source:
  type: regulation
  id: reg-z-1026.40
  authority: 12 CFR §1026.40 — Requirements for home equity plans (Regulation Z)
  description: 12 CFR §1026.40 — Requirements for home equity plans.
  coverage_tier: operative
obligations:
- id: reg-z-1026.40-full
  canonical_id: reg-z-1026.40-full
  section: 12 CFR §1026.40 — Requirements for home equity plans
  type: do
  tags:
  - regulator-direct
  - tila
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: 12 CFR §1026.40 — Requirements for home equity plans
    source_class: cfpb-regulation
    source_url: https://www.law.cornell.edu/cfr/text/12/1026.40
    snapshot_id: 78eeb32a4767e32e
    fetched_at: '2026-06-17T18:31:37Z'
    content_hash: sha256:68ba8ca9d9392ec74d833821253cf45fbddcb98097d28cdf9edfe8f9a5683af3
    paragraph_quote: '§ 1026.40 Requirements for home equity plans. The requirements
      of this section apply to open-end credit plans secured by the consumer ''s dwelling
      . For purposes of this section, an annual percentage rate is the annual percentage
      rate corresponding to the periodic rate as determined under § 1026.14(b) . (a)
      Form of disclosures —(1) General. The disclosures required by paragraph (d)
      of this section shall be made clearly and conspicuously and shall be grouped
      together and segregated from all unrelated information. The disclosures may
      be provided on the application form or on a separate form. The disclosure described
      in paragraph (d)(4)(iii), the itemization of third-party fees described in paragraph
      (d)(8), and the variable-rate information described in paragraph (d)(12) of
      this section may be provided separately from the other required disclosures.
      (2) Precedence of certain disclosures. The disclosures described in paragraph
      (d)(1) through (4)(ii) of this section shall precede the other required disclosures.
      (3) For an application that is accessed by the consumer in electronic form,
      the disclosures required under this section may be provided to the consumer
      in electronic form on or with the application. (b) Time of disclosures. The
      disclosures and brochure required by paragraphs (d) and (e) of this section
      shall be provided at the time an application is provided to the consumer . The
      disclosures and the brochure may be delivered or placed in the mail not later
      than three business days following receipt of a consumer ''s application in
      the case of applications contained in magazines or other publications, or when
      the application is received by telephone or through an intermediary agent or
      broker. (c) Duties of third parties. Persons other than the creditor who provide
      applications to consumers for home equity plans must provide the brochure required
      under paragraph (e) of this section at the time an application is provided.
      If such persons have the disclosures required under paragraph (d) of this section
      for a creditor''s home equity plan, they also shall provide the disclosures
      at such time. The disclosures and the brochure may be delivered or placed in
      the mail not later than three business days following receipt of a consumer
      ''s application in the case of applications contained in magazines or other
      publications, or when the application is received by telephone or through an
      intermediary agent or broker. (d) Content of disclosures. The creditor shall
      provide the following disclosures, as applicable: (1) Retention of information.
      A statement that the consumer should make or otherwise retain a copy of the
      disclosures. (2) Conditions for disclosed terms. (i) A statement of the time
      by which the consumer must submit an application to obtain specific terms disclosed
      and an identification of any disclosed term that is subject to change prior
      to opening the plan. (ii) A statement that, if a disclosed term changes (other
      than a change due to fluctuations in the index in a variable-rate plan) prior
      to opening the plan and the consumer therefore elects not to open the plan,
      the consumer may receive a refund of all fees paid in connection with the application.
      (3) Security interest and risk to home. A statement that the creditor will acquire
      a security interest in the consumer ''s dwelling and that loss of the dwelling
      may occur in the event of default . (4) Possible actions by creditor. (i) A
      statement that, under certain conditions, the creditor may terminate the plan
      and require payment of the outstanding balance in full in a single payment and
      impose fees upon termination; prohibit additional extensions of credit or reduce
      the credit limit; and, as specified in the initial agreement, implement certain
      changes in the plan. (ii) A statement that the consumer may receive, upon request,
      information about the conditions under which such actions may occur. (iii) In
      lieu of the disclosure required under paragraph (d)(4)(ii) of this section,
      a statement of such conditions. (5) Payment terms. The payment terms of the
      plan. If different payment terms may apply to the draw and any repayment period,
      or if different payment terms may apply within either period, the disclosures
      shall reflect the different payment terms. The payment terms of the plan include:
      (i) The length of the draw period and any repayment period. (ii) An explanation
      of how the minimum periodic payment will be determined and the timing of the
      payments. If paying only the minimum periodic payments may not repay any of
      the principal or may repay less than the outstanding balance, a statement of
      this fact, as well as a statement that a balloon payment may result. A balloon
      payment results if paying the minimum periodic payments does not fully amortize
      the outstanding balance by a specified date or time, and the consumer must repay
      the entire outstanding balance at such time. (iii) An example, based on a $10,000
      outstanding balance and a recent annual percentage rate, showing the minimum
      periodic payment, any balloon payment, and the time it would take to repay the
      $10,000 outstanding balance if the consumer made only those payments and obtained
      no additional extensions of credit. For fixed-rate plans, a recent annual percentage
      rate is a rate that has been in effect under the plan within the twelve months
      preceding the date the disclosures are provided to the consumer . For variable-rate
      plans, a recent annual percentage rate is the most recent rate provided in the
      historical example described in paragraph (d)(12)(xi) of this section or a rate
      that has been in effect under the plan since the date of the most recent rate
      in the table. (6) Annual percentage rate. For fixed-rate plans, a recent annual
      percentage rate imposed under the plan and a statement that the rate does not
      include costs other than interest. A recent annual percentage rate is a rate
      that has been in effect under the plan within the twelve months preceding the
      date the disclosures are provided to the consumer . (7) Fees imposed by creditor.
