I was asked to write a disclosure on a HELOC loan. It’s been awhile since I’ve been asked to write the required disclosures for a HELOC ad. So I could look this up in Regulation Z but I also found some Federal Regulator Examination Procedures that might prove helpful.
But first, I looked for the HELOC advertising rules in Regulation Z. I noticed that the triggering terms for a HELOC advertising are a bit different that the trigger terms in the closed end advertisement rule in Section 1026.24. Recall that a trigger term in an advertisement is an advertised term used in the ad that “triggers” the need to make additional disclosures to the consumer in a clear and conspicuous manner in your advertisement.
So first, I looked at the trigger terms in the law for open ends loans that involve real property. Note that this section of the law deal with open end credit plans that are either not home-secured or are in fact secured by real property. Our discussion here is dealing with the latter type that are known as Home Equity Lines of Credit (“HELOCs”).
The HELOC Triggers
Here’s the “triggers” I found in the rules for HELOCS. Note that the law refers to “any term required to be disclosed under 1026.6(a)(1) or (a)(2) of Regulation Z that are set forth affirmatively or negatively in an advertisement for a home quietly plan. See 1026.16(b). You then take a closer look at 1026.6(a) and you notice that this section proscribes rules related to “Account-opening disclosures” for home-equity plans.
The Required Disclosures When Triggers are Present
So if your ad references the following terms (either affirmatively or negatively) then your HELOC ad has triggers that require further disclosures to be made in the advertisement:
- FINANCE CHARGE. The circumstances under which a finance charge will be imposed and an explanation of how it will be determined. This includes any disclosure of the period rate or rates that will apply during the term of the HELOC loan.
- OTHER CHARGES. The amount of any charge other than a finance charge that may be imposed as part of the plan, or an explanation of how the charge will be determined
If any discussion of the Finance Charge or interest rate applicable on the loan is made in your ad this triggers the following additional disclosures that must be present in your advertisement:
- Any minimum, fixed, transaction, activity or similar charge that is a finance charge under § 1026.4 that could be imposed.
- Any periodic rate that may be applied expressed as an annual percentage rate as determined under § 1026.14(b). If the plan provides for a variable periodic rate, that fact shall be disclosed.
- Any membership or participation fee that could be imposed.
Additional Disclosures for HELOCS:
Section 1026.16(d) provides “Additional Requirements for Home-Equity Plans. These rules must also be considered when you are preparing a HELOC advertisement.
If any of the triggers described above are part of your HELOC ad, then the advertisement also shall clearly and conspicuously set forth the following:
- Any loan fee that is a percentage of the 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.
- Any periodic rate used to compute the finance charge, expressed as an annual percentage rate as determined under § 1026.14(b).
- The maximum annual percentage rate that may be imposed in a variable-rate plan.
See Regulation Z Section 1026.16(d).
Special Case disclosures for HELOCS
The advertising rules for HELOCS in this section of Regulation Z also require additional disclosures in certain special cases. We briefly list those rules below but recommend you look at Section 1026.16(d) and the Official Interpretations if your advertisement has any of these special situations advertised in your promotional piece.
DISCOUNTED AND PREMIUM RATES – If your advertisement states an initial annual percentage rate that is not based on the index and margin used to make later rate adjustments in a variable-rate plan, then the ad must also disclose:
- The period of time such initial rate will be in effect; and
- A reasonably current annual percentage rate that would have been in effect using the index and margin.
BALLOON PAYMENT. If an advertisement contains a statement related to the loan having a minimum monthly payment that can be made on the loan and a balloon payment may result if only the minimum monthly payments are made, then then the ad must state that a balloon payment may be applicable to this loan. This disclosure must also provide details about the amount and timing of the balloon payment.
TAX IMPLICATIONS. This particular tax deductibility rule is a bit different than the one we are used to that says interest on a mortgage loan may be tax deductible but “consult your tax adviser”. This rule instead applies only if the advertisement in question states that the advertised loan can exceed the fair market value of the dwelling. In such cases, the advertisement shall clearly and conspicuously state that:
- The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes; and
- The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.
MISLEADING TERMS are prohibited. This section simply says that your HELOC ad cannot use language like “free money” or any other similarly misleading term.
PROMOTIONAL RATES AND PAYMENTS. This rule deals with promotional rates on variable rate plans which are defined as a minimum payment applicable for a promotional period that is not based on the index and margin of the HELOC loan. Also, this rule applies where the promotion payment is less than other minimum payments under the plan derived by applying a reasonably current index and margin that will be used to determine the amount of such payments, given an assumed balance. If your HELOC advertisement has a promotional rate or promotional payment, then your ad must disclose, in a clear and conspicuous manner with equal prominence and in close proximity to each listing of the promotional rate or payment:
- The period of time during which the promotional payment will apply;
- In the case of a promotional rate, any annual percentage rate that will apply under the plan; and
- In the case of a
Envelope excluded. Note that these promotional rate and promotional payment disclosures rules do not apply to the an envelope in which the advertisement is mailed, and also do not apply to a banner advertisement or pop-up advertisement which is linked to an application or any advertisement that was provided electronically to the consumer.