Home-Equity Lenders to Get New Disclosure Regulations

The Federal Reserve announced new rules Monday requiring financial institutions to disclose more information to people applying for home-equity loans.

The Fed said the new rules are effective Wednesday, although compliance is optional until Nov. 7. They are designed to carry out provisions of the Home Equity Home Loan Consumer Protection Act, a law enacted last November.

The regulations require lenders to make the disclosures at the same time an open-end home-equity plan application is given to the customer.

The disclosures include payment terms, an example of the payments, the fees the creditor imposes to open or use the plan, an estimate of fees imposed by third parties and any variable-rate features, including the index used to determine the rate.

The Fed said lenders also must give variable-rate applicants the frequency of changes in the annual percentage rate and a 15-year historical table showing how the rate and payments would have been affected by changes in the value of the index.

The Fed also is preparing a brochure outlining the general features of home-equity plans that lenders will be required to distribute to prospects.

Advertisements for home-equity loans must include cost information such as loan fees, the rate used to compute finance charges, the maximum annual percentage rate for variable-rate loans and tax implications, the Fed said.

It said the variable rate must be based on an index outside of the lender’s control and that lenders may not terminate a plan and accelerate any outstanding balance or change the terms of the plan, after it has been opened.

The new rules also permit a consumer to terminate the plan within three business days if the home used as collateral is the principal dwelling.