There is no requirement to provide an advance change in terms/rate change notice to HELOC customers, correct? We include information in our early HELOC disclosure indicating "after you open a line of credit, rate information will be provided on periodic statements that we send you." As long as rate information is included on their periodic statement, we are in compliance?

Correct.

Question on this, as I think I want to insure my understanding.

Our HELOC product is tied to WSJP + MARGIN, with a floor rate.

Based on comment 9(c)(1), a change in terms notice is not needed if the rate increases under a properly disclosed variable-rate plan. I then turn to § 1026.40(f)(1) and note that in order for the APR to change it must be: (1) based on an index that is not under the creditor's control; and (2) such index is available to the general public.

I know (2) is met, as WSJP is avaialble to general public. I think go to official comment to figure out what is meant by "an index that is not under the creditor's control." When I read official comments, Comment 55(b)(2)-2, it seems that if you have a floor, the index is deemed to be under your control.

Am I reading this correctly?
So, we can't be changing the APR on our HELOCs since it doesn't meet § 1026.40(f).
Is there anything else I am missing?

I do not read that to mean that any rate changes on a HELOC that are based on an index and the plan contains a floor rate is no longer under the creditor's control.

There is no mention in 1026.40 similar to that of 1026.55 concerning card issuers - See (b)(2) - Comment 2.:

2. Index not under card issuer's control. A card issuer may increase a variable annual percentage rate pursuant to §1026.55(b)(2) only if the increase is based on an index or indices outside the card issuer's control. For purposes of §1026.55(b)(2), an index is under the card issuer's control if:

ii. The variable rate is subject to a fixed minimum rate or similar requirement that does not permit the variable rate to decrease consistent with reductions in the index. A card issuer is permitted, however, to establish a fixed maximum rate that does not permit the variable rate to increase consistent with increases in an index. For example, assume that, under the terms of an account, a variable rate will be adjusted monthly by adding a margin of 5 percentage points to a publicly-available index. When the account is opened, the index is 10% and therefore the variable rate is 15%. If the terms of the account provide that the variable rate will not decrease below 15% even if the index decreases below 10%, the card issuer cannot increase that rate pursuant to §1026.55(b)(2). However, §1026.55(b)(2) does not prohibit the card issuer from providing in the terms of the account that the variable rate will not increase above a certain amount (such as 20%).

Thank you. I bring up comment 55(b)(2)-2, because comment 9(c)(2)(v)-12 refers you to comment 55(b)(2)-2 for guidance on when an index is deemed to be under a creditor's control, so I was imputing that to HELOCs too.

The rabbit trails can be difficult to follow. But 9(c)(2)(v) (per the language of the reg itself) doesn't apply to HELOCs, so official comment 12 also doesn't apply.

Thank you.
The crux of my inquiry is, what sort of customer notification is required with Prime increasing if our HELOCs are variable based on WSJP + INDEX.
From what I am reading under § 1026.9(c)(1), an increase in Prime, which means an increase to the rate on the HELOC, we have to provide notice at least 15 days prior the effective date of change. When I read official comments, I don't think change falls in line with what is allowed for when "agreed to by the consumer." Would you agree? Or, am I missing another section somewhere?

From a purely theoretical standpoint, I would ask why you need to send notice of a change in terms when you are not actually changing a term? The HELOC agreement provides for a rate that is periodically adjusted based on WSJ prime. A change in the rate due to a change in WSJ prime is not a change in the contractual terms. Rather, you are performing the contract in accordance with its terms.

But you want the actual answer from the regulation, which is found in Official Comment 1 to Section 1026.9(c)(1):

1. Changes initially disclosed. No notice of a change in terms need be given if the specific change is set forth initially, such as: rate increases under a properly disclosed variable-rate plan,

For HELOCs the periodic statement is the notice for any rate change.

9(c) Change in Terms
9(c)(1) Rules Affecting Home-Equity Plans
1. Changes initially disclosed. No notice of a change in terms need be given if the specific change is set forth initially, such as: rate increases under a properly disclosed variable-rate plan,

I assume your HELOC agreement specifies that any rate change will be effective as of ............

Same product different issue. Our current HELOC's go with whatever prime is at the time of closing for the floor over the course of the term. Well with the recent spike in prime MGT wants to change the floor to be floating with prime to no less than 3%. Going forward no big deal. However, they want to change existing's I have looked in 1026.40 and i did not see anything about changing the floor. How exactly would we do that for existing's? We disclosure for the adjustment to prime in regards to possible quarterly changes, but our disclosures and notes all state what the floor will be over the course of the loan. Help!

How would lowering the floor rate on existing HELOCs not fall under the below?


1026.40(f)(3) Change any term, except that a creditor may:

(iv) Make a change that will unequivocally benefit the consumer throughout the remainder of the plan

I did see that, but I was hung up on the note and previous disclosures.

As always thank you Randy!