Compliance Blog

The Fear of Change: Is Your Credit Union Required to Provide a Change-in-terms Notice? (Part 2)

Written by Alma Calcano, Regulatory Compliance Specialist, NAFCU

NAFCU’s compliance team often receives questions related to regulatory requirements for providing change-in-terms disclosures for different credit union products. This is the second in a series of three blogs to help you understand and navigate the numerous regulations governing change-in-term requirements. In this blog, I will cover several key regulations governing change-in-terms notices for open-end credit. Similar to the regulations governing change-in-term notices for savings and checking accounts (covered in part 1), these laws and regulations require a credit union to provide its members with change-in-terms notices before most changes in loan terms.

This chart covers the basics of the change-in-terms provisions; however, Regulation Z contains additional provisions and details for specific circumstances. This chart is a helpful starting place, but credit unions researching an open-end credit change-in-terms question should review the full regulation for more specific guidance.

Consumer Credit: Open-End Credit

Regulation

Citation

Notice Requirement

Form of the Notice

Exceptions

Model Language, Forms & Disclosure Requirements

Truth in Lending Act
12 CFR § 1026.9(c)(2)(i)(A).

At least 45-days advance notice to affected members when making a "significant change in account terms" to a members account.

A significant term under 12 CFR § 1026.9(c)(2)(ii) is defined as:

  • A change to a term required to be disclosed under Sections 1026.6(b)(1) and (b)(2) which include: the annual percentage rate (APR), penalty rates, account fees (such as late fees, cash advance fees, returned payment fees, balance transfer fees, transaction charges and over the limit fees), grace periods; balance computation method; and the amount of available credit;
  • An increase in the required minimum periodic payment, a change to the term required to

    be disclosed under Section 1026.6(b)(4); or

  • The acquisition of a security interest. 

Credit unions are also required to provide advance notice before increasing any component of a charge, or including any new charge that would be required to be disclosed under section 1026.6(b)(3) and that is not defined as a "significant change in account terms." Examples of these types of charges include:

  • Fees to obtain cash advances from proprietary ATMs;
  • Fees to expedite delivery of credit cards;
  • Fees for increasing a credit limit; or
  • Fees to pay by telephone or internet. See, 12 CFR § 1026.9, Supp. I, comment to (c)(2)(iii) – 1.

In addition, 45 days advance notice before imposing any over-the-limit fees or penalty rates that occur solely because of a member exceeding a newly decreased credit limit. See, 12 CFR § 1026.9(c)(2)(vi). 

Written notice.

The notice must be clear and conspicuous and in a form the consumer can keep. See, comment 9 to 9(c)(2)(iv), section 5(a) and comments to 5(a)(1).

Fee-related changes in account terms that do not need to be disclosed under 6(b)(1) or (b)(2) but do under (b)(3), the notice may be written or oral but must be at a time and in a manner that is likely to be noticed by the member.

The 45-day timing requirement does not apply if the consumer has agreed to a particular change, such as when a member substitutes collateral.  See, 12 CFR 1026.9(c)(2).

The exception does not apply to:

  • A member's general acceptance of a credit union's reservation of the right to change terms;
  • A member's use of the account (which might imply acceptance of terms under state law);
  • A member's acceptance of a unilateral change that is not particular to that member; and
  • The member's request to reopen a closed account or to upgrade an existing account to another account with different features. See12 CFR § 1026.9(c)(2)(i)(B).

In addition, credit unions are not required to provide notice for any of the following:

  • Reductions in any component of a finance or other charge;
  • The substitution of one issuer for another;
  • A termination or suspension of credit privileges; or when extending a grace period; 
  • If the credit plan allows for temporary reductions in interest rates or fees (including skipped or reduced payment features), provided that the credit union disclosed these features in advance;
  • Before rate increases under properly disclosed variable rate plans (the rate increase must be based on a publically available index that is not under the credit union's control);
  • When the change in account terms is an increase in the APR, fees or other charges, or required minimum periodic payment due to the completion of a properly disclosed workout or temporary hardship arrangement. See12 CFR § 1026.9(c)(2)(v); 12 CFR § 1026.9, Supp. I, comment to (c)(2)(v) – 2; and 12 CFR § 1026.9(c)(2)(v).

The regulation requires the change-in-terms notice to be similar in format to the account opening disclosures, in tabular format with headings, substantially similar to the tables in Sample G-17, Appendix GSee12 CFR § 1026.9(c)(2)(iv)(D)(1).

Notice included with a periodic statement

Credit unions are required to provide the table on the front of any page of the statement, immediately following the other change-in-terms disclosures, and in a format substantially similar to Samples G-20 or G-21 in Appendix GSee12 CFR § 1026.9(c)(2)(iv)(D)(2).

