In the past our helocs were based on a 365 day year with no closing costs so our APR and interest rate were the same. We've just changed so that interest is calculated on a 360/actual basis. We've adjusted the periodic rate on the HELOC Agreement but not the APR, that info carries over from another field instead of using a formula. So our Agreement is still showing an APR that equals the interest rate and I'm questioning this.
Sec.226.14 talks about how to calculate the APR for initial disclosures and periodic statements; so which one is the Agreement signed at closing? If it's an initial disclosure then we need to multiply the periodic rate by 365 which gives us an APR that is higher than the rate (when you use 360 to get the periodic rate). If it's a periodic statement then there appears to be an exception if there is no balance, and technically that could be true at closing and when advertising.

Sorry to sound dense, but I really need to be sure of myself before I push this any further. Is anyone else using 360/actual on their helocs? How does it affect your advertising and credit agreement? Thanks.

The agreement is the initial disclosure. If you continue to calculate your APR for your disclosure in that manner, you are going to be out of tolerance anytime your interest rate exceeds 9.00%.

You are only doing this on "new" HELOCs - right - because you would be prevented from changing the interest calculation on existing HELOCs in this manner without a signed agreement.

You really need to review State law because in most states, the application of a 365/360 interest rate is illegal on most consumer loans. That is why you probably did not get much of a response.

(1) It's illegal in many states.
(2) It is really confusing for the consumer and doesn't do much from a marketing perspective when you have to disclose and advertise an APR that is higher than the underlying interest rate.

rlcarey- how did you come up with the 9% rate before things go astray? Asking because I might be aware of a bank that also does the same.

9% simple interest/360 * 365 days = 9.125%APR

Sec. 226.14 Determination of annual percentage rate.

(a) General rule. The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate. An annual percentage rate shall be considered accurate if it is not more than 1/8 of 1 percentage point above or below the annual percentage rate determined in accordance with this section.

Once you go over 9%, you start to exceed the 1/8 of 1 percent tolerence.

Got it! Thanks....

I have an similar question relating to the correct finance charge and APR disclosure on a HELOC.

Our APR and interest rates are also the same. We calculate on a 365 day year. We don't normally charge an origination fee on these. I recently came across a loan where the lender had charged an origination fee. I understand how this is to be disclosed on a closed-end loan, but what about on an open-ended HELOC? I think I should put the fee someplace on my note - perhaps on the last page under additional terms? We use Banker's Systems ARTA lending to prepare our loan documents.

My question is this, am I out of tolerance for not disclosing the fee? Do I follow the same tolerances as I do for closed-end loans? Would I have to re-figure my APR if an origination fee is to be charged (which is a finance charge)? How do I calculate an APR on a variable rate, open-ended loan?

If I am out of tolerance, I will need to expand my monitoring sample to make sure this isn't a pattern.

This depends on how the fee was paid. If it was paid in cash then you are fine. If it was paid from an advance at the time of closing, you are still fine, but the fee should have been included in the finance charges on the initial statement.

BTW, from an ECOA perspective, why was this specific borrower charged an origination fee when others aren't? And I hope they aren't a member of a protected class.

Thanks, DP! I am aware of the need to disclose any fees advanced up front as a finance charge on the first periodic statement. These fees were paid in cash at closing. I guess I just needed my dots connected. Our "disclosure" of the finance charge would come to the customer on the first periodic statement, not on the note at closing like you would see in a closed-end transaction. I think I am fine disclosing the fees on the note under additional charges and leaving my APR the same at my interest rate and as long as the initial advance is not to pay for finance charges.

I also think I am ok from an ECOA standpoint. This is a new piggy-back product offered by our mortgage company not the normal HELOC that people walking into the bank off the street receive. After more research, the fee is being charged on all of these piggy-back products. Thanks for the heads-ups too!

We have a prime + 0 products.
$310 in origination fee's.
How do we calculate the APR in this instance?

8. Start-up fees. Points, loan fees, and similar finance charges relating to the opening of the account that are paid prior to the issuance of the first periodic statement need not be disclosed on the periodic statement. If, however, these charges are financed as part of the plan, including charges that are paid out of the first advance, the charges must be disclosed as part of the finance charge on the first periodic statement. However, they need not be factored into the annual percentage rate.