and Nashville Gal's links are talking about the CARD Act and its amendments to Reg Z (I think). But I am not seeing where the changes affect anything other than credit cards unless you offer a LOC that can be drawn upon directly for purchases or services (p. 6 of 323).

Based on the posts that follow those comments, I am thinking I am missing something or maybe everyone is referring to another change? There have been so many, I just searched for effective date October 1, 2011.

Maybe this change in definitions will help:

Effective 10/1/11 and with compliance optional before that date, paragraph 226.2(a)(15)(ii) is revised to read as follows:

(ii) Credit card account under an open-end (not home-secured) consumer credit plan means any open-end credit account that is accessed by a credit card, except:

(A) A home-equity plan subject to the requirements of § 226.5b that is accessed by a credit card; or

(B) An overdraft line of credit accessed by a debit card or an account number.

ETA: But it does look like some parts affect OE LOC's regardless of method of access.

I think the timing requirements for periodic statements apply to all open-end credit. There are two separate sections, one that applies to "credit card accounts under an open-end (not home-secured) consumer credit plan" and another that applies to "open-end consumer credit plans." The requirements for each type of plan differ, but I think all types of open-end credit are covered in one section or the other. I could definitely be wrong though.

Take a look at 226.5 in Alphabet Soup. Also, read the second article posted by NashvilleGal above.

Thanks all! I guess I should have read the whole thing not just the first few pages. I now have five different colored highlighters on my desk and I am pouring through this! Looks like a fun weekend for me!

Just to make sure there's no confusion...non-home secured ODP lines (as well as personal lines of credit) are subject to the 45-day notice of change in terms if you have a floor rate and the rate increases above the floor, regardless of the method of access.

The right to reject a change in account terms pertains solely to a credit card account under an open-end (not home secured) consumer credit plan. This term is defined under Regulation Z as follows:

A credit card account under an open-end (not home-secured) consumer credit plan means any open-end credit account accessed by a credit card, except:

(A) A credit card that accesses a home-equity plan subject to the requirements of §226.5b; or

(B) An overdraft line of credit accessed by a debit card or account number.

The discussion on the right to reject only pertaining to credit cards is discussed at pages 22964 and 22965 under “Right to Reject”.

Bringing this up again:

Original poster says "Since we have a floor the index is now considered to be under the bank's control effective Oct. 1, 2011"

Is the reason because of the floor or is it because it is in an independent index? What is an independent index anyway?

The floor is not considered an index. The index (i.e. WSJ Prime) is considered the index...it is independent because the bank is not in control of it. The floor, however, IS under the bank's control. It's the mere fact that the floor is under the bank's control that created this whole mess.

OK - I get it. I just misread his/her first sentence. So the fact the non-HELOC LOC has a floor puts it under our control and requires a 45 day advance notice to increase (or decreases?)the rate, so some banks are eliminating the floor, right?

I am sorry I am so dense on this, but I am coming into it late.

No problem.....it is only necessary to send them a 45-day notice if the rate is increasing over the floor.

Some are removing the floor...some are leaving the floor and will just send the 45-day notices (that's what we have opted to do). The only catch is...some of our lines have a rate change frequency of "daily"...some are "monthly". In order for it to work on our core (FiS Bankway) we will need to change the rate change frequency to every 45 days and code it as a Consumer ARL. The system will look at the rate every 45 days - if it is higher than the floor, it will generate a notice and increase the rate (in 45 days).

Thank you Many Hats! That helps a lot!