If the draw note is limited to a one-time maximum, and the customer cannot redraw up to the maximum after repaying the balance, then we believe the draw note should be considered closed-end credit under Regulation Z.

Under Regulation Z, if a loan does not fall under the definition of open-end credit, then it is considered closed-end credit. 12 CFR 1026.2(a)(10). Open-end credit is defined as consumer credit that meets the following criteria: (1) the creditor expects repeated transactions, (2) the creditor may impose a finance charge on the outstanding unpaid balance, and (3) the amount of credit that may be extended to the consumer during the term of the plan is replenished as any outstanding balance is repaid. 12 CFR 1026.2(a)(20). Based on what you have told us, it sounds like the draw note would not permit the customer to redraw any amounts after repaying all or part of the balance; instead, the customer may draw up to the maximum amount only one time, through the fixed monthly withdrawals. The draw note you are contemplating may be similar to the example of a closed-end note given in the staff commentary:

“Under a closed-end commitment, the creditor might agree to lend a total of $10,000 in a series of advances as needed by the consumer. When a consumer has borrowed the full $10,000, no more is advanced under that particular agreement, even if there has been repayment of a portion of the debt.” Official Interpretations, 12 CFR 1026, Paragraph 2(a)(20), Comment 5(i).

As to the disclosure requirements, we believe that you can treat the draw note as you would a closed-end, multiple-advance construction loan, under the special procedure set forth in Appendix D to Regulation Z.