      An itemization of any fees imposed by the creditor to open, use, or maintain
      the plan, stated as a dollar amount or percentage, and when such fees are payable.
      (8) Fees imposed by third parties to open a plan. A good faith estimate, stated
      as a single dollar amount or range, of any fees that may be imposed by persons
      other than the creditor to open the plan, as well as a statement that the consumer
      may receive, upon request, a good faith itemization of such fees. In lieu of
      the statement, the itemization of such fees may be provided. (9) Negative amortization.
      A statement that negative amortization may occur and that negative amortization
      increases the principal balance and reduces the consumer ''s equity in the dwelling
      . (10) Transaction requirements. Any limitations on the number of extensions
      of credit and the amount of credit that may be obtained during any time period,
      as well as any minimum outstanding balance and minimum draw requirements, stated
      as dollar amounts or percentages. (11) Tax implications. A statement that the
      consumer should consult a tax advisor regarding the deductibility of interest
      and charges under the plan. (12) Disclosures for variable-rate plans. For a
      plan in which the annual percentage rate is variable, the following disclosures,
      as applicable: (i) The fact that the annual percentage rate, payment, or term
      may change due to the variable-rate feature. (ii) A statement that the annual
      percentage rate does not include costs other than interest. (iii) The index
      used in making rate adjustments and a source of information about the index.
      (iv) An explanation of how the annual percentage rate will be determined, including
      an explanation of how the index is adjusted, such as by the addition of a margin.
      (v) A statement that the consumer should ask about the current index value,
      margin, discount or premium, and annual percentage rate. (vi) A statement that
      the initial annual percentage rate is not based on the index and margin used
      to make later rate adjustments, and the period of time such initial rate will
      be in effect. (vii) The frequency of changes in the annual percentage rate.
      (viii) Any rules relating to changes in the index value and the annual percentage
      rate and resulting changes in the payment amount , including, for example, an
      explanation of payment limitations and rate carryover. (ix) A statement of any
      annual or more frequent periodic limitations on changes in the annual percentage
      rate (or a statement that no annual limitation exists), as well as a statement
      of the maximum annual percentage rate that may be imposed under each payment
      option. (x) The minimum periodic payment required when the maximum annual percentage
      rate for each payment option is in effect for a $10,000 outstanding balance,
      and a statement of the earliest date or time the maximum rate may be imposed.
