Q: For existing accounts, will the LIBOR transition trigger the HELOC change-in-terms notice requirements?
A: Yes. Regulation Z, 12 CFR § 1026.9(c)(1)(i) requires HELOC creditors to provide a change-in-terms notice whenever any of the terms in the HELOC Account-Opening Disclosures are changed over the life of the loan. Additionally, a change-in-terms notice is required when the minimum periodic payment is increased. The notice generally must be provided at least 15 days prior to the effective date of the change.
Specifically for the LIBOR transition, changing the index or increasing the margin, periodic rate, or APR (calculated using the replacement index) at the time the notice is provided will trigger a change-in-terms notice. On or after October 1, 2022, the notice must disclose not only an increase in the margin, but also any decrease in the margin (although creditors may optionally comply early with this requirement beginning April 1, 2022). 12 CFR § 1026.9(c)(1)(ii).
The change-in-terms notice may be a complete new set of the initial disclosures containing the changed term if the change is highlighted in some way on the notice, or if the notice is accompanied by a letter or some other insert that indicates or draws attention to the term that is changed. Comment 9(c)(1)(i)-4.
For example, assume the creditor selected the prime rate as published in the Wall Street Journal (Prime) as the replacement index during the LIBOR transition, which the creditor completes on October 2, 2022. As a result of the change, the creditor must reduce the margin to reach an APR that is substantially similar to the APR calculated using the LIBOR index value on October 18, 2021 (as discussed in more detail in the FAQs below). Assume this results in the same periodic rate and APR at the time the change-in-terms notice is provided. Also, at the time the notice is provided, assume no other terms required to be disclosed in a change-in-terms notice are changing. Under these facts, the creditor would need to provide a change-in-terms notice that highlights the 1) replacement index and 2) the new margin value.
In certain cases, where a creditor is using a SOFR-Based Spread-Adjusted Index as the replacement index, the creditor may be permitted to send the change-in-terms notice before the SOFR-Based Spread-Adjusted Indices are published. If this occurs, a creditor may make modifications in disclosing the periodic rate and the APR in the change-in-terms notice. See LIBOR Home Equity Line of Credit FAQ 4 for a discussion of modifications a creditor can make if this occurs.