When to deliver home equity line of credit application disclosures

Home equity lines of credit (HELOCs) have been offered by financial institutions for many years. These lines can be used for many purposes and are often marketed as a way to pay for things like home improvements, debt consolidation, trips and medical expenses. Borrowers can use the equity in their home by drawing on their line.

Because these lines are secured by equity in a consumer’s home, the regulation requires that specific pieces of information be provided in a prescribed format and withinspecific time frames. The timing for delivering the Home Equity Line of Credit (HELOC) Application Disclosure and the home equity brochure entitled “What You Should Know About Home Equity Lines of Credit” varies based on how an application is provided to the consumer. These requirements can be found in Section 1026.40 of Regulation Z. Regulation Z has required these disclosures to be delivered on home equity lines of credit since 1988 when the Home Equity Loan Consumer Protection Act was enacted and amended Regulation Z.

Despite the fact this product and its applicable regulations have been around for several years, we still find there is a misunderstanding about when these early disclosures must be provided to the applicant. It is not uncommon when we are testing HELOCs to discover that a financial institution’s process is to provide the disclosure and brochure within three business days of receiving an application regardless of how the application is taken or provided. This timing does not always comply with Regulation Z requirements.

Section 1026.40(b) requires the HELOC Application Disclosure and the brochure to be provided at the time an application is provided to the consumer. So, when is the application provided?  Let’s break it down:

• For in-person applications, this means the disclosure and brochure must be handed out at the time of the in-person meeting.
• For applications that are received by telephone, the disclosure and the brochure must be delivered or placed in the mail not later than three business days following receipt of the application.
• If an application is mailed to the consumer following a telephone request, the financial institution must send the disclosure and brochure along with the application.  
• If the financial institution sends unsolicited applications through the mail, the disclosure and brochure must accompany the application. 
• If the financial institution makes HELOC applications available in the lobby without the need for a consumer to request them, the application must be accompanied by the disclosure and brochure, such as by attaching them to the application form.
• If a consumer accesses a HELOC application on a financial institution’s website, the institution must provide the disclosure and brochure in electronic form with the application.  When complying with this delivery requirement, the disclosure and brochure may be provided without complying with the Electronic Signatures in Global and National Commerce Act (E-Sign Act).

The HELOC Application Disclosure and brochure do not have to be provided when a general-purpose application is given unless the application or materials accompanying it indicate that it can be used to apply for a HELOC or the application is provided in response to an inquiry about a HELOC. On the other hand, if a general-purpose application is provided in response to a specific inquiry about credit other than a HELOC, the disclosure and brochure do not have to be provided even if the application indicates it can be used for a HELOC, unless it is accompanied by promotional information about HELOCs.

In situations where the regulation permits the financial institution a three-day delay in providing the disclosure and brochure and the application is denied or withdrawn within this time frame, the disclosure and brochure do not have to be provided. 

As the bullet points above indicate, the timing for delivering the HELOC Application Disclosure and brochure depends on the circumstances surrounding how the application is provided. We recommend financial institutions have a process in place to document how an application is provided/received and how and when the HELOC disclosures are provided to the consumer to support the timing and delivery requirements of the regulation. We also recommend applicable employees receive instructions on these requirements to help ensure understanding and compliance.

These disclosures provide important information about HELOC products; therefore, management should ensure consumers are receiving this information in a timely manner so they can make an informed decision before encumbering the equity in their homes.