Notice separately from a periodic statement

Any changes in account terms required to be disclosed in tabular format must be disclosed either on the first page or segregated on a separate page from other information. If the table is segregated on a separate page, it must immediately follow the other change-in-terms disclosures. The table must be in a format substantially similar to Samples G-20 or G-21 in Appendix G. See12 CFR § 1026.9(c)(2)(iv)(D)(3).

Truth in Lending Act

Special
Credit Card
Rules
12 CFR § 1026.9(c)(2)(iv)(B).

At least 45 days advance notice before the effective date of the proposed significant change to a credit card plan, a credit union must provide cardholders with the change-in-terms notice for general open-end credit plans, as well as an additional disclosure stating the member's right to reject the proposed change.

Written notice.

The right to reject disclosure is not required in the following cases:

  • An increase in the required minimum periodic payment;
  • An increase in a fee as a result of a reevaluation of a determination made under § 1026.52(b)(1)(i);
  • An adjustment to the safe harbors in § 1026.52(b)(1)(ii) to reflect changes in the Consumer Price Index;
  • A change in an annual percentage rate applicable to a consumer's account;
  • An increase in a fee previously reduced consistent with the SCRA or a similar law if the amount of the increased fee does not exceed the amount of that fee prior to the reduction; or
  • When the change results from the creditor not receiving the consumer's required minimum periodic payment within 60 days after the due date for that payment. See, 12 CFR § 1026.9(c)(2)(iv)(B).

Under section 1026.9(c)(2)(iv)(B), the disclosure must include:

  • A statement that the member has the right to reject the proposed change;
  • Instructions for rejecting the change and a toll-free telephone number that the member may use to notify the credit union of the rejection; and
  • If applicable, a statement that if the member rejects the change, the member's ability to use the account for further advances will be terminated or suspended.

If a member exercises the right to reject significant changes in account terms, a credit union may not apply the changes to the account, impose a fee or treat the account in default solely because of the rejection. See, 12 CFR § 1026.9(h)(2).

The regulation also requires credit unions to treat the balances as a "protected balance" under section 1026.55(c).

Truth in Lending Act

Home Secured
Credit Plans:
Home Equity
Lines of Credit
  (HELOCS)
12 CFR § 1026.9(c)(1)(i).

At least 15 days prior to the effective date of the change, unless an exception applies, whenever a credit union proposes to change an account term required to be disclosed at account opening under section 1026.6(a) or increase the required periodic payment. These account opening disclosures include finance charges as well as any other charges.

No later than three business days after the action is taken, if the credit union prohibits additional extensions of credit or reduces the credit limit.

The notice may be mailed or delivered as late as the effective date of the change if:

  • There is an increased periodic rate or any other finance charge attributable to the consumer's delinquency or default; or
  • The consumer agrees to a particular change (for use when a consumer substitutes collateral or when the creditor can advance additional credit only if a change relatively unique to that consumer is made, such as the consumer's providing additional security or paying an increased minimum payment amount.). See, 9(c)(1)(i) and comment 3.
Written notice mailed or delivered to affected members.

Notice is generally not required when a credit union implements changes which were initially disclosed, such as rate increases under disclosed, variable-rate plan or increases related to a loss of an employee discount or a balance-based discount. See, 12 CFR § 1026Supp. I, comment 1026.9(c)(1) – 1.

Notice is also not required involving a reduction of any component of a finance charge or other charge, or when the changes result from an agreement involving a court proceeding.

The commentary provides some examples of changes that do not require notice, including:

  • A change in the member's credit limit;
  • The substitution of one issuer for another; or
  • Changes arising merely by operation of law such as automatic changes to the security interest. See, 12 CFR § 1026Supp. I, comment 1026.9(c)(1)(ii) – 1.

If the HELOC plan allows a member to skip or reduce one or more payments during the year, or involves temporary reductions in finance charges, no notice of the change in account terms is required either prior to the reduction or upon reinstatement of the higher rates if these features were explained in the initial disclosure statement.

A change-in-terms notice is not required when credit unions freeze or reduce a credit line, rather than terminating a plan and accelerating the balance.

The credit union may provide the change-in-terms notice by giving its members a complete new set of initial disclosures so long as the change is highlighted in some way.

Alternatively, the disclosure statement may accompany a letter or insert that indicates or draws attention to the charge.

When the term change is the addition of a security interest or the addition or subtraction of collateral, a credit union may satisfy the change-in-terms requirements by providing a copy of the new security agreement that describes the collateral.

The Fear of Change Trilogy 

Part 1: The Fear of Change: Is Your Credit Union Required to Provide a Change-in-terms Notice? (Checking and Savings Accounts)

Part 3: The Fear of Change: Is Your Credit Union Required to Provide a Change-in-terms Notice? (Closed-end Credit)

Compilation: Download the full Fear of Change blog series PDF

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About the Author

Alma Calcano, NCCO, NCBSO, Regulatory Compliance Specialist, NAFCU

Alma joined NAFCU in February 2019.  As part of the Regulatory Compliance Team, she provides daily compliance assistance to member credit unions on a variety of topics. 
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