Hell Freezes Over-Make sure you Have Skates!
By James DeFrantz, BankVision
Home Equity Loans (HELOCs) are traditionally some of the largest open-end credits and, unfortunately, some of the most dramatically affected by current market conditions. As the market values of homes all over the country continue to fall, many banks have taken the stand that it is prudent to reduce credit lines to reflect the new, lower value of the home that is being used as collateral for the loan.
While establishing a program for reducing or freezing HELOCs may be a prudent business practice, banks should closely consider the Fair Lending and CRA implications of such a program, before aggressively pursuing it.
On the other hand, banks need to be careful to be aware that the decisions that they make may trigger further disclosures. For example, Regulation B requires that when an unfavorable change in an account occurs that does not affect an entire class of customers, an adverse action has occurred.  In other words, the decision to reduce or freeze individual accounts due to a reduction in collateral value is an adverse action and triggers a Regulation B adverse action notice.
For example, suppose a
bank’s HELOC marketing program had been targeted at its woman owned
business or Hispanic segment of its customer base. A decision to reduce or
freeze these HELOCs could result in a large protected class of the customer
base disproportionately impacted. This is the type of situation that was at
the root of a lawsuit filed by the city of
It is critically important that the bank consider the consumer protection implications of a program to freeze or cancel HELOCs. Moreover, the business reasons for the decision to proceed with these programs should be well documented to protect against accusations of unfair or illegal lending practices.
 Defined as 50% of the equity of the underlying property at Staff Commentary of Regulation Z at 226.5b(f)(3)vi
revision emphasized that the exception applies only when the
creditor’s action is not based on the individual credit
characteristics of the affected accountholders. For example, the
exception would apply where a creditor terminates all secured credit
accounts because it no longer offers that type of credit. Federal
Register / Vol. 68, No. 52 / Tuesday, March 18, 2003 / Rules and
Declining Market Policies Have Disparate
Impact On Minorities, Lower Income Neighborhoods, Reuters
Apr 1, 2008 6:30am EDT