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John J. McKernan, Jr.    William N. Lund

   Governor    Superintendent

    Harry W. Giddinge

    Deputy Superintendent

  Jane E. Titcomb       Principal Examiners

  Commissioner      Del Pelton

    Richard Howard6

    Outreach/Research:

    Michael Brown

    Senior Examiners:

    Leslie Washburn

    Connie Berthiaume

    George B. Smith III

    Examiner:

    Douglas Stark

    Mary Young

    David Rolfe

Maine State Seal

 

DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION

BUREAU OF CONSUMER CREDIT PROTECTION

STATE HOUSE STATION 35

AUGUSTA, MAINE 04333-0035

(207)582-8718

Telecopier: 582-5415

 

ADVISORY RULING #103

MAY 12, 1993

 

May 12, 1993

 

Re:  Home Equity Account: Conversion From Monthly to Daily Periodic Rate

 

Dear  :

 

  Your client, a state-chartered supervised financial organization, wishes to change its method of computing interest on existing home equity lines of credit from "monthly periodic rate" to "daily periodic rate."

 

  You have asked whether this change would trigger the provisions of 9-A M.R.S.A. §3-204(2)(A), which allows a consumer subject to a change in terms which would "increase any penalty, interest or other charges" to opt out of the proposed change, and refinance their existing balance at the original rate of interest.

 

  In my opinion, the bank's proposal would not trigger the statute's opt-out/refinance provisions.  This law was enacted to prevent creditors from unilaterally applying drastic increases to existing open-end balances.  In your client's case, the change in terms is of a procedural nature, designed to bring computational consistency to the bank's various loan products.  In addition, a study of actual existing accounts shows that the change would make only insignificant differences in annual finance charges, and that the number of consumers subject to slightly higher charges is offset by an equal number who would pay less.

 

  Your client must provide affected consumers with a minimum of fifteen (15) days' advance written notice of the new method, since Regulation Z, 12 C.F.R. Section 226.9(c)(1) requires such notice whenever a change occurs to any term required to be initially disclosed to consumers.

 

  I trust this is responsive to your request for an Advisory Ruling on this matter.

 

  Sincerely,

 

 

  William N. Lund

  Superintendent

 

WNL/bas