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May 26, 2010
Categories: Consumer Lending

Periodic Statements for HELOCs

Written by Steve Van Beek

Over the past two days, I've looked at the periodic statement requirement under the new Reg Z (see here and here).  On the same subject, quite a few credit unions are hearing from their processors that the CU needs to have their HELOCs comply with the new periodic statement requirements.  I'm not convinced this is true as Section 226.7 of Regulation Z is split into two subsections.  Subsection 226.7(a) details the rules for HELOCs and 226.7(b) contains the requirements for other open-end (non-home secured) credit plans - including credit card accounts.  

The July 1, 2010 revisions to Reg Z only impacted subsection 226.7(b) as the Federal Reserve has proposed separate amendments to the HELOC rules that have yet to be finalized.  Here is language from the Fed on how the July 1, 2010 rules impact HELOC periodic statement disclosures:
"7(a) Rules Affecting Home-Equity Plans 
Periodic statement disclosure and format requirements for HELOCs subject to § 226.5b were unaffected by the June 2007 Proposal, consistent with the Board’s plan to review Regulation Z’s disclosure rules for home-secured credit in a future rulemaking. To facilitate compliance, the substantively unrevised requirements applicable only to HELOCs are grouped together in § 226.7(a). (See redesignation table below.) 
For HELOCs, creditors are required to comply with the disclosure requirements under § 226.7(a)(1) through (a)(10). Except for the addition of an exception that HELOC creditors may utilize at their option (further discussed below), these rules and accompanying commentary are substantively unchanged from current § 226.7(a) through (k) and the June 2007 Proposal. As proposed, § 226.7(a) also provides that at their option, creditors offering HELOCs may comply with the requirements of § 226.7(b). The Board understands that some creditors may use a single processing system to generate periodic statements for all open-end products they offer, including HELOCs. These creditors would have the option to generate statements according to a single set of rules."  74 Fed. Reg. 5315.
Additionally, when looking at the text of 226.7(a) itself - credit unions have the option of whether to follow the existing rules in 226.7(a) or whether to follow the rules in 226.7(b) applicable to the credit union's other open-end credit disclosures.
"§ 226.7   Periodic statement.

The creditor shall furnish the consumer with a periodic statement that discloses the following items, to the extent applicable:

(a) Rules affecting home-equity plans. The requirements of paragraph (a) of this section apply only to home-equity plans subject to the requirements of §226.5b. Alternatively, a creditor subject to this paragraph may, at its option, comply with any of the requirements of paragraph (b) of this section; however, any creditor that chooses not to provide a disclosure under paragraph (a)(7) of this section must comply with paragraph (b)(6) of this section."  (emphasis added).

Thus, the CU has the option of whether to follow 226.7(a) or the new revised 226.7(b) for its HELOC periodic statements.  If your processor is requiring or strongly encouraging the switch now, the CU can do so.  And, from the looks of the model forms from the proposed rule - G-24(A); G-24(B); and G-24(C) - credit unions will be required to move toward the new periodic statements for HELOCs in the near future.  

Note:  The Fed's reference to paragraph (a)(7) relates to the requirement to disclose the "effective APR."  This requirement still exists for HELOCs, but the CU could, alternatively, follow the fee and interest disclosures under 226.7(b)(6).  The CU must disclose one or the other.

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