We give our employees a .50 basis point discount on their home equity lines of credit. We booked an employee's loan in error with the full margin. The disclosures and the credit agreement they signed are all for the full margin. To correct the error, do we only have to send them a notice of change in terms? We disclosed and processed their loan in accordance with what they signed, but we want to correct it. I don't see any reason to re-disclose anything. And as far as reimbursement, I think that is an internal issue, rather than regulatory. Am I oversimplifying?

From a Reg Z perspective I don't think there is any need to redisclose the loan terms. The terms of the legal obligation is what is required to be disclosed. It sounds like your disclosed terms in this case matched the legal obligation. However, nothing prevents the lender from informally charging less than the terms of the legal obligation. Since the practice is in the consumer's favor, I don't think Reg Z would *require* you to redisclose (or reimburse, for that matter).

At a former bank where I worked we sometimes handled employee loans this way. In other words, we documented the loans at the full rate, but serviced them at a lower rate. The idea was that the rate could be raised without worrying about variable rate disclosures if the employee left the bank. (I spoke with a Staff Attorney at the FRB at the time, and he said it sounded OK to him. I'm not saying we were right, that's just how we did it sometimes.)

I agree, as far as reimbursement goes, you still don't have a Reg Z issue. However, if I was the employee in this situation, I think I would appreciate getting a reimbursement and it would leave a very sour taste in my mouth if my employer decided not to give it.