Skip to content
GeoDataVision
Thread Options
#2198702 - 11/19/18 10:19 PM LOC converted to Closed End Payout, NonHomeSecured
ItsJustMe Offline
Gold Star
Joined: Dec 2009
Posts: 292
New York
We have 'regular' lines of credit that were granted for the purpose of students attending school. At the end of the draw/line of credit phase the LOC is converted to a closed-end phase where P&I payments pay the remaining balance off at a fixed rate.

The LOC account opening disclosure explains that: minimum monthly payments based on the unpaid principal balance plus FC will be made according to the payment schedule determined at the conclusion of the LOC phase; APR will be calculated in accordance with paragraph D.2 (explanation of APR calc); the bank will notify of minimum monthly payment at end of LOC phase.

Does something like this type of conversion require a full Reg. Z disclosure (it's not a refi)? Or is notification, say in the form of a letter, sufficient giving the information we say we're going to give at repayment phase (above)?

Return to Top
Lending Compliance
#2198713 - 11/20/18 09:29 AM Re: LOC converted to Closed End Payout, NonHomeSecured ItsJustMe
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 79,926
Galveston, TX
Well, you are either converting them to a closed-end loan which requires new disclosure or this repayment period is a function on the open-end line, which would require you to continue delivering open-end periodic statements to the customer.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2198717 - 11/20/18 11:43 AM Re: LOC converted to Closed End Payout, NonHomeSecured ItsJustMe
Richard Insley Offline
10K Club
Richard Insley
Joined: Oct 2000
Posts: 10,086
Toano, VA
Originally Posted By ItsJustMe
'regular' lines of credit that were granted for the purpose of students attending school
Does this product actually begin as a revolving LOC? My bank (long ago) did lots of this kind of financing, but the student/parents started with a multiple-advance closed-end loan--very much like a construction loan. For the same reasons that a revolver would be a poor choice for construction lending, it seems unlikely for education lending. Does the first phase of your credit plan have a replenishment feature? If not, then maybe you are modifying one type of closed-end credit to another--not converting from open-end to closed-end.
_________________________
...gone fishing.

Return to Top
#2198730 - 11/20/18 02:04 PM Re: LOC converted to Closed End Payout, NonHomeSecured ItsJustMe
ItsJustMe Offline
Gold Star
Joined: Dec 2009
Posts: 292
New York
Thank you rlcarey and Richard Insley for your responses. First, to answer your question Richard, the LOC does have a replenishment feature in that if the line is paid down, they may take additional advances. Second, I agree with you rlcarey in that since this is converting from a LOC to a closed end loan new disclosures are required under 1026.20. Somewhere, somehow Lending stopped that practice and now just send a letter with all the repayment information. I'll get it corrected.

Return to Top
#2198764 - 11/20/18 04:35 PM Re: LOC converted to Closed End Payout, NonHomeSecured ItsJustMe
rainman Offline
Power Poster
rainman
Joined: Nov 2004
Posts: 3,103
Look carefully at your docs before you do that. If the docs provide for a draw period during which advances can be taken, and a repayment period during which no further advances can be taken (like many HELOCs do), then you are not really converting from open to closed. You just have a continuation of the open end loan, now in repayment phase.
_________________________
Nobody's perfect, not even a perfect stranger.

Return to Top
#2198789 - 11/20/18 07:04 PM Re: LOC converted to Closed End Payout, NonHomeSecured ItsJustMe
ItsJustMe Offline
Gold Star
Joined: Dec 2009
Posts: 292
New York
rainman, the docs do provide for a draw period and a repayment period. I'll look to see if what we have is clear but it seems that we should be okay. Thanks all!

Return to Top
#2198845 - 11/21/18 08:52 AM Re: LOC converted to Closed End Payout, NonHomeSecured ItsJustMe
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 79,926
Galveston, TX
If that is the case, then the accounts remain covered under the open-end regulations and periodic monthly statements will be required to be continued.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top

Moderator:  Andy_Z