Reg Z TILA Disclosures Requirements for Fixed Loan

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Question:

Are any TILA disclosures required when an open end HELOC has the option to fix portions of the line during the draw period? The fixed loan options are tied to the line and work like a credit card with fixed rate options.Where in Reg Z is this addressed?

Answer:

This must be included in the plan disclosure. Refer to the commentary of 1026.40 (d)(5)(ii) - Payment Terms:

2. Fixed rate and term payment options during draw period. If the home equity plan permits the consumer to repay all or part of the balance during the draw period at a fixed rate (rather than a variable rate) and over a specified time period, this feature must be disclosed. To illustrate, a variable-rate plan may permit a consumer to elect during a ten-year draw period to repay all or a portion of the balance over a three-year period at a fixed rate. The creditor must disclose the rules relating to this feature including the period during which the option can be selected, the length of time over which repayment can occur, any fees imposed for such a feature, and the specific rate or a description of the index and margin that will apply upon exercise of this choice. For example, the index and margin disclosure might state: "If you choose to convert any portion of your balance to a fixed rate, the rate will be the highest prime rate published in the Wall Street Journal that is in effect at the date of conversion plus a margin." If the fixed rate is to be determined according to an index, it must be one that is outside the creditor's control and is publicly available in accordance with 1026.40(f)(1). The effect of exercising the option should not be reflected elsewhere in the disclosures, such as in the historical example required in 1026.40(d)(12)(xi).

First published on BankersOnline.com 6/3/13