Our HELOCs are indexed to Wall St Prime and the agreements state "Adjustments to the Periodic Rate and the corresponding Annual Percentage Rate resulting from changes in the index will take effect monthly."

In the past, we have always made adjustments to the rate on the 1st of the month if prime changed in the preceding month. I'm now being told to change the rates as soon as the change is published in the WSJ.

My question -- what exactly does "monthly" mean? Once each calendar month? Once every 30 days? What if the rate changes on May 26th and then again on June 2nd?

Personally, I would rather stay safe and stick with the 1st of the month, but to do that I'll need some strong evidence that the other method has inherent problems.

Thanks.

When do your HELOC statements cut off? I would cause the rate to change the day after. You can probably still enter the rate onto your system when the rate changes.

I would clear up the obvious ambiguity in your initial disclosure/agreement. The timing of the interest rate change should be clearly disclosed.

Redsfan is correct that if your change the rate in the middle of the statement cycle you will need to ensure that your periodic statements are able to handle the disclosure requirements of having multiple rates apply within the statement cycle. Most standard HELOC statement writers do not handle very well.

Does your contract not go on to specify when the rate will change such as the 1st day of each billing cycle, the X day of each month, etc.? Under 226.6 you must disclose when the rate change will take affect. See the OSC to 226.6(a)(2)(6).

We don't state specifically when (e.g., X day of each month) but we do have the statement:

The periodic rate and the corresponding Annual Percentage Yield on your credit line will increase or decrease as the index increases or decreases from time to time.

The next sentence is where we state "Adjustments to the periodic rate and Annual Percentage Rate resulting from changes in the index will take effect monthly."

Are we in violation of 226.6, as we don't give a specific time when the rate change will be effective?

IMO yes. You say the rate change will take effect monthly, but you don't specify when the change takes place.

I concur - your note should read "your annual percentage rate can change monthly on the first day of the cycle" or something similar. You might want to contact your legal counsel.