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If a bank offers a HELOC product with a FRCO under which borrowers may fix the interest rate on a portion of their balance, must the bank disclose the amounts applicable to the FRCO on the periodic statement?

If a bank offers a home equity line of credit product with a fixed rate conversion option (FRCO) under which borrowers may fix the interest rate on a portion of their balance and make payments as if it were a closed-end amortizing loan (i.e., principal and interest payments that are different than that for the disclosed open-end plan), must the bank disclose on the periodic statement the amounts applicable to the FRCO or would this be subject to the periodic statement requirements applicable to residential mortgage loans of §1026.41 of Regulation Z (Truth in Lending Act)?

It depends on whether the principal portion of the payments made under the FCRO replenishes the line of credit. The answer is found in Comment 5 to §1026.40 of Regulation Z, entitled “Payment terms – applicability of closed-end provisions and substantive rules.” Specifically, Comments 5.i and ii to that section indicate that if the amount of credit will be replenished as the principal balance of a conversion of part or all of the balance to a fixed rate during the draw period, then the creditor must continue to provide periodic statements under §1026.7. If, however, the FRCO payments will not be made available for future use, then, as indicated in Comment 5.iii, the transaction would be subject to closed-end credit provisions, including, as applicable, the periodic statement provisions under §1026.41. (July 2018)

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