IBA Compliance Connection

Your go to source for compliance!

In the application disclosures that we send to applicants for variable rate HELOCs, we disclose the lowest possible APR (an APR “floor”). But after we analyze the applicant’s creditworthiness, sometimes we have to raise the APR floor, resulting in a floor that is higher than the floor disclosed in our application disclosures. The application disclosures do specify that all of the disclosed terms are subject to change. Does it violate Regulation Z to change the final APR from the disclosed APR?

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No, Regulation Z would not prohibit a creditor from offering an APR floor that differs from the APR floor disclosed on the HELOC application disclosures, provided that this term was disclosed as being subject to change — and you have indicated that it was.

Because the HELOC application disclosures are provided “at the time an application is provided to the consumer,” it would be impossible to determine the appropriate APR floor for a particular applicant at the time of disclosure. For that reason, Regulation Z permits lenders to change these terms, provided that they are disclosed as being subject to change.

For resources related to our guidance, please see:

  • Regulation Z, 12 CFR 1026.40(a)(1) (“The disclosures and brochure required by paragraphs (d) and (e) of this section shall be provided at the time an application is provided to the consumer.”)

  • Regulation Z, 12 CFR 1026.40(d)(2)(i) (“The creditor shall provide the following disclosures, as applicable: . . . A statement of the time by which the consumer must submit an application to obtain specific terms disclosed and an identification of any disclosed term that is subject to change prior to opening the plan.”)

  • Official Interpretations, 12 CFR 1026, Paragraph 40(d)(2)(i), Comment 1 (“The requirement that the creditor disclose the time by which an application must be submitted to obtain the disclosed terms does not require the creditor to guarantee any terms. If a creditor chooses not to guarantee any terms, it must disclose that all of the terms are subject to change prior to opening the plan. The creditor also is permitted to guarantee some terms and not others, but must indicate which terms are subject to change.”)