If the bank provides a HELOC application disclosure stating that the floor is 3.0, but the note says the floor is 4.5...is this a violation of TILA? In this case, let's say the actual rate/margin was Prime + 0 (so the actual rate should be 3.25), BUT the borrower is paying 4.5.

You cannot impose different terms from your Plan Disclosure in the HELOC agreement without first providing the consumer an opportunity to reject the new terms. If they do so you must refund any fess they have already paid. From 1026.40:

(2) Conditions for disclosed terms. (i) A statement of the time by which the consumer must submit an application to obtain specific terms disclosed and an identification of any disclosed term that is subject to change prior to opening the plan.

(ii) A statement that, if a disclosed term changes (other than a change due to fluctuations in the index in a variable-rate plan) prior to opening the plan and the consumer therefore elects not to open the plan, the consumer may receive a refund of all fees paid in connection with the application.


Different floors constitute different plans/terms. If your disclosures show a 3% floor and your agreements show a 4.5% floor you do have issues.

You should, IMO, adjust the rates to match your plan disclosures and reimburse any overcharged due to the bank's error.

Okay....BUT other than your opinion (which I certainly value), is there precedence for a required reimbursement? Has anyone heard of this issue coming up in an exam and being told by the regulator that they must reimburse?

http://www.fdic.gov/regulations/laws/rules/5000-300.html

Corrective Action Period

1. Open-end credit transactions will be subject to an adjustment if the violation occurred within the two-year period preceding the date of the current examination.


From the Commentary to 1026.40:

5. Rate limitations. Limitations on both periodic and maximum rates must be reflected in the historical example. If ranges of rate limitations are provided under §1026.40(d)(12)(ix), the highest rates provided in those ranges must be used in the example. Rate limitations that may apply more often than annually should be treated as if they were annual limitations. For example, if a creditor imposes a 1% cap every six months, this should be reflected in the example as if it were a 2% annual cap.


The plan disclosure you provided does not disclose accurate terms in how the rates are determined in your historical example. IOWs you provided these terms but switched them at closing. Commonly referred to as a "bait and switch" and falls under UDAAP.

Ok.....I am with you.

Anyone out there have experience with the OCC specifically on this?

Dan: This looks like it's specifically dealing with APR and finance charge violations though.

That document does address reimbursement policies based on APR and finance charge errors. However, the examiners can still go back to the date of last exam for reimbursement orders.

Or they could invoke UDAAP and go back much further.