My team and I have been having a lot of debate on this and would love for some other fellow bankers to opine: For the purposes of Reg Z, could a HELOC with an "access card" potentially be considered a credit card (this triggering additional Reg Z disclosures)? Any comments would be appreciated, thank you!

Any card, regardless what name the FI may give it, that can access the HELOC is a credit card.

This is very helpful - what regulatory support do you use to support this?

The definition of a credit card found in Reg Z Section 1026.2 and its Commentary.

So what do you make of this part of the Reg?
(15)(i) Credit card means any card, plate, or other single credit device that may be used from time to time to obtain credit.

(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 §1026.40 that is accessed by a credit card; or

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

Would that than exclude HELOCs?

Before this goes any further, describe your access card. What is it? Are you issuing a VISA or MC debit card tied to a checking account or actually issuing one of their credit cards? Access card does not tell us a whole lot.

Hi there,

I probably need to do a little more research but in our product guide, it is called a "HELOC Visa Credit Card". Purchases are an advance against the HELOC and it allows signature based Point of Sale transactions. What I don't know is if it is tied to a checking account or not...I will have to report back.

The reason I ask is that some banks do issue Visa Credit Cards that access the HELOC directly. In some banks, the customer has a checking account and the HELOC advances when the account becomes overdrawn and there is a VISA debit card tied to the checking account.

The third thing that I see is that the bank establishes a dummy checking account which the customer really has no access to and issues a VISA debit card tied to the checking account. When the customer uses the debit card it overdraws the checking account and money is swept from the HELOC to the checking account. In these cases, the banks are violating the VISA debit card issuer rules.

So, that is why I asked as each scenario requires different disclosures and one is not really allowed.

For us, this is true: "In some banks, the customer has a checking account and the HELOC advances when the account becomes overdrawn and there is a VISA debit card tied to the checking account."

Under this scenario, should we be providing the billing error rights summary for credit cards to our checking account customers?

Is the following correct in regards to Reg Z and Visa or MasterCard agreements?

1. A consumer checking account that is linked to a HELOC or Line of Credit (consumer not RE secured)to advance funds when the checking account becomes overdrawn and the checking account has a Debit card is OK.
2. A line of credit(consumer or commercial and not RE secured) with a Debit card is OK.
3. A HELOC with a credit card is OK. A debit card can not be issued on a HELOC.

2. A line of credit(consumer or commercial and not RE secured) with a Debit card is OK.

What is that? A debit card directly linked to a consumer liability account. That is not possible.

In regards to number 2 I'm basing this on the following:

(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:

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

You have to run this through a checking account regardless of the treatment of the transactions under Regulation Z. Neither VISA or MC will allow their debit cards to be tied directly to a consumer liability account.

OK, Thanks.

If I may put a different spin on this line of questioning - our Bank is currently looking at tying our HELOC's (RE secured) to our Mastercard/Visa Debit Cards. Is this possible and what regulations are we looking at in regards to compliance?

You cannot tied them directly. I have seen some banks establish a dummy checking account tied to the HELOC and debit card - that will also violate the Visa and MC rules as the customer has no access to the dummy checking account. It is purely used to advance the HELOC by use of the debit card.

Visa and MC do not want their debit cards to fall under Regulation Z error resolution provisions under any circumstances.

Our bank is working with a "major" core processor on offering a HELOC with debit card access to the loan funds. My understanding is that there will be a "shadow" account opened that will be the "go between" for the HELOC and the VISA debit card. Based on the prior posts it appears that this is not allowed by VISA - is that accurate?

Core processor clarifed product - it will be a CREDIT card - not a debit card. Should not be a problem having CREDIT card tied directly to HELOC.

It would not be a problem, but you need a license from VISA or MC to issue credit cards and not debit cards.

You need to separate how the processing works, the Regulation Z definition, and the issuance requirement imposed by VISA and MC. They are all separate issues.

HELOC tied to checking account with funds swept between the two as funds are advanced/repaid
Customer given checks and Mastercard debit card to advance funds directly from the checking account/HELOC
No other access is allowed to the checking account

The Mastercard rules prohibit this because the debit card is tied directly to the loan, correct?
A Mastercard credit card agreement would have to be obtained, correct?
Reg Z billing resolution rules would then apply, correct?

A customer's primary checking account, with Mastercard debit card, is tied to a checking account/HELOC as described above for overdraft protection.

Mastercard rules allow this because the debit card is issued to the primary checking account rather than to the checking account/HELOC, correct?
Reg E error resolution rules would apply to the primary checking account, with Reg Z out of the picture, correct?

Yes, on all questions.

You should also be aware of any state law limitations on HELOC access. Texas, for example, has some strict limits on what can be done.

So, similarly, if a customer has a HELOC Access Card tied directly to the loan as a credit product, it would not be subject to the Special Credit Card provisions of 12 CFR 1026.12? That is what it sounds like I am hearing from the above. However, in practicality it sounds like most institutions don't truly have such a product. There is usually a checking account somewhere in the process such that the HELOC Access Card is really a debit card?

If the checking account is nothing but a dummy account (no actual other checking activity is allowed and only debt card withdrawal are processed through the account offset by an advance from the HELOC) then doing so would be a violation of VISA and MC rules. You have to issue a credit card - a debit card can only be linked to a consumer asset account and not a liability account. This was a trick used years ago - but it is not a valid account set-up.

Thank you RL! And, if it is truly issued as a credit card, then is it subject to the Special Credit Card Provisions of 12 CFR 1026.12 or not? I am being tripped up by the same part mentioned above -

Credit card means any card, plate, or other single credit device that may be used from time to time to obtain credit.

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 home-equity plan subject to the requirements of § 1026.40 that is accessed by a credit card; or

An overdraft line of credit that is accessed by a debit card or an account number.

So, it is obviously not a "credit card account under an open-end (not home secured) consumer credit plan," but does that mean it is also not a "credit card?" Or, is this particular definition only specific to some obscure section of Reg. Z?

Well it is definitely a credit card - it is just not subject to 1026.12 - but rather 1026.40 and the HELOC statement requirements - as they are draws on the line.

So, since 1026.40 does not have any liability provisions, is this aspect just covered by whatever agreement exists with the card provider, such as Visa/Mastercard or whoever? Do no liability protections really exist from a Reg. Z standpoint for these types of credit cards?

It is open-end credit - why would Regulation Z liabilities not apply. Don't you use Model G-3 in your disclosures.

Because the liability protections are noted in 12 CFR 1026.12(b), whereas you stated previously that 1026.12 does not apply to HELOC Access Cards . . .

I do see the caption in Model Form G-3 that covers the unauthorized use from Billing Error standpoint under 1026.13, but I don't see where there is the $50 liability protection rule, as there is with the Credit Card provisions of 1026.12(b). Does 1026.13 basically have full liability protection if the investigation determines an error did take place, meaning that the customer is not liable in any amount?

Also, I see in the Model Form G-3 that there is a $50 liability protection rule for merchant disputes, if the transaction took place within the home state of the consumer or 100 miles from their mailing address. However, I do not see any cross reference in the Regulation itself that establishes such protections. Is it just that the reference in 1026.6(a)(5) to using the model form is the Regulatory basis for these protections?

1026.6(a)(5) Statement of billing rights. A statement that outlines the consumer's rights and the creditor's responsibilities under §§1026.12(c) and 1026.13 and that is substantially similar to the statement found in Model Form G–3 or, at the creditor's option, G–3(A), in Appendix G to this part.

Alright. Not a common way to establish a Regulatory basis, but . . . Thank you!

How about the unauthorized use - Does 1026.13 basically give full protection to the holder of the open-end credit account?