§ 226.5b  Requirements for home equity plans. 

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 § 226.14(b).
(a)   Form of disclosures–(1)   General.   The disclosures required by paragraph (d) of this section shall be made clearly and conspicuously and shall be grouped together and segregated from all unrelated information. The disclosures may be provided on the application form or on a separate form. The disclosure described in paragraph (d)(4)(iii), the itemization of third-party fees described in paragraph (d)(8), and the variable-rate information described in paragraph (d)(12) of this section may be provided separately from the other required disclosures.
(2)   Precedence of certain disclosures.   The disclosures described in paragraph (d)(1) through (4)(ii) of this section shall precede the other required disclosures.
(b)   Time of disclosures.   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.{10a}

{10aThe disclosures and the brochure may be delivered or placed in the mail not later than three business days following receipt of a consumer’s application in the case of applications contained in magazines or other publications, or when the application is received by telephone or through an intermediary agent or broker.}

(c)   Duties of third parties.  (1)  General.  Persons other than the creditor who provide applications to consumers for home equity plans must provide the brochure required under paragraph (e) of this section at the time an application is provided. If such persons have the disclosures required under paragraph (d) of this section for a creditor’s home equity plan, they also shall provide the disclosures at such time.10a
(2)  Electronic communication.  Persons other than the creditor that are required to comply with paragraphs (d) and (e) of this section may use electronic communication in accordance with the requirements of § 226.36, as applicable.
(d)   Content of disclosures.   The creditor shall provide the following disclosures, as applicable:
(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.
(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.
{{10-31-01 p.6652.01}}
(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.
(5)   Payment terms.   The payment terms of the plan, including:
(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.{10b}

{10bA 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,{10c}

{10cFor 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.}

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.
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.
(6)   Annual percentage rate.   For fixed-rate plans, a recent annual percentage rate10c imposed under the plan and a statement that the rate does not include costs other than interest.
(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.
(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.
(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.
{{10-31-01 p.6652.02}}
(vi)  A statement that the initial annual percentage rate is not based on the index and margin used to make later rate adjustments, and the period of time such initial rate will be in effect.
(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.
(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 signficant 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.
(e)   Brochure.   The home equity brochure published by the Board or a suitable substitute shall be provided.
(f)   Limitations on home equity plans.   No creditor may, by contract or otherwise:
(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.
(3)  Change any term, except that a creditor may:
(i)  Provide in the initial agreement that it may prohibit additional extension 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)  Change the index and margin used under the plan if the original index is no longer available, the new index has an historical movement substantially similar to that of the original index, and the new index and margin would have resulted in an annual percentage rate substantially similar to the rate in effect at the time the original index became unavailable.
(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.
{{8-31-01 p.6652.03}}
(v)  Make an insignificant change to terms.
(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.
(4)  For reverse mortgage transactions that are subject to § 226.33, 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.
(g)   Refund of fees.   A creditor shall refund all fees paid by the consumer to anyone in connection with an application if any term required to be disclosed under paragraph (d) of this section changes (other than a change due to fluctuations in the index in a variable-rate plan) before the plan is opened and, as a result, the consumer elects not to open the plan.
(h)   Imposition of nonrefundable fees.   Neither a creditor nor any other person may impose a nonrefundable fee in connection with an application until three business days after the consumer receives the disclosures and brochure required under this section.{10d}

{10dIf the disclosures and brochure are mailed to the consumer, the consumer is considered to have received them three business days after they are mailed.}

[Codified to 12 C.F.R. § 226.5b] 

[Section 226.5b added at 54 Fed. Reg. 24686, June 9, 1989, effective June 7, 1989, but compliance is optional until November 7, 1989; amended at 55 Fed. Reg. 38312, September 18, 1990, effective September 18, 1990, but compliance is optional until October 1, 1991; 57 Fed. Reg. 34681, August 6, 1992, effective June 29, 1992, but compliance optional until October 1, 1993; 60 Fed. Reg. 15471, March 24, 1995, effective March 22, 1995, compliance is optional until October 1, 1995; 66 Fed. Reg. 17338, March 30, 2001, effective March 30, 2001]

§ 226.16  Advertising.

(a)  Actually available terms.  If an advertisement for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the creditor.
(b)  Advertisement of terms that require additional disclosures.  If any of the terms required to be disclosed under§ 226.6 is set forth in an advertisement, the advertisement shall also clearly and conspicuously set forth the following:{36d}

{36d The disclosures given in accordance with § 226.5a do not constitute advertising terms for purposes of the requirements of this section.}

(1)  Any minimum, fixed, transaction, activity or similar charge that could be imposed.
(2)  Any periodic rate that may be applied expressed as an annual percentage rate as determined under § 226.14(b). If the plan provides for a variable periodic rate, that fact shall be disclosed.
(3)  Any membership or participation fee that could be imposed.
(c)  Catalogs or other multiple-page advertisements; electronic advertisements.  (1)  If a catalog or other multiple-page advertisement or an advertisement using electronic communication, gives information in a table or schedule in sufficient detail to permit determination of the disclosures required by paragraph (b) of this section, it shall be considered a single advertisement if:
(i)  The table or schedule is clearly and conspicuously set forth; and
(ii)  Any statement of terms set forth in § 226.6 appearing anywhere else in the catalog or advertisement clearly refers to the page or location where the table or schedule begins.
(2)  A catalog or other mutiple-page advertisement or an advertisement using electronic communication complies with this paragraph if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered.
(d)   Additional requirements for home equity plans–(1)  Advertisement of terms that require additional disclosures. If any of the terms required to be disclosed under § 226.6(a) or (b) or the payment terms of the plan are set forth, affirmatively or negatively, in an advertisement for a home equity plan subject to the requirements of § 226.5b, the advertisement also shall clearly and conspicuously set forth the following:
(i)  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.
(ii)  Any periodic rate used to compute the finance charge, expressed as an annual percentage rate as determined under section § 226.14(b).
(iii)  The maximum annual percentage rate that may be imposed in a variable-rate plan.
(2)   Discounted and premium rates.   If an 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, the advertisement also shall state the period of time such rate will be in effect, and, with equal prominence to the initial rate, a reasonably current annual percentage rate that would have been in effect using the index and margin.
(3)   Balloon payment.   If an advertisement contains a statement about any minimum periodic payment, the advertisement also shall state, if applicable, that a balloon payment may result.{36e}

{36e See footnote 10b.}

{{4-30-02 p.6661}}
(4)  Tax implications.   An advertisement that states that any interest expense incurred under the home equity plan is or may be tax deductible may not be misleading in this regard.
(5)   Misleading terms.   An advertisement may not refer to a home equity plan as “free money” or contain a similarly misleading term.

[Codified to 12 C.F.R. § 226.16] 

[Section 226.16 amended at 54 Fed. Reg. 13867, April 6, 1989, effective April 3, 1989, but compliance is optional until August 31, 1989; 54 Fed. Reg. 24688, June 9, 1989, effective June 7, 1989, but compliance is optional until November 7, 1989; 59 Fed. Reg. 40204, August 5, 1994, effective July 29, 1994; 59 Fed. Reg. 63715, December 9, 1994, effective December 8, 1994; 66 Fed. Reg. 17338, March 30, 2001, effective March 30, 2001]