The requirements of this section
apply to open-end credit plans secured by the consumer’s dwelling.
For purposes of this section, an annual percentage rate is the annual
percentage rate corresponding to the periodic rate as determined under
section 1026.14(b).
(1) Retention
of information. A statement that the consumer should make or
otherwise retain a copy of the disclosures.
(2) Conditions
for disclosed terms.
(i) 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.
(ii) A statement that, if a disclosed
term changes (other than a change due to fluctuations in the index
in a variable-rate plan) prior to opening the plan and the consumer
therefore elects not to open the plan, the consumer may receive a
refund of all fees paid in connection with the application.
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(3) Security interest and risk to home. A statement
that the creditor will acquire a security interest in the consumer’s
dwelling and that loss of the dwelling may occur in the event of default.
(4) Possible actions by creditor.
(i) A statement
that, under certain conditions, the creditor may terminate the plan
and require payment of the outstanding balance in full in a single
payment and impose fees upon termination; prohibit additional extensions
of credit or reduce the credit limit; and, as specified in the initial
agreement, implement certain changes in the plan.
(ii) A statement that the consumer may
receive, upon request, information about the conditions under which
such actions may occur.
(iii) In lieu of the disclosure required under paragraph (d)(4)(ii)
of this section, a statement of such conditions.
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(5) Payment terms. The payment terms of the
plan. If different payment terms may apply to the draw and any repayment
period, or if different payment terms may apply within either period,
the disclosures shall reflect the different payment terms. The payment
terms of the plan include:
(i) The length of the draw period and
any repayment period.
(ii) An explanation of how the minimum periodic payment will be determined
and the timing of the payments. If paying only the minimum periodic
payments may not repay any of the principal or may repay less than
the outstanding balance, a statement of this fact, as well as a statement
that a balloon payment may result. A balloon payment results if paying
the minimum periodic payments does not fully amortize the outstanding
balance by a specified date or time, and the consumer must repay the
entire outstanding balance at such time.
(iii) An example, based on a $10,000
outstanding balance and a recent annual percentage rate, showing the
minimum periodic payment, any balloon payment, and the time it would
take to repay the $10,000 outstanding balance if the consumer made
only those payments and obtained no additional extensions of credit.
For fixed-rate plans, a recent annual percentage rate is a rate that
has been in effect under the plan within the twelve months preceding
the date the disclosures are provided to the consumer. For variable-rate
plans, a recent annual percentage rate is the most recent rate provided
in the historical example described in paragraph (d)(12)(xi) of this
section or a rate that has been in effect under the plan since the
date of the most recent rate in the table.
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(6) Annual percentage rate. For fixed-rate plans, a recent annual
percentage rate imposed under the plan and a statement that the rate
does not include costs other than interest. A recent annual percentage
rate is a rate that has been in effect under the plan within the twelve
months preceding the date the disclosures are provided to the consumer.
(7) Fees imposed by creditor. An itemization
of any fees imposed by the creditor to open, use, or maintain the
plan, stated as a dollar amount or percentage, and when such fees
are payable.
(8) Fees imposed by third parties to open a plan. A good faith estimate, stated as a single dollar amount or range,
of any fees that may be imposed by persons other than the creditor
to open the plan, as well as a statement that the consumer may receive,
upon request, a good faith itemization of such fees. In lieu of the
statement, the itemization of such fees may be provided.
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(9) Negative amortization. A statement that negative amortization
may occur and that negative amortization increases the principal balance
and reduces the consumer’s equity in the dwelling.
(10) Transaction requirements. Any limitations on the number of extensions
of credit and the amount of credit that may be obtained during any
time period, as well as any minimum outstanding balance and minimum
draw requirements, stated as dollar amounts or percentages.
(11) Tax implications. A statement that the consumer should consult
a tax advisor regarding the deductibility of interest and charges
under the plan.
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(12) Disclosures for variable-rate plans. For
a plan in which the annual percentage rate is variable, the following
disclosures, as applicable:
(i) The fact that the annual percentage
rate, payment, or term may change due to the variable-rate feature.
(ii) A statement that
the annual percentage rate does not include costs other than interest.
(iii) The index used
in making rate adjustments and a source of information about the index.
(iv) An explanation
of how the annual percentage rate will be determined, including an
explanation of how the index is adjusted, such as by the addition
of a margin.
(v)
A statement that the consumer should ask about the current index value,
margin, discount or premium, and annual percentage rate.
(vi) A statement that the
initial annual percentage rate is not based on the index and margin
used to make later rate ad- justments, and the period of time such
initial rate will be in effect.
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(vii) The frequency of changes in the
annual percentage rate.
(viii) Any rules relating to changes in the index value and the annual
percentage rate and resulting changes in the payment amount, including,
for example, an explanation of payment limitations and rate carryover.
(ix) A statement of
any annual or more frequent periodic limitations on changes in the
annual percentage rate (or a statement that no annual limitation exists),
as well as a statement of the maximum annual percentage rate that
may be imposed under each payment option.
(x) The minimum periodic payment required
when the maximum annual percentage rate for each payment option is
in effect for a $10,000 outstanding balance, and a statement of the
earliest date or time the maximum rate may be imposed.
