We have just started to offer a HELOC product that can have a portion of the line converted to a closed-end fixed rate loan. My question is: Do we have to re-disclose the fixed portion of the the line when they opt to convert and would there be another recission notice? I think we at least have to provide a TIL disclosure for the fixed rate but I am getting some push-back. Any help?

According to this section of the Commentary, whether disclosures are required under Part C for closed-end transactions depends on whether the line is replenished when the fixed rate/fixed payment portion is repaid.

Commentary 226.5b 5

5. Payment terms—applicability of closed-end provisions and substantive rules. All payment terms that are provided for in the initial agreement are subject to the requirements of subpart B and not subpart C of the regulation. Payment terms that are subsequently added to the agreement may be subject to subpart B or to subpart C, depending on the circumstances. The following examples apply these general rules to different situations:
• If the initial agreement provides for a repayment phase or for other payment terms such as options permitting conversion of part or all of the balance to a fixed rate during the draw period, these terms must be disclosed pursuant to §§226.5b and 226.6, and not under subpart C. Furthermore, the creditor must continue to provide periodic statements under §226.7 and comply with other provisions of subpart B (such as the substantive requirements of §226.5b(f)) throughout the plan, including the repayment phase.

• If the consumer and the creditor enter into an agreement during the draw period to repay all or part of the principal balance on different terms (for example, with a fixed rate of interest) and the amount of available credit will be replenished as the principal balance is repaid, the creditor must continue to comply with subpart B. For example, the creditor must continue to provide periodic statements and comply with the substantive requirements of §226.5b(f) throughout the plan.

• If the consumer and creditor enter into an agreement during the draw period to repay all or part of the principal balance and the amount of available credit will not be replenished as the principal balance is repaid, the creditor must give closed-end credit disclosures pursuant to subpart C for that new agreement. In such cases, subpart B, including the substantive rules, does not apply to the closed-end credit transaction, although it will continue to apply to any remaining open-end credit available under the plan.

Raquel--Thanks so much. That is exactly what I needed. I love a day when I learn something new!

And if that is the case, then these fixed rate/fixed term loans remain part of the credit line and have to be properly reflected on the monthly periodic statements.

Follow-up question - what are the HMDA implications of this product? Are they reportable when the borrower converts a portion of the line to a fixed rate/fixed term loan?

Thanks Randy. Good point. It is mentioned in the Official Staff Interpretation.

Follow-up question - what are the HMDA implications of this product? Are they reportable when the borrower converts a portion of the line to a fixed rate/fixed term loan?

It depends, if it stays part of the open-end credit line, no - it is just a feature within the line. If you convert it out of the line into a closed-end loan, then they would be reportable refinances.

Ok, that makes sense. Thanks so much!