We think it would be prudent to classify the HELOC as a variable-rate plan. Classifying and advertising such a HELOC as a fixed-rate plan might raise UDAAP risks. The CFPB has the power to deem any practice as “unfair, deceptive, or abusive”, even if the practice does not violate any law or regulation. 12 USC 5531. Because classifying a HELOC as a fixed-rate plan when the rate actually changes after the first six months might be misinterpreted or viewed as confusing to customers, we recommend considering the possible UDAAP risks.

We believe you are able to offer the home equity loan with an introductory rate for six months, as long as the proper disclosures are made. In the initial agreement you should provide that the HELOC will have an introductory low interest rate that will change after six months. The staff commentary says that “[a] creditor also may provide for other specific changes to take place upon the occurrence of specific events. Both the triggering event and the resulting modification must be stated with specificity … A contract could contain a stepped-rate or stepped-fee schedule providing for specified changes in the rate or the fees on certain dates or after a specified period of time.” Official Interpretations, 12 CFR 1026.40, Paragraph 40(f)(3)(i), Comment 1. The rules list the proper disclosures that should be made for variable-rate HELOCs. See 12 CFR 1026.40(d)(12).