Compliance Blog

At this year's Regulatory Compliance Seminar that will be held in Savannah, Georgia, from October 1st through the 4th, the NAFCU Compliance team will be unveiling an advertising workshop solely related to HELOCs and closed-end mortgage loans. There are still a few seats left for the workshop session scheduled for the afternoon of Thursday, October 3rd. In anticipation of the workshop, I wanted to provide a brief refresher on the trigger terms associated with HELOCs.

Section 1026.16(b)(1) of Regulation Z describes the general trigger terms that apply to all open-end credit, and section 1026.16(d)(1) contains additional disclosures that are required for HELOCs. With respect to HELOCs, section 1026.16(b)(1) indicates that "[a]ny term required to be disclosed under §1026.6(a)(1) or (a)(2) set forth affirmatively or negatively in an advertisement for a home-equity plan subject to the requirements of §1026.40 triggers additional disclosures under this section." Those same terms are identified in section 1026.16(d)(1).  Section 1026.16(d)(1) also includes payment terms of the HELOC as a trigger term. In other words, if you advertise the circumstances under which a finance charge will be imposed and how the finance charge will be determined - terms required to be disclosed under section 1026.6(a)(1) - or the amount of any charge other than a finance charge that may be imposed as part of the plan - what is required by section 1026.6(a)(2) - or the payment terms of the plan, then you trigger the additional disclosures set forth in sections 1026.16(b)(1)(i) through (iii) and sections 1026.16(d)(1)(i) through (iii):

• Any minimum, fixed, transaction, activity, or similar charge that is a finance charge that could be imposed;
• Any membership or participation fee that could be imposed;
• Any periodic rate that may be applied, expressed as an annual percentage rate and, if applicable, the fact that the rate is variable;
• Any loan fee that is a percentage of the credit limit under the plan and an estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range; and
• The maximum APR that may be imposed in a variable-rate plan.

You may be wondering what terms might trigger these additional disclosures. The following terms would be trigger terms under section 1026.6(a)(1):

• A statement of when a finance charge begins to accrue or an explanation of any time period when the outstanding balance can be repaid without incurring a finance charge;
• The APR or any other periodic rate;
• An explanation of how the balance is determined; and
• Any finance charge that may be imposed or an explanation or how any finance charge is determined.

And the commentary provides examples of what might be other charges under section 1026.6(a)(2):

• Late payment and over-the-limit fess;
• Charges imposed in connection with real estate transactions, such as title, appraisal, and credit report fees;
• Taxes imposed by a state or other governmental body; and
• Charges to terminate the plan.

See, 12 CFR Part 1026, Supp. I, Comment 6(a)(2)-1. The commentary also provides examples of charges that would not be an other charge under section 1026.6(a)(2) and would not be a trigger term under sections 1026.16(b)(1) and (d)(1):

• Fees imposed for collection activity after default, such as attorney's fees or foreclosure costs;
• Application fees charged to all applicants;
• Fees for submitting a payment that is later returned unpaid; and
• Premiums for voluntary credit life or property insurance that are not finance charges.

See, 12 CFR Part 1026, Supp. I, Comment 6(a)(2)-2.

The Thursday workshop session runs from 1:00 to 3:30PM. If you are joining us in Savannah for the Regulatory Compliance Seminar and are interested in the Thursday workshop, please email NAFCU or call 800.344.5580 to add the workshop to your registration.

Correction: The available session is on Thursday, October 3rd.