Compliance Blog

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

Written by Alma Calcano, Regulatory Compliance Specialist

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 third in a series of three blogs to help you understand and navigate the numerous regulations governing change-in-terms requirements. In this blog, I will cover several key regulations governing change-in-terms notices for closed-end credit. Similar to the regulations governing change-in-terms notices for savings and checking accounts (covered in part 1), and change-in-terms notices for open-end credit (covered in part 2), the regulation requires a credit union to provide its members with change-in-terms notices before most changes in loan terms.

The change-in-terms provisions are different for closed-end consumer credit products such as mortgages, auto loans and loans secured by other types of personal property that do not contemplate repeated transactions. Regulation Z does not typically contemplate changes in account terms for closed-end credit plans. Changes to closed-end credit products which fall short of a refinancing (a new transaction requiring a complete new set of disclosures), are largely governed by state contract law and the agreement with the member. In addition to any state contract law requirements, NCUA issued a Supervisory Letter on workout agreements and loan modification programs, which provides helpful guidance.

Consumer Credit: Closed-End Credit



Notice Requirement

Form of the Notice


Model Language, Forms & Disclosure Requirements

Truth in Lending Act
12 CFR § 1026.20.

No change-in-terms notice typically contemplated in Regulation Z for closed-end credit plans; however, there are some provisions in section 1026.20.

Additional disclosures required for loan modifications that fall within the definition of "refinancing."

A loan modification is considered a "refinancing" if:

  • There is a new transaction;
  • With the same creditor;
  • With the same consumer (transactions with a different consumer and the same creditor are subject to the rules on assumptions);
  • The existing obligation is closed-end and subject to TILA disclosures (a different disclosure regime applies to changes in the terms of open-end credit); and
  • The new obligation satisfies and replaces the existing obligation.

The loan agreement and state law will determine whether a particular transaction "satisfies" and "replaces" an existing obligation.

Written disclosures, when applicable.

Generally, credit unions are  not required to provide notice when they implement changes 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.

Notice is not required for the following, since they are not treated as refinancings by Regulation Z:

  • A renewal of a single payment obligation with no change in the original terms;
  • A reduction in the annual percentage rate with a corresponding change in the payment schedule;
  • An agreement involving a court proceeding;
  • A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in §1026.4(d);
  • The renewal of optional insurance purchased by the consumer and added to an existing transaction, if disclosures relating to the initial purchase were provided as required by this subpart. See, 12 CFR §1026.20(a).

Notice is not required prior to the reduction or upon reinstatement of a higher rate, provided the features were explained in the initial disclosure statement, when a HELOC plan allows a member to:

  • Skip or reduce one or more payments during the year, or
  • Involves temporary reductions in finance charges.

In addition, the rule provides exemptions for changes in the payment schedule because of the member's default or delinquency.

Truth in Lending Act

Adjustable Rate Mortgages (ARMs) Rules

12 CFR § 1026.20(c).

A credit union is required to provide notice of an interest rate adjustment that results in an adjustment to the required payment at least 60 days but no more than 120 days before the first payment at the adjusted level is due.

For ARMs with uniformly scheduled rate adjustments, (such as an adjustment every 60 days), and for ARMs originated prior to January 10, 2015, in which the adjusted interest rate and payment are calculated based on a date that is less than 45 days prior to the adjustment date,

credit unions are required to provide notice to at least 25 days but no more than 120 days before the first payment at the adjusted level. 

If the first adjustment will occur within the first 210 after closing, the adjustment disclosure must be provided at consummationSee, 12 CFR § 1026.20(d).

As soon as practicable, but not less than 25 days before the first payment at the adjusted level is due, for the first adjustment to an ARM if it occurs within 60 days of consummation and the new interest rate disclosed at consummation pursuant to §1026.20(d) was an estimate.

See also, NAFCU’s blog ARM Adjustment Disclosures: The Basics.

Written notice.

The requirements of paragraph (c) do not apply to:

  • ARMs with terms of one year or less;
  • The first interest rate adjustment to an ARM if the first payment at the adjusted level is due within 210 days after consummation and the new interest rate disclosed at consummation pursuant to §1026.20(d) was not an estimate; or
  • The creditor, assignee or servicer of an adjustable-rate mortgage when the servicer on the loan is subject to the Fair Debt Collections Practices Act (FDCPA) with regard to the loan and the consumer has sent a notification pursuant to FDCPA section 805(c) (15 U.S.C. 1692c(c)).

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

Compilation: Download the full Fear of Change blog series PDF

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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