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BOARD PROPOSES REVISIONS TO REGULATION Z HELOC RULES

On July 23, 2009, the Federal Reserve Board (Board) proposed in draft form extensive changes to Regulation Z to (i) improve disclosures in connection with closed-end mortgages and home-equity lines of credit (HELOCs) and (ii) provide new consumer protections for all home-secured credit. The draft Federal Register notices for the separate HELOC and closed-end mortgage proposals are well over 600 pages each, not counting appendices, samples and model forms. Highlights of the HELOC proposal are summarized below. The closed-end mortgage proposal will be the subject of a future Alert.

Changes to HELOC Disclosures

The Board proposes substantial changes to the content, format and timing of HELOC disclosures, as explained below. A number of new and revised model forms and samples accompany the proposal.

Disclosures at Application. Creditors would be required to provide a new one-page “Key Questions to Ask about Home Equity Lines of Credit” drafted by the Board instead of a generic disclosure of the creditor’s HELOC rates and terms and the Board’s existing 20-page brochure.

Disclosures Within Three Days after Application. Creditors would be required to provide a new transaction-specific disclosure with key information in a tabular format.

Disclosures at Account Opening. New formatting and content requirements would apply to disclosures of rates, terms, payments and risks, roughly parallel to the disclosures made within three days after application. New required disclosures would include identification of the lender and borrower, account number, credit limit and total account-opening fees. Although in general the HELOC account-opening table would be significantly different than the credit card account-opening table, a few of the proposed changes for HELOCs are consistent with the January 2009 Regulation Z Rule for credit cards, including (i) characterizing charges as “interest” or “fees” instead of “finance charges” and “other charges” and (ii) permitting some fees to be disclosed orally or in writing after account opening.

Periodic Statements. New formatting and content requirements would apply to periodic statements for HELOCs, generally following the requirements in the January 2009 Regulation Z Rule for credit cards.

Change-in-Terms Notices. New timing, formatting and content requirements would apply to change-in-terms notice for HELOCs, generally following the requirements in the January 2009 Regulation Z Rule for credit cards.

Other Changes to HELOC Requirements and Restrictions

The proposal also provides additional guidance and protections and revised disclosure requirements related to (i) account terminations, (ii) line suspensions and credit limit reductions and (iii) reinstatement of accounts.

Change Affecting All Open- and Closed-End Credit

In addition, the Board proposes to permit creditors to exclude credit insurance premiums or debt cancellation or suspension charges from the finance charge only if the creditor determines at the time of enrollment that the consumer meets any applicable age or employment eligibility criteria for the insurance or coverage. This proposal applies to all open-end plans (both HELOCs and open-end (not home-secured) credit), as well as to closed-end credit transactions.

Request for Comment

The Board seeks comment on the proposal within 120 days after publication in the Federal Register.

Contact us for more information on the proposal.

  • Margaret Stolar and