We have a home equity line of credit product that is under our consumer products. My question is can we use this product for a customer to renew current HELOC and payoff some business debt or shound we do it as a commercial LOC. The problem is the HELOC has a much better rate and term....and the customer is securing it with their primary residence...is there a problem with treating it as a consumer loan since a portion of it is consumer currently. I think in the end the majority of the balance will be commercial, not sure if that makes a difference.

The problem is the HELOC has a much better rate and term..

Who's problem - not the bank's. There is a reason that commercial loans are priced the way they are, it's called risk.

I meant "The problem is the HELOC has a much better rate and term" is why the Loan officer is wanting to put them in that particular product. Is this a problem???

From a compliance standpoint, no. However look at your HELOC contract. You will find that all the termination, reduction, suspension, etc prohibitions of 1026.40 will be found in the contract. This will drastically limit your ability to reduce, suspend or terminate the LOC.

It is not wise to co-mingle consumer loan contracts for business purpose credit. Just my humble opinion.

Thanks for your help.

"It is not wise to co-mingle consumer loan contracts for business purpose credit. Just my humble opinion."

With personal respect for and agreement with the above comment, nevertheless we have a similar situation with which the lender is proceeding. Regarding disclosures required when the proceeds of a HELOC are to be used for business purpose, I have been told that the only document required to be provided is the borrower's right to receive a copy of the appraisal. Is that correct?
What drives the required disclosures-the purpose for the funds or the fact that the borrower will be encumbering his personal residence? I would rather have us to over disclose than under disclose.
Thank you for your input.

If the loan is for a business purpose it is exempt from the Reg Z disclosure requirements even though you may be using the HELOC agreement. In this case you are not bound by the prohibitions because Reg Z applies but because of the contract you are using.

The right to receive a copy of the appraisal applies to any loan secured by a 1-4 family dwelling regardless of purpose.

So in the above circumstance, would you still give out the disclosures?

How do you use consumer product for a business purpose loan without having to be held to the tighter disclosure requirements and the protections that it gives the borrower?

Our doc prep system sets these up as consumer loans and we don't have a separate product for this type of loan.

Use your commercial line of credit documents secured by the real property.

Once the bank gives them the HELOC agreement, the bank (by what is written on the form) are giving them all the protections they do not deserve for a non-consumer transaction - the bank is giving them the protection by contract.