We implemented a new HELOC with a draw and repayment period last year. I am testing my personal loan to make sure that the product works properly when it reaches it’s end of draw period. The loan is tied to prime, which just changed, and to my surprise our system generated an ARM notice. The payment can also change monthly based on the rate, balance, etc. Our core processor states that because the loan is now is in the amortizing stage that it is subject to the notices. Does it sound right that once the loan reaches the end of draw period that in addition to the monthly billing notice that the customer is also to receive a monthly ARM notice? When I read 12 CFR 1026.20 (c) it only talks about closed-end credit and open-end converting to a closed end but nothing as it relates to open-end HELOCs reaching the end of draw. Any guidance would be appreciated.

They continue receiving periodic statements - these don't convert to closed-end credit because the draw period expires if your agreement also includes a repayment period. Some LOS systems that I know of have no ability to handle a HELOC that enters the repayment period. Good luck.

1026.40 - Comment 5

i. 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 §§1026.6 and 1026.40, and not under subpart C. Furthermore, the creditor must continue to provide periodic statements under §1026.7 and comply with other provisions of subpart B (such as the substantive requirements of §1026.40(f)) throughout the plan, including the repayment phase.

I knew that they still continue receiving periodic statements. I just can't figure out why the core thinks it requires an monthly ARM notice. UGH! Thanks.