The Fear of Change: Is Your Credit Union Required to Provide a Change-in-terms Notice? (Part 3)
Written by Alma Calcano, Regulatory Compliance Specialist
NAFCU’s compliance team often receives questions related to regulatory requirements for providing change-in-terms disclosures for different credit union products. This is the third in a series of three blogs to help you understand and navigate the numerous regulations governing change-in-terms requirements. In this blog, I will cover several key regulations governing change-in-terms notices for closed-end credit. Similar to the regulations governing change-in-terms notices for savings and checking accounts (covered in part 1), and change-in-terms notices for open-end credit (covered in part 2), the regulation requires a credit union to provide its members with change-in-terms notices before most changes in loan terms.
The change-in-terms provisions are different for closed-end consumer credit products such as mortgages, auto loans and loans secured by other types of personal property that do not contemplate repeated transactions. Regulation Z does not typically contemplate changes in account terms for closed-end credit plans. Changes to closed-end credit products which fall short of a refinancing (a new transaction requiring a complete new set of disclosures), are largely governed by state contract law and the agreement with the member. In addition to any state contract law requirements, NCUA issued a Supervisory Letter on workout agreements and loan modification programs, which provides helpful guidance.
Regulation |
Citation |
Notice Requirement |
Form of the Notice |
Exceptions |
Model Language, Forms & Disclosure Requirements |
Truth in Lending Act |
12 CFR § 1026.20. |
No change-in-terms notice typically contemplated in Regulation Z for closed-end credit plans; however, there are some provisions in section 1026.20. Additional disclosures required for loan modifications that fall within the definition of "refinancing." A loan modification is considered a "refinancing" if:
The loan agreement and state law will determine whether a particular transaction "satisfies" and "replaces" an existing obligation. |
Written disclosures, when applicable. |
Generally, credit unions are not required to provide notice when they implement changes involving a reduction of any component of a finance charge or other charge, or when the changes result from an agreement involving a court proceeding. Notice is not required for the following, since they are not treated as refinancings by Regulation Z:
Notice is not required prior to the reduction or upon reinstatement of a higher rate, provided the features were explained in the initial disclosure statement, when a HELOC plan allows a member to:
In addition, the rule provides exemptions for changes in the payment schedule because of the member's default or delinquency. |
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Truth in Lending ActAdjustable Rate Mortgages (ARMs) Rules |
12 CFR § 1026.20(c). |
A credit union is required to provide notice of an interest rate adjustment that results in an adjustment to the required payment at least 60 days but no more than 120 days before the first payment at the adjusted level is due. For ARMs with uniformly scheduled rate adjustments, (such as an adjustment every 60 days), and for ARMs originated prior to January 10, 2015, in which the adjusted interest rate and payment are calculated based on a date that is less than 45 days prior to the adjustment date, credit unions are required to provide notice to at least 25 days but no more than 120 days before the first payment at the adjusted level. If the first adjustment will occur within the first 210 after closing, the adjustment disclosure must be provided at consummation. See, 12 CFR § 1026.20(d). As soon as practicable, but not less than 25 days before the first payment at the adjusted level is due, for the first adjustment to an ARM if it occurs within 60 days of consummation and the new interest rate disclosed at consummation pursuant to §1026.20(d) was an estimate. See also, NAFCU’s blog ARM Adjustment Disclosures: The Basics. |
Written notice. |
The requirements of paragraph (c) do not apply to:
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The Fear of Change Trilogy
Compilation: Download the full Fear of Change blog series PDF