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Compliance Can a CU change existing loan terms
WASHINGTON (8/29/08)—When a federal credit union has been offering home equity line of credit (HELOC) loans to members for years, can it modify the terms of existing loans to reflect a newly adopted policy, asks the Credit Union National Association’s (CUNA’s) Compliance Challenge (CCC). Say, for instance, the credit union wants to set an interest-rate floor for all its adjustable-rate HELOCs. Simple enough, of course, for new loans: The credit union just has to change the language in its HELOC loan agreement. But can it effectively make this change for existing loans while maintaining compliance with the Truth in Lending Act and Regulation Z? Well, it might be tough, says the CCC. The credit union must obtain the member’s agreement in writing to add a floor interest rate to his or her existing HELOC loan. Regulation Z states that a creditor may only change the terms of a home equity plan when the change is insignificant or when the change benefits the consumer throughout the remainder of the plan. This just isn’t the case in the credit unions’ plan to set a rate floor. CUNA warns that it would be very unlikely that the credit union would receive written approval from all members to change terms on existing HELOC loans. And this would bring with it its own challenge: Since terms would remain unchanged on loans without written approval, the credit union's data processing system would have to be capable of tracking multiple HELOC plans—those with no change in terms and those with a change in terms. For more CUNA compliance tips, and more Reg Z information, use the resource links below.
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