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(xi) An historical example,
based on a $10,000 extension of credit, illustrating how annual percentage
rates and payments would have been affected by index value changes
implemented according to the terms of the plan. The historical example
shall be based on the most recent 15 years of index values (selected
for the same time period each year) and shall reflect all significant
plan terms, such as negative amortization, rate carryover, rate discounts,
and rate and payment limitations, that would have been affected by
the index movement during the period.
(xii) A statement that rate information
will be provided on or with each periodic statement.
(1) Change the annual percentage rate unless:
(i) Such change is based on an index that is not under the creditor’s
control; and
(ii)
Such index is available to the general public.
(2) Terminate a plan and demand
repayment of the entire outstanding balance in advance of the original
term (except for reverse mortgage transactions that are subject to
paragraph (f)(4) of this section) unless:
(i) There is fraud or
material misrepresentation by the consumer in connection with the
plan;
(ii) The consumer
fails to meet the repayment terms of the agreement for any outstanding
balance;
(iii) Any
action or inaction by the consumer adversely affects the creditor’s
security for the plan, or any right of the creditor in such security;
or
(iv) Federal
law dealing with credit extended by a depository institution to its
executive officers specifically requires that as a condition of the
plan the credit shall become due and payable on demand, provided that
the creditor includes such a provision in the initial agreement.
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(3) Change any term, except
that a creditor may:
(i) Provide in the initial agreement
that it may prohibit additional extensions of credit or reduce the
credit limit during any period in which the maximum annual percentage
rate is reached. A creditor also may provide in the initial agreement
that specified changes will occur if a specified event takes place
(for example, that the annual percentage rate will increase a specified
amount if the consumer leaves the creditor’s employment).
(ii)(A) Change the index and margin
used under the plan if the original index is no longer available,
the replacement index has historical fluctuations substantially similar
to that of the original index, and the replacement index and replacement
margin would have resulted in an annual percentage rate substantially
similar to the rate in effect at the time the original index became
unavailable. If the replacement index is newly established and therefore
does not have any rate history, it may be used if it and the replacement
margin will produce an annual percentage rate substantially similar
to the rate in effect when the original index became unavailable;
or
(B) If
a variable rate on the plan is calculated using a LIBOR index, change
the LIBOR index and the margin for calculating the variable rate on
or after April 1, 2022, to a replacement index and a replacement margin,
as long as historical fluctuations in the LIBOR index and replacement
index were substantially similar, and as long as the replacement index
value in effect on October 18, 2021, and replacement margin will produce
an annual percentage rate substantially similar to the rate calculated
using the LIBOR index value in effect on October 18, 2021, and the
margin that applied to the variable rate immediately prior to the
replacement of the LIBOR index used under the plan. If the replacement
index is newly established and therefore does not have any rate history,
it may be used if the replacement index value in effect on October
18, 2021, and the replacement margin will produce an annual percentage
rate substantially similar to the rate calculated using the LIBOR
index value in effect on October 18, 2021, and the margin that applied
to the variable rate immediately prior to the replacement of the LIBOR
index used under the plan. If the replacement index is not published
on October 18, 2021, the creditor generally must use the next calendar
day for which both the LIBOR index and the replacement index are published
as the date for selecting indices values in determining whether the
annual percentage rate based on the replacement index is substantially
similar to the rate based on the LIBOR index. The one exception is
that if the replacement index is the Board-selected benchmark replacement
for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month
U.S. Dollar LIBOR index, the creditor must use the index value on
June 30, 2023, for the LIBOR index and, for the Board-selected benchmark
replacement for consumer loans, must use the index value on the first
date that index is published, in determining whether the annual percentage
rate based on the replacement index is substantially similar to the
rate based on the LIBOR index.
(iii) Make a specified change if the
consumer specifically agrees to it in writing at that time.
(iv) Make a change that
will unequivocally benefit the consumer throughout the remainder of
the plan.
(v) Make
an insignificant change to terms.
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(vi) Prohibit additional extensions
of credit or reduce the credit limit applicable to an agreement during
any period in which:
(A) The value of the dwelling that secures
the plan declines significantly below the dwelling’s appraised
value for purposes of the plan;
(B) The creditor reasonably believes that
the consumer will be unable to fulfill the repayment obligations under
the plan because of a material change in the consumer’s financial
circumstances;
(C) The
consumer is in default of any material obligation under the agreement;
(D) The creditor is precluded
by government action from imposing the annual percentage rate provided
for in the agreement;
(E)
The priority of the creditor’s security interest is adversely
affected by government action to the extent that the value of the
security interest is less than 120 percent of the credit line; or
(F) The creditor is notified
by its regulatory agency that continued advances constitute an unsafe
and unsound practice.
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(4) For reverse mortgage transactions
that are subject to section 1026.33, terminate a plan and demand repayment
of the entire outstanding balance in advance of the original term
except:
(i) In the case of default;
(ii) If the consumer transfers
title to the property securing the note;
(iii) If the consumer ceases using the
property securing the note as the primary dwelling; or
(iv) Upon the consumer’s
death.
