What types of credit are covered under Regulation Z? What types of credit are excluded?
With some exceptions for credit cards, Reg Z applies to credit that is:
• Repayable in more than 4 installments – OR –
• Subject to a finance charge
Does not apply to:
• Loans for business, commercial, or agricultural purposes; to a non‐natural person (entity)
• Credit over $58,300 (adjusted annually) unless:
- Secured by real property/personal property used as a dwelling
- Private educational loans
Reg Z: Definitions of open-end and closed-end credit
OPEN-END CREDIT meets the following criteria:
› Repeated transactions
› Finance charge on the outstanding balance
› Available credit is replenished as the outstanding balance is repaid
All other credit plans are CLOSED-END CREDIT plans.
Reg Z: What is a “dwelling”?
A residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
Reg Z: Open-End Credit
Differences in the account opening disclosures for HELOCs and other open-end credit. When must the disclosures be provided?
HELOC Account Opening:
- Provided to the member prior to the first transaction being conducted
- Many of these disclosures are similar to the application disclosures
- Content requirements for the application disclosures are highly dependent on the terms of the HELOC
Other Open-End Credit (Personal Lines of Credit or Credit Cards) Account Opening:
- Tabular format: APR, fees, interest and transaction charges, grace period
- Must be provided to the member prior to the first transaction being conducted
- These disclosures must also be at least 10-point font (16-point font for the purchase APR)
Reg Z: Open-End Credit
What disclosures are required when advertising a promotional APR for open-end credit?
› When the promotional rate will end
› The APR that will apply after the end of the promotional period
If dependent on creditworthiness, advertisement must disclose the specific rates or the range of rates that might apply.
Reg Z: Open-End Credit
What are the change in terms requirements for open-end credit?
45-day advanced notice must be provided whenever the credit union changes a term required to be in the account opening disclosures — such as the late fee or APR.
CREDIT CARD ACCOUNTS
1. APR Increases - Must disclose on which balances the new higher APR will apply and which balances the current APR will continue to apply. Needs to disclose a statement of up to four principal reasons for the APR increase – listed in order of importance.
- Right to Reject (does not apply to APR increases) - Notice must include a statement about the member’s right to reject, the process for a member to reject the changes and, if applicable, the member’s inability to make further transactions on the account if the member rejects the changes.
- Delinquency - Notice of penalty rate if a member is less than 60 days late, more than 60 days late, and how to cure the increased APR or fee
Reg Z: Open-End Credit
What are the periodic statements requirements for the different open-end credit products? What are the timing requirements for providing each statement?
HELOC Periodic Statements: Regulation Z requires periodic statements
When?
- HELOC‐specific requirements
- Generic open‐end credit requirements
Periodic Statements (Not Home Secured): Requirements
- Send each billing cycle
- Need to group fees and interest charges separately from other transactions
- Fees and interest charges must be totaled for the period (i.e., monthly) and YTD, and disclosed in a tabular format
- Credit card statements must disclose additional information, including a late payment warning, a minimum payment warning and a repayment disclosure example
When?
- Non‐credit card w/NO GRACE PERIOD: 14 days prior to due date
- Non‐credit card w/GRACE PERIOD: 21 days prior to grace period end
- Credit card: 21 days prior to due date
Reg Z: Open-End Credit
When are additional disclosures required for NON-HELOC open-end credit advertising? Are there any exceptions?
Additional disclosures whenever a trigger term (e.g., APR, transaction fees, annual fee) is mentioned in an advertisement of not home-secured open-end credit.
REQUIRED DISCLOSURES:
› Any minimum, fixed, transaction, activity or similar charge that is a finance charge
› The APR and if the plan provides for a variable APR
› Any membership or participation fee that could be imposed
For television or radio advertisements, these disclosures do not have to be included. Credit unions can provide the APR (and a statement if the account has a variable rate) as well as a toll-free telephone number for members to call for the additional disclosure information.
Reg Z: Open-End Credit
What are the special rules applicable to HELOCs?
Limitations on:
- Changing terms
- Terminating plans
- Demanding repayment of HELOCs
Reg Z: Open-End Credit
Do all open-end credit products have application disclosure requirements? If not, which ones do?
Not all have application disclosure requirements. HELOC and credit card applications do.
Reg Z: Open-End Credit
What are the special advertising rules applicable to HELOCs?
If trigger terms (finance or other charges) or the payment terms of the plan – either in the positive or negative are stated, the following needs to be included:
› Any minimum, fixed, transaction, activity or similar charge that is a finance charge
› Any membership or participation fee that could be imposed
› Any loan fee that is a percentage of the credit limit under the plan and an estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range
› The APR and if the plan provides for a variable APR, that fact shall be disclosed
› The maximum APR that may be imposed in a variable-rate plan
There are also special HELOC advertising requirements if the credit union’s advertisement includes any of the following:
› Discount or Premium Initial Rates – where the advertised initial APR is not based on the same index and margin used for later rate adjustments under the plan
› Balloon Payments – where the advertisement states any minimum payment and a balloon payment may result if a member makes only those minimum payments
› Tax Implications – where the advertisement mentions the potential availability of a tax deduction for interest expenses under a HELOC plan
› Promotional Rates and Payments – where the advertisement includes a promotional APR or a promotional payment amount
Reg Z: Closed-End Credit
What are the disclosure requirements for private education loans? When can a member cancel the loan?
- Application disclosures - Need to be included on or with the private education loan application
- Approval disclosures - Need to be given to the member at the time the approval is communicated to the member. After the member has been approved, the member needs to be given up to 30 calendar days to accept the loan.
- Final disclosures - Only if a member accepts the loan. The member has 3 business days after receipt of the final disclosures to cancel the loan.
Reg Z: Closed-End Credit
What are the post consummation disclosure requirements for modifications and refinances of closed-end credit?
Refinance - Must provide new closed-end disclosures to its member
Modifications - New closed-end disclosures are not required as the modification does not meet the definition of a “refinance”
Reg Z: Closed-End Credit
What are the trigger terms for closed-end credit advertising (4)? What are the disclosure requirements when stating a trigger term (3)?
Closed-End Credit Trigger Terms:
› Amount or percentage of any downpayment
› Number of payments or period of repayment
› Amount of any payment
› Amount of any finance charge
Disclosure Requirements:
› Amount or percentage of the downpayment
› Terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment
› APR and if the rate may be increased after consummation
Disclosing a downpayment only applies when the credit union is also the seller of property to be financed.