      (xi) An historical example, based on a $10,000 extension of credit, illustrating
      how annual percentage rates and payments would have been affected by index value
      changes implemented according to the terms of the plan. The historical example
      shall be based on the most recent 15 years of index values (selected for the
      same time period each year) and shall reflect all significant plan terms, such
      as negative amortization, rate carryover, rate discounts, and rate and payment
      limitations, that would have been affected by the index movement during the
      period. (xii) A statement that rate information will be provided on or with
      each periodic statement. (e) Brochure. The home equity brochure entitled “What
      You Should Know About Home Equity Lines of Credit” or a suitable substitute
      shall be provided. (f) Limitations on home equity plans. No creditor may, by
      contract or otherwise: (1) Change the annual percentage rate unless: (i) Such
      change is based on an index that is not under the creditor''s control ; and
      (ii) Such index is available to the general public. (2) Terminate a plan and
      demand repayment of the entire outstanding balance in advance of the original
      term (except for reverse mortgage transactions that are subject to paragraph
      (f)(4) of this section) unless: (i) There is fraud or material misrepresentation
      by the consumer in connection with the plan; (ii) The consumer fails to meet
      the repayment terms of the agreement for any outstanding balance; (iii) Any
      action or inaction by the consumer adversely affects the creditor''s security
      for the plan, or any right of the creditor in such security; or (iv) Federal
      law dealing with credit extended by a depository institution to its executive
      officers specifically requires that as a condition of the plan the credit shall
      become due and payable on demand, provided that the creditor includes such a
      provision in the initial agreement. (3) Change any term, except that a creditor
      may: (i) Provide in the initial agreement that it may prohibit additional extensions
      of credit or reduce the credit limit during any period in which the maximum
      annual percentage rate is reached. A creditor also may provide in the initial
      agreement that specified changes will occur if a specified event takes place
      (for example, that the annual percentage rate will increase a specified amount
      if the consumer leaves the creditor''s employment). (ii) (A) Change the index
      and margin used under the plan if the original index is no longer available,
      the replacement index has historical fluctuations substantially similar to that
      of the original index, and the replacement index and replacement margin would
      have resulted in an annual percentage rate substantially similar to the rate
      in effect at the time the original index became unavailable. If the replacement
      index is newly established and therefore does not have any rate history, it
      may be used if it and the replacement margin will produce an annual percentage
      rate substantially similar to the rate in effect when the original index became
      unavailable; or (B) If a variable rate on the plan is calculated using a LIBOR
      index, change the LIBOR index and the margin for calculating the variable rate
      on or after April 1, 2022, to a replacement index and a replacement margin,
      as long as historical fluctuations in the LIBOR index and replacement index
      were substantially similar, and as long as the replacement index value in effect
      on October 18, 2021, and replacement margin will produce an annual percentage
      rate substantially similar to the rate calculated using the LIBOR index value
      in effect on October 18, 2021, and the margin that applied to the variable rate
      immediately prior to the replacement of the LIBOR index used under the plan.
      If the replacement index is newly established and therefore does not have any
      rate history, it may be used if the replacement index value in effect on October
      18, 2021, and the replacement margin will produce an annual percentage rate
      substantially similar to the rate calculated using the LIBOR index value in
      effect on October 18, 2021, and the margin that applied to the variable rate
      immediately prior to the replacement of the LIBOR index used under the plan.
      If the replacement index is not published on October 18, 2021, the creditor
      generally must use the next calendar day for which both the LIBOR index and
      the replacement index are published as the date for selecting indices values
      in determining whether the annual percentage rate based on the replacement index
      is substantially similar to the rate based on the LIBOR index. The one exception
      is that if the replacement index is the Board-selected benchmark replacement
      for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S.
      Dollar LIBOR index, the creditor must use the index value on June 30, 2023,
      for the LIBOR index and, for the Board-selected benchmark replacement for consumer
      loans , must use the index value on the first date that index is published,
      in determining whether the annual percentage rate based on the replacement index
      is substantially similar to the rate based on the LIBOR index. (iii) Make a
      specified change if the consumer specifically agrees to it in writing at that
      time. (iv) Make a change that will unequivocally benefit the consumer throughout
      the remainder of the plan. (v) Make an insignificant change to terms. (vi) Prohibit
      additional extensions of credit or reduce the credit limit applicable to an
      agreement during any period in which: (A) The value of the dwelling that secures
      the plan declines significantly below the dwelling ''s appraised value for purposes
      of the plan; (B) The creditor reasonably believes that the consumer will be
      unable to fulfill the repayment obligations under the plan because of a material
      change in the consumer ''s financial circumstances; (C) The consumer is in default
      of any material obligation under the agreement; (D) The creditor is precluded
      by government action from imposing the annual percentage rate provided for in
      the agreement; (E) The priority of the creditor''s security interest is adversely
      affected by government action to the extent that the value of the security interest
      is less than 120 percent of the credit line; or (F) The creditor is notified
      by its regulatory agency that continued advances constitute an unsafe and unsound
      practice. (4) For reverse mortgage transactions that are subject to § 1026.33
      , terminate a plan and demand repayment of the entire outstanding balance in
      advance of the original term except: (i) In the case of default ; (ii) If the
      consumer transfers title to the property securing the note; (iii) If the consumer
      ceases using the property securing the note as the primary dwelling ; or (iv)
      Upon the consumer ''s death. (g) Refund of fees. A creditor shall refund all
      fees paid by the consumer to anyone in connection with an application if any
      term required to be disclosed under paragraph (d) of this section changes (other
      than a change due to fluctuations in the index in a variable-rate plan) before
      the plan is opened and, as a result, the consumer elects not to open the plan.
      (h) Imposition of nonrefundable fees. Neither a creditor nor any other person
      may impose a nonrefundable fee in connection with an application until three
      business days after the consumer receives the disclosures and brochure required
      under this section. If the disclosures and brochure are mailed to the consumer
      , the consumer is considered to have received them three business days after
      they are mailed. [ 76 FR 79772 , Dec. 22, 2011, as amended at 86 FR 69781 ,
      Dec. 8, 2021; 88 FR 30622 , May 11, 2023]'
  judgment: false
