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#2272161 - 06/27/22 07:41 PM Increasing Margin at Renewal
dhutson Offline
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Joined: Sep 2015
Posts: 29
If a 12 month open-end (non home secured) LOC is at maturity, can you increase the margin with a renewal agreement? The renewal agreement includes all the same truth in lending disclosures that would be given for a new loan.

The open-end pricing is based on the credit score and bank is wanting to reevaluate credit score and reprice at renewal (rather than refinancing into a new loan). This would involve increasing or decreasing the margin depending on the credit score. Trying to determine if Reg Z allows this or if it triggers 45 day advance change in terms notice that wouldn't be satisfied by the renewal agreement.

Also there is one tier of the pricing that would switch from variable to fixed. Depending on how the credit score moved from year to year, this could have the loan switching back and forth from variable to fixed at renewal. Does Reg Z allow this with a renewal agreement? or does it trigger the 45 day advance change in terms notice?

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#2272167 - 06/27/22 09:28 PM Re: Increasing Margin at Renewal dhutson
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
The term renewal means nothing. You are either refinancing the line because it has reached maturity, or you are executing a modification to the existing line to potentially extend the maturity date of the line and making other changes. Which is it? What does your current legal obligation with the consumer say?
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#2273113 - 07/20/22 04:24 PM Re: Increasing Margin at Renewal dhutson
dhutson Offline
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Joined: Sep 2015
Posts: 29
Wolter's Kluwer's stated that the renewal agreement is a modification of the original agreement, but some in bank are arguing that if we have a hard maturity and no obligation to renew/refinance/modify the original, that would make the renewal agreement a new agreement (refinance) and not a modification.

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#2273117 - 07/20/22 04:37 PM Re: Increasing Margin at Renewal dhutson
Dan Persfull Online
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
some in bank are arguing that if we have a hard maturity and no obligation to renew/refinance/modify the original, that would make the renewal agreement a new agreement (refinance) and not a modification.

Reg. Z 1026.20(a) identifies what a refinancing is for redisclosure purposes.

If there is disagreement among bank personnel if the transaction is a refinancing or a modification then your best course of action is to get your legal counsel involved.


I just realized this is open-end credit so you will need to refer to 1026.9.
Last edited by Dan Persfull; 07/20/22 04:39 PM.
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#2273121 - 07/20/22 05:11 PM Re: Increasing Margin at Renewal dhutson
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
"but some in bank are arguing that if we have a hard maturity and no obligation to renew/refinance/modify the original, that would make the renewal agreement a new agreement (refinance) and not a modification."

If the "some in bank" does not include your legal counsel, they do not count. Talk to your legal counsel.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2273122 - 07/20/22 05:12 PM Re: Increasing Margin at Renewal dhutson
dhutson Offline
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Joined: Sep 2015
Posts: 29
I can only find refinance defined for closed-end transactions under 1026.20 for Closed-end credit. Does Reg Z give a definition of refinance for open-end?

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