§1647 — Title 15 Commerce and Trade | U.S. Code

Summary

Lenders must tie variable interest rates for open-end loans secured by a borrower’s main home to a public interest rate or index that the lender does not control. A lender cannot close such an account and demand full repayment unless the borrower committed fraud or lied, failed to follow the repayment terms, or took actions that hurt the lender’s security in the home. Lenders may not change important terms of these accounts on their own, except for tiny things like a billing address. They may, however, switch to a similar index if the original one disappears; stop new borrowing or cut the credit limit if the home’s value falls a lot below the original appraisal; if the borrower’s finances change so the lender thinks the borrower can’t repay; if the borrower is in default on key duties; or if a government action stops the lender from charging the agreed rate or reduces the lender’s security so it is worth less than 120 percent of the credit limit. Any change that clearly helps the borrower is allowed. At opening, the borrower can ask for a list of the lender’s “material” obligations. If disclosed terms (except variable features) change before the account opens and the borrower backs out, the lender must return all fees. No nonrefundable fee may be charged until 3 days after the borrower gets the required disclosures and booklet; if those are mailed, receipt is treated as 3 business days after mailing.

Title 15, §1647

Commerce and Trade — Source: USLM XML via OLRC

(a)In the case of extensions of credit under an open end consumer credit plan which are subject to a variable rate and are secured by a consumer’s principal dwelling, the index or other rate of interest to which changes in the annual percentage rate are related shall be based on an index or rate of interest which is publicly available and is not under the control of the creditor.

(b)A creditor may not unilaterally terminate any account under an open end consumer credit plan under which extensions of credit are secured by a consumer’s principal dwelling and require the immediate repayment of any outstanding balance at such time, except in the case of—

(1)fraud or material misrepresentation on the part of the consumer in connection with the account;

(2)failure by the consumer to meet the repayment terms of the agreement for any outstanding balance; or

(3)any other action or failure to act by the consumer which adversely affects the creditor’s security for the account or any right of the creditor in such security.

(c)(1)No open end consumer credit plan under which extensions of credit are secured by a consumer’s principal dwelling may contain a provision which permits a creditor to change unilaterally any term required to be disclosed under section 1637a(a) of this title or any other term, except a change in insignificant terms such as the address of the creditor for billing purposes.

(2)Notwithstanding the provisions of subsection 11 So in original. Probably should be “paragraph”. (1), a creditor may make any of the following changes:

(A)Change the index and margin applicable to extensions of credit under such plan if the index used by the creditor is no longer available and the substitute index and margin would result in a substantially similar interest rate.

(B)Prohibit additional extensions of credit or reduce the credit limit applicable to an account under the plan during any period in which the value of the consumer’s principal dwelling which secures any outstanding balance is significantly less than the original appraisal value of the dwelling.

(C)Prohibit additional extensions of credit or reduce the credit limit applicable to the account during any period in which the creditor has reason to believe that the consumer will be unable to comply with the repayment requirements of the account due to a material change in the consumer’s financial circumstances.

(D)Prohibit additional extensions of credit or reduce the credit limit applicable to the account during any period in which the consumer is in default with respect to any material obligation of the consumer under the agreement.

(E)Prohibit additional extensions of credit or reduce the credit limit applicable to the account during any period in which—

(i)the creditor is precluded by government action from imposing the annual percentage rate provided for in the account agreement; or

(ii)any government action is in effect which adversely affects the priority of the creditor’s security interest in the account to the extent that the value of the creditor’s secured interest in the property is less than 120 percent of the amount of the credit limit applicable to the account.

(F)Any change that will benefit the consumer.

(3)Upon the request of the consumer and at the time an agreement is entered into by a consumer to open an account under an open end consumer credit plan under which extensions of credit are secured by the consumer’s principal dwelling, the consumer shall be given a list of the categories of contract obligations which are deemed by the creditor to be material obligations of the consumer under the agreement for purposes of paragraph (2)(D).

(4)(A)For purposes of paragraph (2)(F), a change shall be deemed to benefit the consumer if the change is unequivocally beneficial to the borrower and the change is beneficial through the entire term of the agreement.

(B)The Bureau may, by regulation, determine categories of changes that benefit the consumer.

(d)If any term or condition described in section 1637a(a) of this title which is disclosed to a consumer in connection with an application to open an account under an open end consumer credit plan described in such section (other than a variable feature of the plan) changes before the account is opened, and if, as a result of such change, the consumer elects not to enter into the plan agreement, the creditor shall refund all fees paid by the consumer in connection with such application.

(e)(1)No nonrefundable fee may be imposed by a creditor or any other person in connection with any application by a consumer to establish an account under any open end consumer credit plan which provides for extensions of credit which are secured by a consumer’s principal dwelling before the end of the 3-day period beginning on the date such consumer receives the disclosure required under section 1637a(a) of this title and the pamphlet required under section 1637a(e) of this title with respect to such application.

(2)For purposes of determining when a nonrefundable fee may be imposed in accordance with this subsection if the disclosures and pamphlet referred to in paragraph (1) are mailed to the consumer, the date of the receipt of the disclosures by such consumer shall be deemed to be 3 business days after the date of mailing by the creditor.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2010—Subsec. (c)(4)(B). Pub. L. 111–203 substituted “Bureau” for “Board” in heading and text. 1994—Subsec. (b). Pub. L. 103–325 inserted at end “This subsection does not apply to reverse mortgage transactions.”

Statutory Notes and Related Subsidiaries

Effective Date

of 2010 AmendmentAmendment by Pub. L. 111–203 effective on the designated transfer date, see section 1100H of Pub. L. 111–203, set out as a note under section 552a of Title 5, Government Organization and Employees.

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For

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of section, see

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note below.

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For provisions relating to promulgation of

Regulations

to implement amendment by Pub. L. 100–709 [enacting this section], and

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of such amendment in connection with those

Regulations

, see section 7 of Pub. L. 100–709, set out as a note under section 1637a of this title.

§1647 Home Equity Plans

Summary

Title 15, §1647

Notes & Related Subsidiaries

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Regulations

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