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#2129790 - 05/09/17 10:09 PM variable rate HELOC with rate change ?
Chocaholic Offline
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Northwest
[b]Ok, I'm having a moment... we have a variable rate HELOC with a rate tied to WSJ prime rate plus margin. Since we disclose this as a VAR. product I think I do not need to send change in terms notice 15 days in advance but am still required to send notice before effective date. Our credit agreement indicates changes in the rate will take effect daily which means ... the rate changes on the 15th for example.. the new rate goes into effect on the 16th. The rate change notice is created on the 16th and mailed out. My problem, it is not sent before the effective date of the change as set-out below..

What is causing my "moment" is this section of the regulation:(c) Change in terms. (1) Rules affecting home-equity plans. (i) Written notice required. For home-equity plans subject to the requirements of §1026.40, whenever any term required to be disclosed under §1026.6(a) is changed or the required minimum periodic payment is increased, the creditor shall mail or deliver written notice of the change to each consumer who may be affected. The notice shall be mailed or delivered at least 15 days prior to the effective date of the change.][i]The 15-day timing requirement does not apply if the change has been agreed to by the consumer; the notice shall be given, however, before the effective date of the change.

Is this a problem?

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Lending Compliance
#2129794 - 05/09/17 10:33 PM Re: variable rate HELOC with rate change ? Chocaholic
rlcarey Online
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rlcarey
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Galveston, TX
Changes based on a variable rate for open-end products do not require pre-disclosure. It is reflected on their periodic statements. I hope your statements handle multiple periodic rates within the same statement cycle.
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#2129799 - 05/09/17 11:05 PM Re: variable rate HELOC with rate change ? rlcarey
fmissle Offline
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Pac NW
Originally Posted By rlcarey
Changes based on a variable rate for open-end products do not require pre-disclosure. It is reflected on their periodic statements. I hope your statements handle multiple periodic rates within the same statement cycle.


The exception to this would be a variable rate consumer-disclosable non-HLEOC line of credit with a floor rate. Under the commentary, because there is a floor rate, the rate is considered to be under the creditors control and you must provide 45 days notice prior to the change.

(right?)

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#2129801 - 05/09/17 11:07 PM Re: variable rate HELOC with rate change ? Chocaholic
fmissle Offline
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Pac NW
and I realize the question was on HELOCs, but I wanted to clarify for non-HELOC products.

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#2129810 - 05/10/17 11:40 AM Re: variable rate HELOC with rate change ? Chocaholic
rlcarey Online
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rlcarey
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Galveston, TX
Yes, you are absolutely correct - that is one caveat that you have to watch out for on non-HELOC open-end products.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2129932 - 05/10/17 05:46 PM Re: variable rate HELOC with rate change ? rlcarey
Chocaholic Offline
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Northwest
Thank you RL Carey..

I believe they do... under Finance charge calculation periodic statements show APR & Daily periodic rate , number of days at this balance and rate and accrued finance charge for each interest rate in the cycle...

Are we missing anything?

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#2129933 - 05/10/17 05:48 PM Re: variable rate HELOC with rate change ? fmissle
Chocaholic Offline
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thanks for the reminder- we do have floors on a couple of products mostly unsecured lines of credit
Last edited by Chocaholic; 05/10/17 06:09 PM.
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#2219143 - 08/05/19 09:08 PM Re: variable rate HELOC with rate change ? Chocaholic
LA Guns Offline
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Joined: Dec 2015
Posts: 24
I need to ask two questions relevant to this thread.

We have variable rate HELOCs. We have a floor and a ceiling on them. With rates declining we wanted to lower our floor rate, which is in favor of the customer. I think after reading up on this, we must provide a notice prior to the floor rate change date but it does not have to be a 15 day notice.

Secondly, we would not be able to raise the floor later without the customer's consent.

Are both of those correct?

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#2219156 - 08/05/19 10:40 PM Re: variable rate HELOC with rate change ? Chocaholic
rlcarey Online
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rlcarey
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Galveston, TX
You need a written agreement with the borrower under 1026.40 to change any terms of the loan.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2219551 - 08/12/19 06:11 PM Re: variable rate HELOC with rate change ? Chocaholic
BankerCMP Offline
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Joined: Aug 2019
Posts: 1
I also have questions relevant to this post. I'm fairly new to lending compliance and recently discovered a situation that was caught by a loan processor. A handful of active cash credit lines and our HELOC's from the past were set with a floor rate which I know causes an issue with current Reg Z, 1026.40. I also know that we have to disclose any changes to our HELOC customers. My questions are:

1) Do we have to notify our cash line(not-dwelling secured) customers if and when we remove the floor rate to their benefit?

and

2) When the floor is set higher than the current index rate and the floor rate is removed, is the interest over that time refunded to the customer, even though the agreement was valid at the time?

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